NOTE
2:- SIGNIFICANT ACCOUNTING POLICIES
The
following accounting policies have been applied consistently in the financial statements for all periods presented, unless otherwise
stated.
| 1) | Basis
of presentation of the financial statements |
These
financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board (“IFRS”).
The
financial statements for the year ended December 31, 2016 were the Group’s first consolidated financial statements prepared
in accordance with IFRS. The date of transition to IFRS was January 1, 2015. For all periods up to and including the year ended
December 31, 2015, the Group prepared its financial statements in accordance with United States generally accepted accounting
principles (“U.S. GAAP”). Accordingly, the Group’s first consolidated financial statements that comply with
IFRS are applicable as of December 31, 2016, together with the comparative period data for the year ended December 31, 2015.
The
Company’s financial statements have been prepared on a cost basis, except for certain assets and liabilities such as: financial
assets measured at fair value through other comprehensive income; contingent liabilities related to business combination and other
financial assets and liabilities (including derivatives) which are presented at fair value through profit or loss.
The
Company has elected to present the profit or loss items using the function of expense method.
| 2) | Use
of judgments, estimates and assumptions: |
The
preparation of the consolidated financial statements requires management to make judgments, estimates and assumptions that have
an effect on the application of the accounting policies and on the reported amounts of assets, liabilities, revenues and expenses
in the financial statements. The Company’s management believes that the estimates and assumptions used are reasonable based
upon information available at the time they are made. These estimates and underlying assumptions are reviewed regularly. Actual
results could differ from those estimates. Changes in accounting estimates are reported in the period of the change in estimate.
The judgments,
estimates and assumptions which have the most significant effect on the amounts recognized in the financial statements are employed
in determining values of goodwill and identifiable intangible assets and their subsequent impairment analysis, revenue recognition,
timing of commitment to execution of transactions, tax assets and tax positions, legal contingencies, research and development
capitalization, classification of leases, contingent consideration related to acquisitions, determining the fair value of put options
of non-controlling interests, pension and other post-employment benefits and share-based compensation costs. These judgements,
estimates and assumptions also impact the Company’s assessment as to whether it has effective control over companies in which
it holds less than the majority of the voting rights.
| 3) | Consolidated
financial statements: |
The
consolidated financial statements comprise the financial statements of companies that are controlled by the Company (subsidiaries).
Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and
has the ability to affect those returns through its power over the investee. Potential voting rights are considered when assessing
whether an entity has control. The consolidation of the financial statements commences on the date on which control is obtained
and ends when such control ceases.
Effective
control:
In a situation
where the Company holds less than a majority of voting power in a given entity, but that power is sufficient to enable the Company
to unilaterally direct the relevant activities of such entity, then the control is exercised. When assessing whether voting rights
held by the Company are sufficient to give it power, the Company considers all facts and circumstances, including: the amount of
those voting rights relative to the amount and dispersion of other vote holders; potential voting rights held by the Company and
other shareholders or parties; rights arising from other contractual arrangements; significant personal ties; and any additional
facts and circumstances that may indicate that the Company has, or does not have the ability to direct the relevant activities
when decisions need to be made, inclusive of voting patterns observed at previous meetings of shareholders.
The
Company’s management has concluded that despite the lack of absolute majority of voting power at the general meetings
of shareholders of Matrix, Sapiens and Magic, in accordance with IFRS 10, these investees are controlled by the Company. The
conclusion regarding the existence of control during the years ended December 31, 2016, 2017 and 2018 with respect to Matrix,
Sapiens and Magic, in accordance with IFRS 10, was made in accordance with the following factors:
Sapiens:
| i) | Governing
bodies of Sapiens: |
Decisions
of Sapiens’ shareholders general meeting are taken by a simple majority of votes represented at the general meeting. The
annual (ordinary) general meeting adopts resolutions to appoint individual directors, choose Sapiens’ independent auditors
for the next year, as well as approve the company’s financial statements and the management’s report on operations.
In
accordance with Sapiens’ articles of association, the board of directors of Sapiens is responsible for managing its current
business operations and is authorized to take substantially all decisions which are not specifically reserved to Sapiens’
shareholders by its articles of association, including the decision to pay out dividends. Sapiens’ board of directors is
composed of 6 members, 4 of whom are independent directors. For the last 8 years, the Company has consistently reappointed the
same members of the board of directors. Likewise, the previous composition of the board of directors was re-elected during the
general meeting that was held in December 2018.
| ii) | Shareholders
structure of Sapiens: |
Sapiens’
shareholders structure is dispersed because, apart from the Company, just two financial institution held more than 5% of the
voting rights at the general meeting (representing 5.1%, and 6.5%, of the votes, respectively). There is no evidence that any shareholders have or had granted to any other shareholder
a voting proxy at the general meeting. Over the last five years from 2014 to 2018, Sapiens’ general meetings were
attended by shareholders representing in total between 70% and 80% of the total voting power (including the Company’s
share power and bearing in mind that the Company presently holds approximately 48.08% of total voting rights). This means
that the level of activity of Sapiens’ other shareholders is relatively moderate or low. As of December 31, 2018, the
attendance from shareholders would have to be higher than 96.2% in order to deprive the Company of an absolute majority of
votes at the general meeting.
