2.2. Changes to accounting policies related to leases
2.2. Changes to accounting policies related to leases
In 2020, the Group changed its accounting policy in respect of the determination of the lease term of cancellable lease (described below) and changed presentation of foreign exchange gains/losses arising on revaluation and settlement of lease liabilities and related hedging instruments (described in Note 33.4).
IFRS Interpretation Committee’s decision on Lease Term and Useful Life of Leasehold Improvements
In December 2019 the Committee published its decision (the “Decision”) in respect to the lease term. The Committee discussed the concepts of “penalties” and “enforceable period”, which are used in the determination of the lease term and provided guidance on how they should be understood and applied when determining the lease term. The Committee concluded that the contract is enforceable as long as the lessee or the lessor would have to bear more than an insignificant penalty in case of termination of the contract. Therefore, even in the absence of option for the lessee to extend the lease at its discretion, the reasonably certain lease term shall be assessed in order to determine the lease term and, as a result, the amounts of the lease liability and of the right-of-use asset. Furthermore, according to the Committee, the concept of “penalty” should be considered as all economic disincentives and should not be limited only to contractual penalties.
As a result of the Decision and the analysis performed in 2020, the Group changed its accounting policy in respect of the determination of the lease term of cancellable leases. The change was applied retrospectively and impacted the consolidated statement of financial position as at 1 January 2019. The Group assessed the reasonably certain lease terms of cancellable lease contracts to be equal to 5 years for all lease contracts, except for 18 years for road occupancy leases where fixed network infrastructure is placed. This change in accounting policy resulted in the recognition of additional right-of-use assets and additional lease liabilities, mainly in respect of leases of premises and ground for fixed and mobile network infrastructure.
Adoption of changes described above affected the consolidated statement of financial position as at 1 January 2019 and 31 December 2019, the consolidated income statement, total comprehensive income and consolidated statement of cash flows for the 12 months ended 31 December 2019 as follows:
Adjustments to reconcile net income to cash from operating activities
Depreciation, amortisation and impairment of property, plant and equipment, intangible assets and right-of-use assets
2,748
92
2,84
Finance costs, net
298
10
308
Income tax
27
(2)
25
Operational foreign exchange and derivatives gains, net
(7)
6
(1)
Interest paid and interest rate effect paid on derivatives, net
(371)
(15)
(386)
Net cash provided by operating activities
2,776
82
2,858
FINANCING ACTIVITIES
Repayment of lease liabilities
(279)
(82)
(361)
Net cash used in financing activities
(1,064)
(82)
(1,146)
Net change in cash and cash equivalents
(207)
–
(207)
(1) Includes changes related to presentation of foreign exchange gains/losses described in Note 33.4.
Amendment to IFRS 16 COVID-19-Related Rent Concessions
On 28 May 2020, the International Accounting Standards Board has issued an amendment “COVID-19-Related Rent Concessions” to IFRS 16 Leases to make it easier for lessees to account for COVID-19-related rent concessions. The amendment exempts lessees from having to consider individual lease contracts to determine whether rent concessions occurring as a direct consequence of the COVID-19 pandemic are lease modifications and allows lessees to account for such rent concessions as if they were not lease modifications. The amendment has been endorsed by the European Union in October 2020. The adoption of the amendment did not have a significant effect on the Group’s financial statements.