Accounting policies
Consolidation
These consolidated financial statements include the financial results of all companies which are controlled by the Group. Control exists where the Group has the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities. All companies are 100% owned by IPF plc Group companies. A list of the principal subsidiaries included in the consolidated financial statements is included within note 11.
Finance costs
Finance costs comprise the interest on external borrowings and are recognised on an effective interest rate (‘EIR’) basis.
Segment reporting
The Group’s primary reporting format is geographical segments. A geographical segment is a component of the Group that operates within a particular economic environment and that is subject to risks and returns that are different from those of components operating in other economic environments.
The provision of home credit is the only business segment operated by the Group and therefore a secondary segmental analysis is not provided.
Revenue
Revenue, which excludes value added tax and intra-group transactions, comprises revenue earned on amounts receivable from customers. Revenue on customer receivables is calculated using an EIR. The EIR is calculated using estimated cash flows being contractual payments adjusted for the impact of customers paying early but excluding the anticipated impact of customers paying late or not paying at all.
Directly attributable issue costs are also taken into account in calculating the EIR. Interest income continues to be accrued on impaired receivables using the original EIR applied to the loan’s carrying value.
The accounting for amounts receivable from customers is considered further below.
Leases
The leases entered into by the Group are solely operating leases. Costs in respect of operating leases are charged to the income statement on a straight-line basis over the lease term.
Operating costs
Operating costs include agent commission, marketing costs, foreign exchange gains and losses and gains or losses on derivative contracts taken to the income statement. All other costs are included in administrative expenses.
Share-based payments
The cost of providing share-based payments to employees is charged to the income statement over the vesting period of the award. The corresponding credit is made to retained earnings. The cost is based on the fair value of awards granted, determined using a Monte Carlo simulation option pricing model or binomial option pricing model depending on the type of award.
In the Parent Company financial statements, in accordance with IFRIC 11 ‘IFRS 2 Group and Treasury Share Transactions’, the fair value of providing share-based payments to employees of subsidiary companies is treated as an increase in the investment in subsidiaries.
Exceptional items
The Group classifies as exceptional those significant items that are one-off in nature and do not reflect the underlying performance of the Group.