| (s) | New Standards and Amendments Not Yet Adopted |
The following new standards and amendments to existing standards have been published and are mandatory for the Group for annual periods beginning after January 1, 2017, and the Group has not early adopted them.
(i) IFRS 9, Financial Instruments
IFRS 9, Financial Instruments, was issued on July 24, 2014 which will replace IAS 39, Financial Instruments: Recognition and Measurement, is effective for annual periods beginning on or after January 1, 2018, with early adoption permitted. The Group plans to adopt IFRS 9 in its consolidated financial statements for annual periods beginning on January 1, 2018.
Adoption of IFRS 9 will generally be applied retrospectively, except as described below.
| • | Advantage of exemption allowing the Group not to restate comparative information for prior periods with respect to classification, measurement and impairment changes. |
| • | Prospective application of new hedge accounting except for those specified in IFRS 9 for retrospective application such as accounting for the time value of options and others. |
During the year ended December 31, 2017, the Group performed analysis and identified necessary modifications to internal controls and the accounting system in preparation of adoption of IFRS 9. Management believes that the adoption of the amendment is expected to have no significant impact on the consolidated financial statements of the Group. The potential general impact on its consolidated financial statements resulting from the application of new standards are as follows.
Classification and Measurement of Financial Assets
IFRS 9 contains three principal classification categories for financial assets: measured at amortized cost, fair value through other comprehensive income (“FVOCI”) and fair value through profit or loss (“FVTPL”), based on the business model in which assets are managed and their cash flow characteristics. However, derivatives embedded in contracts where the host is a financial assets in the scope of the standard are never bifurcated. Instead, the hybrid financial instrument as a whole is assessed for classification.
|
Business model assessment |
Contractual cash flow characteristics | |||
| Solely payments of principal and interest |
Others |
|||
| Hold to collect contractual cash flows | Amortized cost (*1) | |||
| Hold to collect contractual cash flows and sell financial assets | FVOCI | FVTPL (*2) | ||
| Hold to sell financial assets and others | FVTPL | |||
| (*1) | The Group may irrevocably designate a financial asset as measured at FVTPL using the fair value option at initial recognition if doing so eliminates or significantly reduces accounting mismatch. |
| (*2) | The Group may irrevocably designate an equity investment that is not held for trading as measured at FVOCI using the fair value option. |
The requirements to classify financial assets as amortized cost or
FVOCI under IFRS 9 are more restrictive than them under IAS 39.
Accordingly, increase in proportion of financial assets classified
as FVTPL may result in increase of volatility in profit or loss of
the Group. As of December 31, 2017, the Group recognized
W7,938,886 million of loans and receivable,
W5,142 million of available-for-sale financial
assets and W1,552 million of financial assets
at fair value through profit or loss.
A debt investment is measured at amortized cost under IFRS 9 if it meets both of the following conditions:
| • | The asset is held within a business model whose objective is achieved by collecting contractual cash flows; and |
| • | The contractual terms of the financial asset give rise on specified dates to cash flow that are solely payments of principal and interest on the principal amount outstanding. |
As of December 31, 2017, the Group recognized
W7,938,886 million of loans and receivables
and measured them at amortized cost.
A debt investment is measured at FVOCI under IFRS 9 if it meets both of the following conditions:
| • | The asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and |
| • | The contractual terms of the financial asset give rise on specified dates to cash flow that are solely payments of principal and interest on the principal amount outstanding. |
As of December 31, 2017, the Group recognized
W162 million of debt instruments classified
as available-for-sale financial
assets.
Equity investment that are not held for trading may be irrevocably
designated as FVOCI on initial recognition under IFRS 9 and they
are not subsequently recycled to profit or loss. As of
December 31, 2017, the Group recognized
W4,980 million of equity investment
classified as available-for-sale financial
assets.
A financial asset is measured at FVTPL under IFRS 9, if:
| • | The asset’s contractual cash flows do not represent solely payments of principal and interest on the principal amount outstanding; |
| • | Debt instrument is held for trading; or |
| • | Equity instrument is not designated as FVOCI. |
As of December 31, 2017, the Group recognized
W1,552 million of debt instrument classified
as FVTPL.
Based on the evaluation to date, upon adoption of IFRS 9,
W4,980 million of available-for-sale financial
assets is expected to be classified as FVTPL as of January 1,
2018.
Classification and Measurement of Financial Liabilities
Under IFRS 9, the amount of change in the fair value of liabilities designated as at FVTPL that is attributable to changes in the credit risk of the liability is not presented in the item of profit or loss, but in OCI and they are not subsequently recycled to profit or loss. However, if accounting mismatch is created or enlarged as a result of this accounting treatment, the amount of change in the credit risk of the financial liabilities is also recognized as profit or loss.
Adoption of IFRS 9 may result in decrease of volatility in profit or loss in relation to evaluation of financial liabilities as some of change in the fair value of financial liabilities designated as at FVTPL is presented in OCI. As of December 31, 2017, there was no financial liabilities measured at FVTPL.
Impairment: Financial assets and contract assets
Impairment loss is recognized if there is any objective evidence that a financial asset or group of financial asset is impaired according to ‘incurred loss model’ under IAS 39. However, IFRS 9 replaces the incurred loss model in IAS 39 with an ‘expected credit loss impairment model’ which applies to debt instruments measured at amortized cost or at fair value through other comprehensive income, lease receivable, loan commitments and financial guarantee contracts.