In accordance with voting patterns
at Sapiens’ shareholders’ meetings in recent years, it is the Company’s management’s belief that achieving such
a high attendance seems unlikely.
Magic:
| i) | Governing
bodies of Magic: |
Decisions of Magic’s shareholders’
general meeting are taken by a simple majority of votes represented at the general meeting. The annual (ordinary) general meeting
adopts resolutions to elect individual directors, appoint Magic’s independent auditors for the next year, as well as to approve
Magic’s financial statements and the management’s report on operations.
In
accordance with the Magic’s articles of association, the board of directors of Magic is responsible for managing Magic’s
current business operations and is authorized to take substantially all decisions which are not specifically reserved to Magic
shareholders by its articles of association, including the decision to pay out dividends. Magic’s board of directors is
composed of 5 members, 3 of whom are independent directors. In recent years, the Company has consistently reappointed mostly the
same members of the board of directors. The only exception was the appointment of Mr. Avi Zakaya, who has replaced Mr. Yechezkel
Zeira after nine years of service.
| ii) | Shareholders
structure of Magic: |
Magic’s shareholders’
structure is dispersed because, apart from the Company, as of December 31, 2018, there were just four financial institutions holding
more than 5% of Magic’s voting power (representing 7.4%, 6.0%, 5.9% and 5.6% of the votes, respectively). There is no evidence
that any of the shareholders have or had granted to any other shareholder a voting proxy at the general meeting. Over the last
five years from 2014 to 2018, Magic’s general meetings were attended by shareholders representing not more than 70% of total
voting rights (including the Company’s share power and bearing in mind that the Company presently holds approximately 45.21%
of total voting power). This means that the level of activity of Magic’s other shareholders is relatively moderate or low.
As of December 31, 2018, the attendance by shareholders would have to be higher than 90.4% in order to deprive the Company of an
absolute majority of votes at the general meeting. In accordance with voting patterns at Magic’s shareholders’ meetings in
recent years, it is the Company’s management belief that achieving such a high attendance seems unlikely.
Matrix:
| i) | Governing
bodies of Matrix: |
Decisions of Matrix’s
shareholders general meeting are taken by a simple majority of votes represented at the general meeting. The annual (ordinary)
general meeting adopts resolutions to elect individual directors, appoint Matrix’s independent auditors for the next year,
as well as approve the company’s financial statements and management’s report on operations. In accordance with Matrix’s
articles of association, the board of directors of Matrix is responsible for managing its current business operations and is authorized
to take substantially all decisions which are not specifically reserved to Matrix’s shareholders by its articles of association,
including the decision to pay out dividends. Matrix’s board of directors is composed of 5 members, 3 of whom are independent
directors. For the last 5 years (i.e., 2014-2018), the Company has consistently reappointed mostly the same members of the board
of directors. The only exceptions were the appointment of Ms. Yafit Keret, who has replaced Ms. Michal Leshem after nine years
of service as an external director in accordance with the Companies Law, 5759-1999 and the retirement of Mr. Pinchas Grinfeld.
| ii) | Shareholders’
structure of Matrix: |
Matrix’s
shareholders structure is dispersed because, apart from the Company, as of December 31, 2018 there was just one financial institution
holding more than 5% of Matrix’s voting power (9.0% of the votes). There is no evidence that any of the shareholders have
or had granted to any other shareholder a voting proxy at the general meeting. Over the last five years from 2014 to 2018, Matrix’s
general meetings were attended by shareholders representing not more than between 75% and 82% of total voting rights (including
the Company’s share power and bearing in mind that the Company presently holds approximately 49.21% of total voting power).
This means that the level of activity of Matrix’s other shareholders is relatively moderate or low. As of December 31, 2018,
the attendance by shareholders would have to be higher than 98.4% in order to deprive the Company of an absolute majority of votes
at the general meeting. In accordance with voting patterns at Matrix’s shareholders’ meetings in recent years, it is the
Company’s management’s belief that achieving such a high attendance seems unlikely.
The
financial statements of the Company and of the investees, after being adjusted to comply with IFRS, are prepared for the same
reporting period and using consistent accounting treatment of similar transactions and economic activities. Any discrepancies
in the applied accounting policies are eliminated by making appropriate adjustments. Significant intragroup balances and transactions
and gains or losses resulting from intragroup transactions are eliminated in full in the consolidated financial statements.
Non-controlling
interests in subsidiaries represent the equity in subsidiaries not attributable, directly or indirectly, to a parent. Non-controlling
interests are presented in equity separately from the equity attributable to the equity holders of the Company. Profit or loss
and components of other comprehensive income are attributed to the Company and to non-controlling interests. Losses are attributed
to non-controlling interests even if they result in a negative balance of non-controlling interests in the consolidated statement
of financial position.
Changes
in the share interest in a subsidiary that do not result in a loss of control are recognized as a change in equity, by adjusting
the balance of the non-controlling interests against the equity attributable to the equity holders of the Company, and net of
the consideration paid or received.
| 4) | Business
combinations and goodwill: |
Business
combinations are accounted for by applying the acquisition method. The cost of the acquisition is measured at the fair value of
the consideration transferred on the acquisition date with the addition of non-controlling interests in the acquiree. In each
business combination, the Company determines whether to measure the non-controlling interests in the acquiree based on their fair
value on the acquisition date or at their proportionate share in the fair value of the acquiree’s net identifiable assets.
