2.7.1. First application information

IFRS 16 “Leases” was issued by the International Accounting Standards Board on 13 January 2016 and endorsed by the European Union on 31 October 2017. It is applicable to annual periods beginning on or after 1 January 2019. The Group has not elected the early application of the standard.

The Group has decided to implement the IFRS 16 standard as of 1 January 2019 retrospectively (so-called modified retrospective approach, Schedule C par. C5 IFRS 16). In effect, the comparative data for 2018 will not be restated.

This new standard establishes the rules for recognizing, measuring, presenting and making disclosures concerning lease contracts. Under IFRS 16, A contract is, or contains, a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Under every lease transaction, a lessee obtains the right to use an asset and an obligation to make lease payments. Thus IFRS 16 abolishes the classification of an operating lease and finance lease according to IAS 17 and introduces a single model for accounting registration of leases by a lessee.

In 2018, the Group conducted work related to the implementation of the new IFRS 16 “Leases” standard. The work included the following steps:

• Analysis of active contracts irrespective of their current classification, in order to identify those, under which the Group uses assets owned by vendors and then evaluate each such contract for the satisfaction of criteria of recognition as a lease under IFRS 16. The analysis also included perpetual usufruct right to land.
• The contracts indicated in the first step were then assessed in terms of whether the agreement is a lease or contains a lease (paragraph 9 of IFRS 16) and analyzed in terms of possible exemptions.
• The next step involved development of a concept for the implementation of IFRS 16. At the beginning of 2019, the Parent Company implemented an IT tool for ongoing handling of transactions resulting from concluded lease agreements and identified new lease agreements.

The subject of the analyses were finance lease, operating lease, property lease, tenancy agreements, as well as perpetual usufruct of land. Agreements concerning the purchased services were also analyzed to identify the possible situations in which identified assets were used.

As a result of the analysis carried out in the first stage, the right of use was found to apply to the following groups of assets owned by suppliers: technical equipment, mainly longwall shearers and roadheaders and mining machines, means of transport, computer and multimedia equipment, as well as real property and the right of perpetual usufruct of land. Accordingly, the Group estimates that under IFRS 16 the scope of agreements meeting the criteria for recognition as containing leases will be broader than before.

As a result of the work carried out, an appropriate procedure has been developed and implemented along with a tool (software) for ongoing handling of lease components and the provisions of the accounting policies were updated.

Other stages of work include further updates in the accounting instructions, adaptation of the accounting systems to the new requirements, as well as preparation of disclosures in the financial statements.