Fiscal 2020 Universal Registration Document

2.1.2 New accounting standards and interpretations required to be applied

The accounting policies used by the Group to prepare its consolidated financial statements for the fiscal year ended August 31, 2020 are the same as those used for the consolidated financial statements as of August 31, 2019 except for the first-time application of IFRS 16 “Leases” and IFRIC 23 “Uncertainty over income tax treatments” as described below . Other required standards , amendments or interpretations effective as of September 1, 2019 did not have a material impact on consolidated financial statements of the Group.

2.1.2.1 FIRST-TIME APPLICATION OF IFRS 16 “LEASES”

IFRS 16, applicable to the Group with effect from the fiscal year opening on September 1, 2019, sets out the principles for recognizing leases. These principles replace those described down in IAS 17 “Leases” and in the interpretations SIC 15 “Operating Leases – Incentives”, SIC 27 “Evaluating the Substance of Transactions Involving the Legal Form of a Lease” and IFRIC 4 “Determining whether an Arrangement contains a Lease”.

IFRS 16 introduces for lessees a single model for the recognition of leases, involving the recognition of all leases on the balance sheet (removal of the distinction between finance leases and operating leases), except where optional exemptions are applicable (short-term leases and leases of low value assets).

Accordingly, as a lessee, the Group recognizes in the balance sheet:

•  a right-of-use asset, representing the right to use the underlying asset over the lease term; and 
• a lease liability, reflecting the future lease payments obligation over the lease term. 

The presentation of lease transactions in the consolidated income statement is also modified, the lease expense being replaced by:

• depreciation of the right-of-use asset; 
• interest expense on the related lease liability. 

Finally, in the consolidated cash flow statement, cash outflows relating to interest and variable lease payments impact operating activities flows, while repayments of the lease liability impact financing activities flows. The investing activities flows are not modified.

The Group applied IFRS 16 from September 1, 2019 using the simplified retrospective approach, without restating the comparative periods. As a result, the Group recognized as of September 1, 2019 a lease liability, corresponding to the present value of the future fixed lease payments over the residual lease term, and a right-of-use asset, for an amount equaling the lease liability adjusted for prepaid or accrued lease payments previously recognized. Hence, comparative information for Fiscal 2019 is presented as previously, in application of IAS 17 and the related interpretations. Among the practical expedients authorized by the standard for the transition, the Group chose to apply the practical expedient to use its assessment of whether leases are onerous by applying IAS 37 “Provisions, Contingent Liabilities and Contingent Assets” made immediately before the date of first-time application as an alternative to testing right-of-use assets for impairment at September 1, 2019.

The discount rates used at the transition date correspond to incremental borrowing rates as of September 1, 2019, calculated over the initial term of each lease. The weighted average incremental borrowing rate as of September 1, 2019 was 1.6%.

The Group decided not to apply the deferred tax exemption from initial recognition provided in IAS 12 (paragraphs 15 and 24). A deferred tax is recognized on the net temporary difference arising from recording the lease liability and the right-of-use asset.

The reconciliation of operating lease off-balance sheet commitments presented according to IAS 17 as of August 31, 2019 and lease liabilities recognized according to IFRS 16 as of September 1, 2019 is summarized as follows:

(1) Off-balance sheet commitments were determined considering the non-cancellable term of operating leases (future minimum lease payments), whereas according to IFRS 16, the determination of the duration takes into account extension options that the Group is reasonably certain to exercise.
(2) The residual difference mainly relates to:

• commitments relating to short-term leases and leases of low value assets, covered by the exemption option provided for by IFRS 16 and applied by the Group (see Accounting principles described in note 7.1); and
• measurement differences of lease payments, as a result of the exclusion of the service component.

The accounting principles and information required on lease liabilities and right-of-use assets relating to lease contracts as of August 31, 2020 are detailed in note 7.1.

The amendment to IFRS 16 “Covid-19-related rent concessions” did not have a material impact on the consolidated financial statements of the Group.

2.1.2.2 FIRST-TIME APPLICATION OF IFRIC 23 “UNCERTAINTY OVER INCOME TAX TREATMENTS”

The interpretation IFRIC 23, which is applicable to the Group as of the fiscal year starting on September 1, 2019, clarifies the application of the recognition and measurement requirements in IAS 12 “Income Taxes” when there is uncertainty over the acceptability of a particular tax treatment under tax law.

The Group reviewed its income tax treatments in order to determine the impact of this interpretation on its consolidated financial statements. In that respect, the Group recognized an additional income tax liability of 90 million euro and depreciation of the deferred tax assets for 6 million euro. In accordance with the transitional provisions of the  interpretation, Group recognized the cumulative effect of first application as a reduction of consolidated equity at September 1, 2019, without restating the comparative periods.

Furthermore, the Group reclassified in Income tax payable its existing liabilities for uncertain tax treatment, which were included in Provisions until August 31, 2019 of 6 million euro.