Direct
acquisition costs are carried to the statement of profit or loss as incurred.
In
a business combination achieved in stages, equity interests in the acquiree that had been held by the acquirer prior to obtaining
control are measured at the acquisition date fair value while recognizing a gain or loss resulting from the revaluation of the
prior investment on the date of achieving control.
Contingent
consideration is recognized at fair value on the acquisition date and classified as a financial asset or liability in accordance
with IFRS 9, “Financial Instruments”. Subsequent changes in the fair value of the contingent consideration are recognized
in profit or loss. If the contingent consideration is classified as an equity instrument, it is measured at fair value on the
acquisition date without subsequent remeasurement.
Goodwill
is initially measured at cost which represents the excess of the acquisition consideration and the amount of non-controlling interests
over the net identifiable assets acquired and liabilities assumed. If the resulting amount is negative, the acquirer recognizes
the resulting gain on the acquisition date without subsequent measurement.
| 5) | Investment
in joint arrangements: |
Joint
arrangements are arrangements in which the Company has joint control. Joint control is the contractually agreed sharing of control
of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties
sharing control.
In
joint ventures the parties that have joint control of the arrangement have rights to the net assets of the arrangement. A joint
venture is accounted for by using the equity method.
In
joint operations the parties that have joint control of the arrangement have rights to the assets and obligations for the liabilities
relating to the arrangement. The Company recognizes in relation to its interest its share of the assets, liabilities, revenues
and expenses of the joint operation.
| 6) | Investments
in associates: |
Associates
are companies in which the Group has significant influence over the financial and operating policies without having control. The
investment in an associate is accounted for using the equity method.
| 7) | Investments
accounted for using the equity method: |
The
Group’s investments in associates and joint ventures are accounted for using the equity method. Under the equity method,
the investment in the associate or in the joint venture is presented at cost with the addition of post-acquisition changes in
the Group’s share of net assets, including other comprehensive income of the associate or the joint venture. Gains and losses
resulting from transactions between the Group and the associate or the joint venture are eliminated to the extent of the interest
in the associate or in the joint venture.
Goodwill
relating to the acquisition of an associate or a joint venture is presented as part of the investment in the associate or the
joint venture, measured at cost and not systematically amortized. Goodwill is evaluated for impairment as part of the investment
in the associate or in the joint venture as a whole.
The
financial statements of the Company and of the associate or joint venture are prepared as of the same dates and periods. The accounting
policies applied in the financial statements of the associate or the joint venture are uniform and consistent with the policies
applied in the financial statements of the Group.
Upon
the acquisition of an associate or a joint venture achieved in stages when the former investment in the acquiree was accounted
for pursuant to the provisions of IFRS 9, the Group adopts the principles of IFRS 3 regarding business combinations achieved in
stages. Consequently, equity interests in the acquiree that had been held by the Group prior to achieving significant influence
or joint control are measured at fair value on the acquisition date and are included in the acquisition consideration while recognizing
a gain or loss resulting from the fair value measurement.
The
equity method is applied until the loss of significant influence in the associate or loss of joint control in the joint venture
or classification as investment held for sale.
On
the date of loss of significant influence or joint control, the Group measures any remaining investment in the associate or the
joint venture at fair value and recognizes in profit or loss the difference between the fair value of any remaining investment
plus any proceeds from the sale of the investment in the associate or the joint venture and the carrying amount of the investment
on that date.
| 8) | Functional
currency, presentation currency and foreign currency: |
| i. | Functional
currency and presentation currency: |
The
presentation currency of the financial statements is the U.S dollars (the “dollar”). The Group determines the functional
currency of each investee, including companies accounted for at equity. The currency of the primary economic environment in which
the operations of Formula and certain of its investees are conducted is the dollar, thus, the dollar is the functional and reporting
currency of Formula and certain of its investees.
Assets,
including fair value adjustments upon acquisition, and liabilities of an investee which is a foreign operation, are translated
at the closing rate at each reporting date. Profit or loss items are translated at average exchange rates for all periods presented.
The resulting translation differences are recognized in other comprehensive income (loss).
Intragroup
loans for which settlement is neither planned nor likely to occur in the foreseeable future are, in substance, a part of the investment
in the foreign operation and, accordingly, the exchange rate differences from these loans (net of the tax effect) are recorded
in other comprehensive income (loss).
Upon
the full or partial disposal of a foreign operation resulting in loss of control in the foreign operation, the cumulative gain
(loss) from the foreign operation which had been recognized in other comprehensive income is transferred to profit or loss. Upon
the partial disposal of a foreign operation which results in the retention of control in the subsidiary, the relative portion
of the amount recognized in other comprehensive income is reattributed to non-controlling interests.
| ii. | Transactions,
assets and liabilities in foreign currency: |
Transactions
denominated in foreign currency are recorded upon initial recognition at the exchange rate at the date of the transaction. After
initial recognition, monetary assets and liabilities denominated in foreign currency are translated at each reporting date into
the functional currency at the exchange rate at that date. Exchange rate differences, other than those capitalized to qualifying
assets or accounted for as hedging transactions in equity, are recognized in profit or loss. Non-monetary assets and liabilities
denominated in foreign currency and measured at cost are translated at the exchange rate at the date of the transaction. Non-monetary
assets and liabilities denominated in foreign currency and measured at fair value are translated into the functional currency
using the exchange rate prevailing at the date when the fair value was determined.