Under IFRS 9, loss allowance is classified into three stages below in accordance with increase of credit risk after initial recognition of financial assets and measured on the 12-month expected credit loss (“ECL”) or lifetime ECL basis. Under IFRS 9, loss allowances are recognized based on the following method, the timing of which is earlier than that under IAS 39.
|
Classification |
Loss allowances |
|||
|
Stage 1 |
No significant increase in credit risk since initial recognition |
12-month expected credit losses: the expected credit losses that result from default events that are possible within 12 months after the reporting date. | ||
|
Stage 2 |
Significant increase in credit risk since initial recognition |
Lifetime expected credit losses: the expected credit losses that result from all possible default events over the expected life of the financial instrument. | ||
|
Stage 3 |
Objective evidence of credit risk impairment |
|||
Under IFRS 9, cumulative change in lifetime expected credit loss
since initial recognition is recognized as a loss allowance for
financial asset, if it was credit-impaired at initial recognition.
As of December 31, 2017, under IAS 39, the Group recognized
W2,943 million of loss allowances for
W7,941,829 million of debt instruments
measured at amortized cost including loans and receivables.
Hedge accounting
When initially applying IFRS 9, the Group may choose as its accounting policy to continue to apply hedge accounting requirements under IAS 39 instead of the requirements in IFRS 9. The Group determined to consistently apply hedge accounting requirements of IAS 39.
(ii) IFRS 15, Revenue from contracts with customers
IFRS 15, Revenue from contracts with customers, as amended, was published on April 12, 2016 and is effective for annual periods beginning on or after January 1, 2018, with early adoption permitted. IFRS 15 replaces existing revenue recognition guidance, including IAS 18 Revenue, IAS 11, Construction Contracts, SIC-31, Revenue: Barter Transactions Involving Advertising Services, IFRIC 13, Customer Loyalty Programmes, IFRIC 15, Agreements for the Construction of Real Estate and IFRIC 18, Transfers of Assets from Customers. Regarding transition to IFRS 15, the Group has decided to apply the cumulative effect method, i.e. recognizing the cumulative effect of applying IFRS 15 at the date of initial application, which is January 1, 2018, without restatement of the comparative periods presented. In doing so, the Group also decided to apply the practical expedients as allowed by IFRS 15 by applying the new standard only to those contracts that are not considered as completed contracts at the date of initial application.
Revenue recognition criteria in IAS 18 are applied separately to each transaction including sale of goods, rendering of services, interest, royalties, dividends and construction contracts. However, IFRS 15 establishes a single new revenue recognition standard for contracts with customers and introduces a five-step model for determining whether, how much and when revenue is recognized.
The steps in five-step model are as follows:
a) Identify the contract with a customer.
b) Identify the performance obligations in the contract.
c) Determine the transaction price.
d) Allocate the transaction price to the performance obligations in the contract.
e) Recognize revenue when (or as) the entity satisfies a performance obligation.
During the year ended December 31, 2017, the Group assessed the financial impact of the adoption of IFRS 15 on its consolidated financial statements. As a result, the potential impact on its consolidated financial statements resulting from the application of the new standard is as follows.
Variable Consideration
The consideration received from customers may be variable as the
Group allows its customers to return their products according to
the contracts. Currently, the Group recognizes a provision measured
at the gross profit for products sold which are expected to be
returned. Under IFRS 15, the Group shall estimate an amount of
variable consideration by using the expected value or the most
likely amount, depending on which method the Group expects to
better predict the amount of consideration to which it will be
entitled and include in the transaction price some or all of an
amount of variable consideration estimated only to the extent that
is highly probable that a significant reversal in the amount of
cumulative revenue recognized will not occur when return period
expires. The Group shall recognize refund liability measured at the
amount of consideration received (or receivable) to which the Group
does not expect to be entitled and a new asset for the right to
recover returned goods. As a result of this change, it is expected
that the refund liability and a new asset for the right to recover
returned goods will be increased by
W9,789 million, respectively, as of
January 1, 2018.
(iii) IFRS 16, Leases
IFRS 16, Leases, issued in January 13, 2016 is effective for annual periods beginning on or after January 1, 2019, with early adoption permitted. IFRS 16 replaces existing leases guidance including IAS 17, Leases, IFRIC 4, Determining whether an Arrangement contains a Lease, SIC-15, Operating Leases—Incentives and SIC-27, Evaluating the Substance of Transactions Involving the Legal Form of a Lease.
At inception of a contract, the Group assesses whether the contract is, or contains, a lease and reassess whether a contract is, or contains, a lease at the date of initial application. However, as a practical expedient, the Group is not required to reassess for contracts entered into, or changed, on or before January 1, 2019. The Group is currently assessing the potential impact on its consolidated financial statements resulting from the application of IFRS 16.
(iv) IFRIC 22, Foreign Currency Transactions and Advance Consideration
According to the new interpretation, IFRIC 22, Foreign Currency Transactions and Advance Consideration, the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) is the date on which an entity initially recognizes the non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration. If there are multiple payments or receipts in advance, the entity shall determine a date of the transaction for each payment or receipt of advance consideration. IFRIC 22 is effective for annual periods beginning on or after January 1, 2018, with early adoption permitted. Management believes that the adoption of the amendment is expected to have no significant impact on the consolidated financial statements of the Group.