KENANGA ANNUAL REPORT 2019

131 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2019 2. CHANGES IN ACCOUNTING POLICIES AND REGULATORY REQUIREMENT (CONT’D.) 2.1 New and amended Malaysian Financial Reporting Standards (“MFRSs”) adopted (cont’d.) (a) MFRS 16 Leases (cont’d.) The Group adopted MFRS 16 using the modified retrospective method of adoption with the date of initial application of 1 January 2019. Under this method, the standard is applied retrospectively with the cumulative effect of initially applying the standard recognised at the date of initial application. The Group elected to use the transition practical expedient to not reassess whether a contract is or contains a lease at 1 January 2019. Instead, the Group applied the standard only to contracts that were previously identified as leases applying IFRS 17 and IFRIC 4 at the date of initial application. The Group has lease contracts for various branches and equipment. Before the adoption of MFRS 16, the Group classified each of its leases (as lessee) at the inception date as either a finance lease or an operating lease. Refer to Note 3.4 (p) for the accounting policy prior to 1 January 2019. Upon adoption of MFRS 16, assets and liabilities were recognised for all leases with a term of more than 12 months, unless the underlying assets were low-value assets. Refer to Note 3.4 (p) for the accounting policy beginning 1 January 2019. The standard provides specific transition requirements and practical expedients, which have been applied by the Group and the Bank. The Group and the Bank recognised right-of-use assets and lease liabilities for those leases previously classified as operating leases, except for short-term leases and leases of low-value assets. The right-of-use assets for most leases were recognised based on the carrying amount as if the standard had always been applied, apart from the use of incremental borrowing rate at the date of initial application. In some leases, the right-of-use assets were recognised based on the amount equal to the lease liabilities, adjusted for any related prepaid and accrued lease payments previously recognised. Lease liabilities were recognised based on the present value of the remaining lease payments, discounted using the incremental borrowing rate at the date of initial application. The Group and the Bank also applied the available practical expedients wherein it: • Used a single discount rate to a portfolio of leases with reasonably similar characteristics; • Relied on its assessment of whether leases are onerous immediately before the date of initial application; • Applied the short-term leases exemptions to leases with lease term that ends within 12 months of the date of initial application; • Excluded the initial direct costs from the measurement of the right-of-use asset at the date of initial application; and • Used hindsight in determining the lease term where the contract contained options to extend or terminate the lease.