Cash
equivalents are considered highly liquid investments, including unrestricted short-term bank deposits with an original maturity
of three months or less from the date of investment or with a maturity of more than three months, but which are redeemable on
demand without penalty and which form part of the Group’s cash management. Cash and cash equivalent includes amounts held
primarily in New-Israeli Shekel, dollars, Euro, Japanese Yen, Indian Rupee and British Pound.
| 10) | Short-term
and restricted deposits: |
Short-term
bank deposits are deposits with an original maturity of more than three months from the date of investment and which do not meet
the definition of cash equivalents. The deposits are presented according to their terms of deposit. Restricted deposits include
deposits used to secure certain subsidiaries’ ongoing projects and credit lines from banks, as well as security deposits
with respect to leases, and are classified under other short-term and long-term receivables.
| 11) | Allowance
for doubtful accounts (applied until December 31, 2017 is as follows): |
The
allowance for doubtful accounts is determined in respect of specific trade receivables whose collection, in the opinion of the
Group’s management, is doubtful. The Group did not recognize an allowance in respect of groups of trade receivables that
are collectively assessed for impairment due to immateriality. Impaired receivables are derecognized when they are assessed as
uncollectible.
The bad debt
expense, net for the years ended December 31, 2016 and 2017 was $652 and $1,373, respectively. Bad debt expense, net for the year
ended December 31, 2018 was $1,723 under the new guidance (see Note 22).
Inventories
are measured at the lower of cost and net realizable value. The cost of inventories comprises costs of purchase and costs incurred
in bringing the inventories to their present location and condition. Net realizable value is the estimated selling price in the
ordinary course of business less estimated costs of completion and estimated costs necessary to make the sale. Inventories are
mainly comprised of purchased merchandise and products which consist of educational software kits, computers, peripheral equipment
and spare parts. Cost is determined on the “first in - first out” basis.
The
Group periodically evaluates the condition and aging of its inventories and makes provisions for impairment of slow moving inventories
accordingly. No such impairments have been recognized in any period presented.
IFRS
15, “Revenue from Contracts with Customers” (the “Standard”), issued by the IASB in May 2014, supersedes
IAS 11 ‘Construction Contracts’, IAS 18 ‘Revenue from contracts with customers’ and related Interpretations
and applies to all revenue arising from contracts with customers, unless those contracts are in the scope of other standards.
The
accounting policy for revenue recognition applied until December 31, 2017, is as follows:
Revenues
are recognized in profit or loss when the revenues can be measured reliably, it is probable that the economic benefits associated
with the transaction will flow to the Group and the costs incurred or to be incurred in respect of the transaction can be measured
reliably. Revenues are measured at the fair value of the consideration less any trade discounts, volume rebates and returns.
The
following are the specific revenue recognition criteria which must be met before revenue is recognized by the Company and its
subsidiaries:
| i. | Revenues
from software solutions and services: |
| a) | Revenues
from contracts based on actual inputs. Revenues from master agreements based on actual
inputs are recognized based on actual labor hours. |
| b) | Outsourcing
- These agreements are similar in nature to agreements that are based on actual labor
hours. The Group allocates employees to projects that are generally managed by the customers
at their charge based on the pricing of labor hours. Revenues are recognized based on
actual labor hours. |
| ii. | Revenues
from sales, distribution and support of software products: |
The
Group recognizes revenues from the sale of software (i) only after the significant risks and rewards of ownership of the software
have been transferred to the buyer for which a necessary condition is delivery of the software, either physically or electronically,
or providing the right to use or permission to make copies of the software, (ii) the Group does not retain any continuing management
involvement that is associated with ownership and does not retain the effective control of the sold software, (iii) the amount
of revenues can be measured reliably, (iv) it is probable that the economic benefits associated with the transaction will flow
to the Group and (v) the costs incurred or to be incurred in respect of the transaction can be measured reliably. The Group reports
income on a gross basis since it acts as a principal and bears the risks and rewards derived from the transaction.
Revenue
from third-party sales is recorded at a gross or net amount according to certain indicators. The application of these indicators
for gross and net reporting of revenue depends on the relative facts and circumstances of each sale and requires significant judgment.
Revenues
from sale agreements that do not provide a general right of return and consist of multiple elements such as hardware,
service and support agreements are split into different accounting units which are separately recognized. An element only
represents a separate accounting unit if and only if it has stand-alone value for the customer. Moreover, there should be
reliable and objective evidence of the fair value of all the elements in the agreement or of the fair value of undelivered
elements. Revenues from the various accounting units are recognized when the revenue recognition criteria are met with
respect to all the elements of the accounting unit based on their specific type and only up to the amount of the
consideration that is not contingent on completion or performance of the other elements in the contract.
