Accounting policies
Key assumptions and estimates
In applying the accounting policies set out above, the Group makes significant estimates and assumptions that affect the reported amounts of assets and liabilities as follows:
Amounts receivable from customers
The Group reviews its portfolio of customer loans and receivables for impairment every week. The Group makes judgments to determine whether there is objective evidence which indicates there has been an adverse effect on expected future cash flows. For the purposes of assessing the impairment of customer loans and receivables, customers are categorised into arrears stages as this is considered to be the most reliable predictor of future payment performance. The level of impairment is calculated using actuarial models which use historical payment performance to generate the estimated amount and timing of future cash flows from each arrears stage of each product. The impairment models are regularly reviewed to take account of the current economic environment and recent customer payment performance. However, on the basis that the payment performance of customers could be different from the assumptions used in estimating future cash flows, a material adjustment to the carrying value of amounts receivable from customers may be required. To the extent that the net present value of estimated cash flows differs by +/–5%, it is estimated that amounts receivable from customers would be £28.7m higher / lower.
Retirement benefit asset / obligation
A number of judgments and estimates are made in assessing the amount of the retirement benefit asset / obligation at each balance sheet date. These judgments and estimates are derived after taking into account the requirements of IAS 19 ‘Retirement Benefit Obligations’ and after taking the advice of the Group’s actuaries. Further details on the key assumptions used are set out in note 23.
Tax
The Group is subject to tax in a number of international jurisdictions as well as the UK. In some cases, due to the unusual features of home credit, the tax treatment of certain items cannot be determined with certainty until the operation has been subject to a tax audit. In some instances, this can be some years after the item has first been reflected in the financial statements. The Group recognises liabilities for anticipated tax audit and enquiry issues based on an assessment of whether such liabilities are likely to fall due. If the outcome of such audits is that the final liability is different to the amount originally estimated, such differences will be recognised in the period in which the audit or enquiry is determined. Any differences may necessitate a material adjustment to the level of tax balances held in the balance sheet.