Snowy Hydro adopted the new accounting standards AASB 9 Financial Instruments (“AASB 9”) and AASB 15 Revenue from Contracts with Customers (“AASB 15”), from 1 July 2018. Additionally during the period, Snowy Hydro amended its accounting policy for Environmental Certificates. The change has been made in accordance with AASB 108 Accounting Policies, Changes in Accounting Estimates, and Errors.

2.1 AASB 9 Financial Instruments

AASB 9 replaces AASB 139 Financial Instruments: Recognition and Measurement and addresses the classification, measurement and derecognition of financial assets and financial liabilities, introduces new rules for hedge accounting and a new impairment model for financial assets.

Classification of financial assets and liabilities

The adoption of AASB 9 did not result in any changes in measurements of Snowy Hydro’s financial instruments. On transition, the company reclassified one category of its financial assets, “loans and receivables” as “amortised cost”, and this did not have any impact on its carrying value.

On transition, financial instruments are now classified as one of three categories provided by the new standard, and measured accordingly:

• amortised cost
• fair value through profit and loss
• fair value through other comprehensive income.

Impairment of financial assets

AASB 9 replaces the ‘incurred loss’ model in AASB 139 with an ‘expected credit loss’ (“ECL”) model. The “expected credit loss” model is forward-looking and no longer requires a credit event to have occurred as a prerequisite to recognition of a credit loss. The new impairment model applies to financial assets which are measured at amortised cost, unbilled revenue and debt investments which are measured at fair value through other comprehensive income.

The adoption of AASB 9 has not resulted in a material change to the measurement or recognition of loss allowances to financial assets, as the Company’s previous allowance model is closely aligned with the current model. In accordance with AASB 9, changes in accounting policies (which are the result of adopting AASB 9) have been applied retrospectively with the cumulative impact $1.4 million (post-tax) being recognised on 1 July 2018 in opening retained earnings and also reflected as an increase of $2 million in the allowance for the impairment of trade receivables and unbilled revenue.

Snowy Hydro’s new impairment model uses the simplified approach permitted by AASB 9, whereby historical default rates are applied over the expected life of trade receivables, and adjusted for forward-looking factors. These factors include the effects of the seasonality of billing, price increases and customer churn.

On transition to AASB 9, the Company has adopted consequential amendments to AASB 101 Presentation of Financial Statements (“AASB 101”), which requires the impairment of financial assets to be presented in a separate line item in the statement of profit or loss and other comprehensive income. Prior to the adoption of AASB 9, impairment of trade receivables was recognised in ‘Other expenses’. As a result, the company reclassified AASB 139 impairment losses of $20.6 million from ‘Other expenses’ to ‘Impairment loss recognised on trade receivables’ for the year ended 30 June 2018.

Hedge accounting

Snowy Hydro adopted AASB 9 for the first time in FY2019. The Company uses interest rate swaps to hedge the variability in cash flows arising from variable interest rate payments on its forecast debt, as well as forward foreign exchange contracts to hedge the variability in cash flows arising from changes in foreign exchange rates relating to capital expenditure.

The AASB 9 model requires the Company to align its hedge accounting relationships with its risk management objectives and strategy. Under AASB 9, the approach to assessing hedge effectiveness is more qualitative and forward-looking than under AASB 139.

Changes to the Company’s hedge accounting policies have been applied prospectively. All hedging relationships designated under AASB 139 at 30 June 2018 met the criteria for hedge accounting under AASB 9 at 1 July 2018 and are therefore regarded as continuing hedging relationships.

2.2 AASB 15 Revenue from Contracts with Customers

AASB 15 establishes a single, comprehensive, five-step model for entities to use in accounting for revenue arising from contracts with customers. It supersedes the previous revenue recognition guidance including AASB 118 Revenue and AASB 111 Construction Contracts. Under AASB 15, revenue is recognised when control of the goods or services is transferred to the customer, and measured at the amount of consideration the entity expects to receive. The model also provides guidance on whether revenue is recognised over time, or at a point in time.

The Company adopted AASB 15 using the full retrospective transition approach, without applying the practical expedients available. The adoption of AASB 15 has not significantly impacted the Company’s financial position or financial performance. The amount of adjustment for each financial statement line item affected by the application of AASB 15 is illustrated in table 2.1. A more detailed disclosure of the Company’s accounting policies for its revenue streams is included in note 3.

Apart from providing additional disclosure regarding Snowy Hydro’s revenue transactions, the adoption of AASB 15 does not have a significant impact on the recognition and measurement of Snowy Hydro’s revenue from contracts with customers. Previously, Snowy Hydro recognised credits provided for generation of electricity from solar panels by retail customers as a reduction in revenue. On transition to AASB 15, these credits are not considered to form part of the consideration receivable for the service provided to these customers, and are instead presented as direct costs of revenue.

Revenue from contracts with customers is primarily related to the generation and supply of electricity. Wholesale revenue is recognised when electricity is generated and sold into the pool, and is measured at the market price in the National Electricity Market. Retail revenue is recognised when electricity is supplied and consumed by customers, and measured by billings to customers based on meter readings, with accruals for estimated consumption between the meter reading date and period end date.

2.3 Environmental Certificates

During the period, Snowy Hydro has reviewed its accounting policy for Environmental Certificates following changes to the underlying economic transactions and regulatory environment, and concluded that in light of these developments the existing policy no longer reflected the timing of economic value creation appropriately.

The principal effects of the change in accounting policy are for revenue derived from Environmental Certificates to be recognised when relevant performance obligations with customers are fulfilled, and for expenses in respect of the regulatory obligation to surrender certificates to be provided for as this obligation is triggered, on the purchase of electricity from the NEM to supply to customers. Previously, both revenue and costs were recognised when Environmental Certificates were first on hand.

As the Company has voluntarily elected to change its accounting policy for Environmental Certificates, the impact of this change must be applied retrospectively. The effect of the change in accounting policy on the prior year statement of profit and loss and statement of financial position is shown in the tables below.

Table 2.1 Restated Consolidated statement of profit and loss for the period ended 30 June 2018

Table 2.2 Restated Consolidated statement of financial position as at 1 July 2018

The consolidated statement of financial position is not impacted by the adoption of AASB 15.

Table 2.3 Restated Consolidated statement of financial position as at 2 July 2017