Maintenance
and support includes annual maintenance contracts providing for unspecified upgrades for new versions and enhancements on a when-and-if-available
basis for an annual fee. The right for unspecified upgrades for new versions and enhancements on a when-and-if-available basis
does not specify the features, functionality and release date of future product enhancements for the customer to know what will
be made available and the general timeframe in which it will be delivered. Revenues from maintenance services are recognized on
a straight-line basis at the relative portion of the maintenance contract that is determined for each reporting year. Revenues
that have been received before the respective service has been provided are carried to deferred income. Maintenance and support
revenue included in multiple element arrangements is deferred and recognized on a straight-line basis over the term of the maintenance
and support agreement.
| iii. | Revenues
from training and implementation services: |
Revenues from
trainings and implementations are recognized when providing the service.
Revenues from training services in respect of courses conducted over a period of up to 3 months will be recognized over the period
of the course. Revenues from training services in respect of courses
ordered in advance and long-term or short term (for a period of up to a year) retraining courses will be recognized over the period
of the course. Revenues from projects which are usually ordered
by organizations will be recognized under the actual inputs by using the basis of hours actually invested in the project.
| iv. | Revenues
from hardware products and infrastructure solutions: |
Revenues
from hardware products and infrastructure solutions are recognized after all the significant risks and rewards of ownership of
the products have been transferred to the buyer. The Group does not retain any continuing management involvement that is associated
with ownership and does not retain the effective control of the sold products, the amount of revenues can be measured reliably,
it is probable that the economic benefits associated with the transaction will flow to the Group and the costs incurred or to
be incurred in respect of the transaction can be measured reliably.
The
accounting policy for revenue recognition applied commencing from January 1, 2018, is as follows:
As
described in Note 2 (30)(A) regarding the initial adoption of IFRS 15, the Group elected to adopt the provisions of the Standard
using the modified retrospective method with the application of certain practical expedients and without restatement of comparative
data.
The
new standard establishes a five-step model to account for revenue arising from contracts with customers and requires entities
to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying each step of the model
to contracts with their customers:
Step
1: Identify the contract with a customer, including reference to contract combination and accounting for contract modifications.
Step
2: Identify the separate performance obligations in the contract.
Step
3: Determine the transaction price, including reference to variable consideration, significant financing components, non-cash
consideration and any consideration payable to the customer.
Step
4: Allocate the transaction price to the distinct performance obligations on a relative stand-alone selling price basis using
observable information, if it is available, or using estimates and assessments.
Step
5: Recognize revenue when a performance obligation is satisfied, either at a point in time or over time.
Under
IFRS 15, revenues are recognized when control of the promised goods or services are transferred to the customers in an amount
that reflects the consideration that the Group expects to receive in exchange for those goods or services.
The
Group enters into contracts that can include various combinations of products and software, IT services and hardware, as detailed
below, which are generally capable as being distinct from each other and accounted for as separate performance obligations.
For contracts
with customers that contain multiple performance obligations, the Group accounts for each individual performance obligation separately,
if they are distinct from each other. The transaction price is allocated to the separate performance obligations on a relative
stand-alone selling price basis.
Stand-alone
selling prices of software sales are typically estimated using the residual approach due to the lack of selling software licenses
on a stand-alone basis. Stand-alone selling prices of software services are typically determined by considering several external
and internal factors including but not limited to, observable transactions when these services are sold on a stand-alone basis.
The
following is a description of principal activities from which the Group generates its revenues:
| i. | Sale
of proprietary licenses without significant related services |
In
the event in which the sale of a proprietary license (perpetual or term-based) is distinct from other significant modification
or implementation services, and thereby it constitutes a separate performance obligation, the Group considers whether this performance
obligation in granting the license is to provide the customer with either:
| ● | a
right to access the entity’s intellectual property in the form in which it exists
throughout the licensing period; or |
| | | |
| ● | a
right to use the entity’s intellectual property in the form in which it exists
at the time of granting the license |
The
vast majority of licenses sold separately by the Group (thus representing a separate performance obligation) are intended to provide
the customer with a right to use the intellectual property, which means that revenues from the sale of such licenses are recognized
at the point in time at which control of the license is transferred to the customer.
The
Group recognizes revenue from software licensing transactions over time when the Group provides the customer a right to access
the Group’s intellectual property throughout the license period.
| ii. | Sale
of proprietary licenses with significant related services |
Revenues
from contracts that include the sale of proprietary licenses with significant related services (for example, modifications, implementation
or customization to customer-specific specifications) are generally accounted by the Group as performance obligations satisfied
over time. In such contracts the Group is normally committed to provide the customer with a functional IT system and the customer
can only benefit from such functional system, being the final product that would normally be comprised of proprietary licenses
and significant related services. The Group considers that a commitment to sell a license under such performance obligation does
not satisfy the criteria of being distinct, because the transfer of the license is only part of a larger performance obligation.
