Page 231 - Annual Report 2020

38 New and amended accounting standards and interpretations

The Group adopted IFRS 16/AASB 16 ‘Leases’ (IFRS 16) in the Group’s Amendments to IFRS 9 ‘Financial Instruments’ and IFRS 7
Financial Statements from 1 July 2019. The adoption of other new or ‘Financial Instruments: Disclosures’ – Interest Rate Strategic Report
amended accounting standards or interpretations applicable from Benchmark Reform
1 July 2019, including IFRIC 23 ‘Uncertainty over Income Tax Treatment’, The London Interbank Offered Rate (LIBOR) and other benchmark
did not have a significant impact on the Group’s Financial Statements. interest rates are expected to be replaced by alternative risk-free
The Group has also early adopted amendments to IFRS 9/AASB 9 rates by the end of CY2021 as part of inter-bank offer rate (IBOR)
‘Financial Instruments’ (IFRS 9) and IFRS 7/AASB 7 ‘Financial reform. The amendments to IFRS 9 and IFRS 7 provide temporary
Instruments: Disclosures’ (IFRS 7) in relation to Interest Rate relief from applying specific hedge accounting requirements to
Benchmark Reform. hedging arrangements directly impacted by these reforms. The
All new and amendments to standards and interpretations have been Group has early adopted the amendments resulting in no impact
on the Group’s hedge accounting.
endorsed by the EU.
IFRS 16 Leases As outlined in note 22 ‘Financial risk management’, the Group has
foreign currency and US dollar denominated loans and debentures
IFRS 16 replaces IAS 17/AASB 117 ‘Leases’ (IAS 17) including associated at fixed interest rates. The Group uses interest rate swaps and cross Governance at BHP
interpretative guidance and covers the recognition, measurement, currency swaps to convert most of its fixed interest exposure to
presentation and disclosures of leases in the Financial Statements a floating USD LIBOR. The interest rate derivatives are designated
of both lessees and lessors. into fair value hedges.
Transition impact The reliefs provided by the amendments allow the Group
IFRS 16 became effective for the Group from 1 July 2019 and the to assume that:
Group elected to apply the modified retrospective transition • USD LIBOR remains a separately identifiable component for the
approach, with no restatement of comparative financial information. duration of the hedge;
For existing finance leases, the right-of-use asset and lease liability • for the purpose of assessing the effectiveness of the hedge
on transition was the IAS 17 carrying amounts as at 30 June 2019. relationship the USD LIBOR rates referenced by fixed-to-floating
As allowed by IFRS 16, the Group has elected: rate swaps in the fair value hedge relationships do not change Remuneration Report
• except for existing finance leases, to measure the right-of-use asset as a result of IBOR reform.
on transition at an amount equal to the lease liability (as adjusted The amendments were applied retrospectively, including to hedging
for prepaid or accrued lease payments); arrangements designated as hedges during the period, and will
• not to recognise low-value or short-term leases on the balance sheet; continue to apply until the uncertainty arising from the reforms with
• to only recognise, within the lease liability, the lease component respect to the timing and the amount of the underlying cash flows
of contracts that include non-lease components and other services; that the Group is exposed to ends. A project has been established
• to adjust the carrying amount of right-of-use assets on transition to assess the implications of IBOR reform across the Group, and
for related onerous lease provisions that were recognised on the to manage and execute the transition from current benchmark
Group balance sheet as at 30 June 2019. rates to alternative benchmark rates. The Group will continue
to assess amendments to certain accounting standards covering
Adoption of IFRS 16 resulted in an increase in interest bearing the accounting for the transition to alternative rates which were Directors’ Report
liabilities of US$2.3 billion, right-of-use assets of US$2.2 billion and released in August 2020 and will be applicable to the Group
net adjustments to other assets and liabilities of US$0.1 billion at in future reporting periods.
1 July 2019. The weighted average incremental borrowing rate applied
to the Group’s additional lease liabilities at 1 July 2019 was 2.1 per cent Issued but not yet effective
taking into account the currency, tenor and location of each lease. A number of other accounting standards and interpretations, along
The following table provides a reconciliation of the operating lease with revisions to the Conceptual Framework for Financial Reporting,
have been issued and will be applicable in future periods. While these
commitments disclosed in note 32 ‘Commitments’ in the 2019 Annual remain subject to ongoing assessment, no significant impacts have
Report to the total lease liability recognised at 1 July 2019: been identified to date. These standards have not been applied in 5
US$M the preparation of these Financial Statements. The classification of
future acquisitions may be impacted by the change in the definition
Operating lease commitments as at 30 June 2019 1,905 of a business under the amendments to IFRS 3/AASB 3 ‘Business
Add: Leases which did not meet the definition Combinations’ effective for the Group from 1 July 2020.
of a lease under IAS 17 (1) 686 Financial Statements
Add: Cost of reasonably certain extension options On 29 April 2020, the IFRS Interpretations Committee issued an
(undiscounted) 91 agenda decision on the application of IAS 12 ‘Income Tax’ when the
Less: Components excluded from lease liability recovery of the carrying amount of an asset gives rise to multiple tax
(undiscounted) (190) consequences, concluding that an entity must account for distinct
Less: Effect of discounting (191) tax consequences separately. The Group is in the process of
Total additional lease liabilities recognised at 1 July 2019 2,301 evaluating the implications of the agenda decision. Changes to the
Group’s accounting policy for income tax will be implemented from
(1) These relate to freight contracts known as continuous voyage charters (CVCs). 1 July 2020 on a retrospective basis.
Generally CVCs were not considered leases under IAS 17 given the supplier has
the right, whether exercised or not, to substitute the named vessel. However, Additional information
these rights are not considered substantial substitution rights under IFRS 16.
Additionally, the Group has the right to direct the use of the vessel throughout
the period of use due to the ability to designate the destination port for each
voyage and make changes to relevant decisions within the scope of contractual
constraints. Consequently, the CVCs meet the definition of a lease under IFRS 16.
The Group’s activities as a lessor are not material and hence there
is no significant impact on the Financial Statements on adoption
of IFRS 16. Shareholder information

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