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Rothschild & Co | Annual Report 2017
5 Equity instruments issued by mutual funds
Units of mutual funds which qualify as AFS equity under IAS 39 must be measured as FVTPL under IFRS 9, where their value can be redeemed from the
issuer of the instrument.
6 Designation of equity instruments at FVOCI
Long-term shareholdings held by the Group for strategic purposes, such as its investment in EdRS, will be designated under IFRS 9 as FVOCI, because
gains and losses made on these are not considered by management as part of the Group’s performance. Currently, this type of shareholding is classified
as AFS.
7 Debt securities where the business model includes the possibility of selling the asset
Debt securities previously held as AFS will be classified at FVOCI if they are held within a business model whose objective is achieved both by collecting
contractual cash flows and by selling the assets.
2.1.2 IFRS 9: IMPAIRMENT
IFRS 9 changes the credit risk impairment model, moving from one in which provisions are made for incurred credit losses to one in which provisions
can be made for expected credit losses. The aim of the new approach is to allow credit losses to be recognised at the earliest possible time, removing the
need to wait for an objective incurred loss event. A wide range of information can be used to estimate expected credit losses, including historical data on
observed losses, cyclical and structural adjustments, and loss projections based on reasonable scenarios.
Implementation of impairment models
The highly secured nature of our lending means that credit losses on our loans made by the Private Wealth & Asset Management business have historically
been very limited, and are not expected to be significant under reasonable forward-looking scenarios. Therefore, based on models prepared by each
business during the implementation phase, the new impairment rules will result in only a small additional provision for loans made by the Private Wealth
business. A small additional provision is also expected to be booked against client receivables for the RGA business.
The focus of the IFRS 9 implementation project in 2017 was on preparation for initial application in 2018. Although we will apply IFRS 9 retrospectively,
comparatives will not be restated; instead, adjustments which arise from classification and measurement changes will be recognised in the opening
equity of 2018.
2.2 IFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS
IFRS 15 Revenue from Contracts with Customers will replace the current standards and interpretations on revenue recognition. It will be applicable
retrospectively as of 1 January 2018.
R&Co has performed an assessment of the impact of IFRS 15. In this assessment R&Co has considered Global Advisory to be the line of business
most affected by IFRS 15. Our assessment reviewed all material GA fees to see whether any would have been recognised differently under IFRS 15.
The differences identified last year between revenue recognition under IAS 18 and IFRS 15 were immaterial.
In the event of any accounting difference on adopting IFRS 15, R&Co plans to apply the cumulative effect method, which means that any changes prior
to adoption on 1 January 2018 are made in opening equity, and comparatives are not restated.
2.3 IFRS 16 LEASES
In January 2016, the IASB issued IFRS 16 Leases, which will replace IAS 17 Leases. Under the new requirements, lessees must recognise a right-of-use
asset, representing its right to use the underlying leased asset, and a lease liability, representing its obligation to make lease payments. In its income
statement, the lessee shall separately recognise the depreciation of the right-of-use assets and the interest expense on lease liabilities.
The Group has identified its property leases as the main contracts affected by new standard. These leases are disclosed in note 21.
The effective date is 1 January 2019 and the Group continues to consider the financial impacts of this new standard.
Notes to the consolidated financial statements