The Group recognizes revenue from such contracts using cost based input methods, which recognizes revenue and gross profit as
the work is performed based on a ratio between actual costs incurred compared to the total estimated costs for the contract. This
is because, in accordance with IFRS 15, revenues may be recognized over the course of transferring control of the supplied goods
and services, as long as the entity’s performance does not create an asset with an alternative use to the entity, and the
entity has an enforceable right to payment for performance completed to date throughout the duration of the contract. Provisions
for estimated losses on uncompleted contracts are made during the period in which such losses are first determined, in the amount
of the estimated loss for the entire contract.
When
appropriate, the Group also applies a practical expedient permitted under IFRS 15 whereby if the Group has a right to consideration
from a customer in an amount that corresponds directly with the value to the customer of the Group’s performance completed
to date (for example, a service contract in which an entity bills a fixed amount for each hour of service provided), the Group
may recognize revenue in the amount it is entitled to invoice. Deferred revenues, which represent a contract liability, include
unearned amounts received under maintenance and support (mainly) and amounts received from customers for which revenues have not
yet been recognized.
| iii. | Maintenance
services and warranties |
Post-contract
support includes annual maintenance contracts providing for unspecified upgrades for new versions and enhancements on a when-and-if-available
basis for an annual fee. The right for an unspecified upgrade for new versions and enhancements on a when-and-if-available basis
do not specify the features, functionality and release date of future product enhancements for the customer to know what will
be made available and the general timeframe in which it will be delivered.
The
accounting policy regarding the recognition of post-contract support remained unchanged after the adoption of IFRS 15, as such
services, in principle, constitute a separate performance obligation where the customer consumes the benefits of goods and services
as they are delivered by the provider, as a consequence of which revenues are recognized over time during the service performance
period.
The
Group considers the post-contract support performance obligation as a distinct performance obligation that is satisfied over time,
and as such, it recognizes revenue for post-contract support on a straight-line basis over the period for which technical support
is contractually agreed to be provided for the software, typically twelve (12) months.
In
certain cases, the Group also provides a warranty for goods and services sold (i.e. extended warranties that the scope of which
is broader than just an assurance to the customer that the product/service complies with agreed-upon specifications). The Group
has ascertained that such warranties granted by the Group meet the definition of service. The conclusion regarding the extended
nature of a warranty is made whenever the Group contractually undertakes to repair any errors in the delivered software within
a strictly specified time limit and/or when such warranty is more extensive than the minimum required by law. Under IFRS 15, the
fact of granting an extended warranty indicates that the Group actually provides an additional service. As such, the Group recognizes
an extended warranty as a separate performance obligation and allocates a portion of the transaction price to such service. In
all cases where an extended warranty is accompanied by a maintenance service, which is even a broader category than an extended
warranty itself, revenues are recognized over time because the customer consumes the benefits of such service as it is performed
by the provider. If this is the case, the Group continues to allocate a portion of the transaction price to such maintenance service.
Likewise, in cases where a warranty service is provided after the project completion and is not accompanied by any maintenance
service, then a portion of the transaction price and analogically recognition of a portion of contract revenues will have to be
deferred until the warranty service is actually fulfilled.
| iv. | Sale
of third-party licenses and services |
Third-party
licenses and services includes revenues from the sale of third-party licenses as well as from the provision of services which,
due to technological or legal reasons, must be carried out by subcontractors (this applies to hardware and software maintenance
and outsourcing services provided by their manufacturers). Revenues from the sale of third-party licenses are accounted for as
sales of goods, which means that such revenues are recognized at the point in time at which control of the license is transferred
to the customer. Concurrently, revenues from third-party services, including primarily third-party maintenance services, are recognized
over time when such services are provided to the customer.
Whenever
the Group is involved in the sale of third-party licenses or services, it will consider whether the Group acts as a principal
or an agent; however, in most cases the conclusion is that the Group is the main party required to satisfy a performance obligation
and therefore the resulting revenues are recognized in the gross amount of consideration.
Sale
of hardware includes revenues from contracts with customers for the supply of infrastructure. In this category, revenues are recognized
basically at the point in time at which control of the equipment is transferred. This does not apply to contracts in which the
hardware is not delivered separately from services provided alongside, in such case the sale of hardware is part of a performance
obligation involving the supply of a comprehensive system. However, such comprehensive projects are a rare practice in the Group
as the sale of hardware is predominantly performed on a distribution basis.
| vi. | Variable
consideration |
In
accordance with IFRS 15, if a contract consideration encompasses any amount that is variable, the Group shall estimate the amount
of consideration to which it will be entitled in exchange for transferring promised goods or services to the customer, and shall
include a portion or the whole amount of variable consideration in the transaction price but only to the extent that it is highly
probable a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated
with the variable consideration is subsequently resolved.
| vii. | Significant
financing component |
When
contracts involve a significant financing component, the Group adjusts the promised amount of consideration for the effects of
the time value of money if the timing of payments agreed to by the parties to the contract (either explicitly or implicitly) provide
the customer with a significant benefit of financing.
The
Group has elected to apply the practical expedient allowed by IFRS 15 according to which it does not separate the financing component
in transactions whose credit terms are less than one year and will recognize revenue in the amount of the consideration stated
in the contract even if the customer pays for the goods or services subsequent to their receipt.
| viii. | Costs
of contracts with customers |
Costs
of obtaining a contract
Costs
of obtaining a contract are those incremental costs incurred by the Group in order to obtain a contract with a customer that it
would not have incurred if the contract had not been obtained. The Group recognizes such costs as an asset if it expects to recover
those costs. Such capitalized costs of obtaining a contract shall be amortized over the period when the Group satisfies the performance
obligations arising from the contract. Amortization expenses related to costs of obtaining or fulfilling a contract are included
in sales and marketing expenses in the consolidated statements of profit or loss.
Commissions
to sales and marketing and certain management personnel that are paid based on their attainment of certain predetermined sales
or profit goals, are considered by the Group as incremental costs of obtaining a contract with a customer, and are deferred and
amortized on a systematic basis, consistent with the transfer of the related performance obligations to the customer. As such,
sales commissions paid for initial contracts, which are not commensurate with additional commissions paid for renewal of such
contracts, are capitalized and amortized over the expected period of benefit (including expected renewals periods). Sales commissions
on initial contracts, which are commensurate with additional commissions paid for the renewal of such contracts, are capitalized
and then amortized correspondingly to the recognized revenue of the related initial contracts (not including expected renewals
periods). Sales commissions for renewal of such initial contracts are capitalized and then amortized on a straight line basis
over the related contractual renewal period. As a practical expedient, if the expected amortization period is one-year or less,
the commission fee is expensed as incurred.
Costs
to fulfill a contract
Costs
to fulfill a contract are the costs incurred in fulfilling a contract with a customer. The Group recognizes such costs as an asset
if they are not within the scope of another standard (for example, IAS 2 ‘Inventories’, IAS 16 ‘Property, Plant
and Equipment’ or IAS 38 ‘Intangible Assets’) and if those costs meet all of the following criteria:
| i) | the
costs relate directly to a contract or to an anticipated contract with a customer, |
| ii) | the
costs generate or enhance resources of the Group that will be used in satisfying (or
in continuing to satisfy) performance obligations in the future, and |
| iii) | the
costs are expected to be recovered. |
Government
grants are recognized when there is reasonable assurance that the grants will be received and the Group will comply with the attached
conditions. Government grants received from the Office of the Israel Innovation Authority (“IIA”), formerly the Office
of the Chief Scientist (“OCS”), are recognized upon receipt as a liability if future economic benefits are expected from
the research project that will result in royalty-bearing sales.
A
liability for the loan is first measured at fair value using a discount rate that reflects a market rate of interest. The
difference between the amount of the grant received and the fair value of the liability is accounted for as a Government
grant and recognized as a reduction of research and development expenses. After initial recognition, the liability is
measured at amortized cost using the effective interest method. Royalty
payments are treated as a reduction of the liability. If no economic benefits are expected from the research activity, the
grant receipts are recognized as a reduction of the related research and development expenses. In that event, the royalty
obligation is treated as a contingent liability in accordance with IAS 37.
In
each reporting date, the Group evaluates whether there is reasonable assurance that the liability recognized, in whole or in part,
will not be repaid (since the Group will not be required to pay royalties) based on the best estimate of future sales and using
the original effective interest method, and if so, the appropriate amount of the liability is derecognized against a corresponding
reduction in research and development expenses. Amounts paid as royalties are recognized as settlement of the liability.
The
Group accounts for outstanding principal amount of debentures as long-term liability, in accordance with IFRS 9, with current
maturities classified as short-term liabilities. The Group identifies and separates equity components contains in convertible
debentures by first determining the liability component, in accordance with IAS 32, based on the fair value of an equivalent non-convertible
liability. The conversion component valued is being determined to be the residual amount. Debt issuance costs are capitalized
and reported as deferred financing costs, which are amortized over the life of the debentures using the effective interest rate
method.
Current
or deferred taxes are recognized in profit or loss, except to the extent that they relate to items which are recognized in other
comprehensive income or equity.
The
current tax liability is measured using the tax rates and tax laws that have been enacted or substantively enacted by the reporting
date as well as adjustments required in connection with the tax liability in respect of previous years.
Deferred
taxes are computed in respect of temporary differences between the carrying amounts in the financial statements and the amounts
attributed for tax purposes. Deferred taxes are measured at the tax rate that is expected to apply when the asset is realized
or the liability is settled, based on tax laws that have been enacted or substantively enacted by the reporting date. Deferred
tax assets are reviewed at each reporting date and reduced to the extent that it is not probable that they will be utilized. Deductible
carryforward losses and temporary differences for which deferred tax assets had not been recognized are reviewed at each reporting
date and a respective deferred tax asset is recognized to the extent that their utilization is probable.
Taxes
that would apply in the event of the disposal of investments in investees have not been taken into account in computing deferred
taxes, as long as the disposal of the investments in investees is not probable in the foreseeable future. Also, deferred taxes
that would apply in the event of distribution of earnings by investees as dividends have not been taken into account in computing
deferred taxes, since the distribution of dividends does not involve an additional tax liability or since it is the Group’s
policy not to initiate distribution of dividends from a subsidiary that would trigger an additional tax liability.
Taxes
on income that relate to distributions of an equity instrument and to transaction costs of an equity transaction are accounted
for pursuant to IAS 12.
Deferred
taxes are offset if there is a legally enforceable right to offset a current tax asset against a current tax liability and the
deferred taxes relate to the same taxpayer and the same taxation authority.
The
criteria for classifying leases as finance or operating leases depend on the substance of the agreements and are made at the inception
of the lease in accordance with the following principles as set out in IAS 17.
The
Group as lessee:
A
lease that transfers substantially all the risks and rewards incidental to ownership of the leased asset to the Group is classified
as a finance lease. At the commencement of the lease term, the leased asset is measured at the lower of the fair value of the
leased asset or the present value of the minimum lease payments. The leased asset is depreciated over the shorter of its useful
life and the lease term.
Leases
in which substantially all the risks and rewards of ownership of the leased asset are not transferred to the Group are classified
as operating leases. Lease payments are recognized as an expense in profit or loss on a straight-line basis over the lease term.
| 18) | Property,
plant and equipment, net: |
Property,
plant and equipment are measured at cost, including directly attributable costs, less accumulated depreciation, accumulated impairment
losses and any related investment grants and excluding day-to-day servicing expenses. Cost includes spare parts and auxiliary
equipment that are used in connection with plant and equipment. The cost of an item of property, plant and equipment comprises
the initial estimate of the costs of dismantling and removing the item and restoring the site on which the item is located.
Depreciation
is calculated on a straight-line basis over the useful life of the assets at annual rates as follows:
| |
|
% |
| |
|
|
| Computers,
software and peripheral equipment |
|
20-33
(mainly 33) |
| Office
furniture and equipment |
|
6-33 (mainly 7) |
| Motor
vehicles |
|
15 |
| Buildings |
|
2-4 |
Leasehold
improvements are amortized using the straight-line method over the term of the lease (including option terms that are deemed to
be reasonably assured) or the estimated useful life of the improvements, whichever is shorter.
The
useful life, depreciation method and residual value of an asset are reviewed at least each year-end (at the end of the year) and
any changes are accounted for prospectively as a change in accounting estimate. Depreciation of an asset ceases at the earlier
of the date that the asset is classified as held for sale and the date that the asset is derecognized. For impairment testing
of property, plant and equipment, see Note 2(21) below.
| 19) | Research
and development costs: |
Research
expenditures incurred in the process of software development are recognized in profit or loss when incurred. An intangible asset
arising from a software development project or from the development phase of an internal project is recognized if the Group can
demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale; the Group’s
intention to complete the intangible asset and use or sell it; the ability to use or sell the intangible asset; how the intangible
asset will generate future economic benefits; the availability of adequate technical, financial and other resources to complete
the intangible asset; and the ability to measure reliably the respective expenditure asset during its development. The Group establishes
technological feasibility upon completion of a detailed program design or working model.
Research
and development costs incurred between completion of the detailed program design and the point at which the product is ready for
general release, have been capitalized.
Capitalized
software costs are measured at cost less any accumulated amortization and any accumulated impairment losses on a product by product
basis. Amortization of capitalized software costs begin when development is complete and the product is available for use. The
Group considers a product to be available for use when the Group completes its internal validation of the product that is necessary
to establish that the product meets its design specifications including functions, features, and technical performance requirements.
Internal validation includes the completion of coding, documentation and testing that ensure bugs are reduced to a minimum. The
internal validation of the product takes place a few weeks before the product is made available to the market. In certain instances,
The Group enters into a short pre-release stage, during which the product is made available to a select number of customers as
a beta program for their own review and familiarization. Subsequently, the release is made generally available to customers. Once
a product is considered available for use, the capitalization of costs ceases and amortization of such costs to “cost of
sales” begins.
Capitalized
software costs are amortized on a product by product basis by the straight-line method over the estimated useful life of the software
product (between 5-7 years).
Research
and development costs incurred in the process of developing product enhancements are generally charged to expenses as incurred.
The
Group assesses the recoverability of its capitalized software costs on a regular basis by assessing the net realizable value
of these intangible assets based on the estimated future gross revenues from each product reduced by the estimated future
costs of completing and disposing of it, including the estimated costs of performing maintenance and customer support over
its remaining economical useful life using internally generated projections of future revenues generated by the products,
cost of completion of products and cost of delivery to customers over its remaining economical useful life.
During
the years ended December 31, 2016, 2017 and 2018, no such unrecoverable amounts were identified.
| 20) | Other
intangible assets: |
Separately-acquired
intangible assets are measured on initial recognition at cost, including directly attributable costs. Intangible assets acquired
in a business combination are measured at fair value at the acquisition date. Expenditures relating to internally generated intangible
assets, excluding capitalized development costs, are recognized in profit or loss when incurred.
According
to management’s assessment, intangible assets with a finite useful life are amortized over their useful life and reviewed for
impairment whenever there is an indication that the asset may be impaired. The amortization period and the amortization method
for an intangible asset are reviewed at least at each year end. Other intangible assets are comprised mainly of customer-related
intangible assets, backlogs, brand names, capitalized courses development costs, non-compete agreements and acquired technology
and patent, and are amortized over their useful lives using a method of amortization that reflects the pattern in which the economic
benefits of the intangible assets are consumed or otherwise used up. The useful life of intangible assets is as follows:
| |
|
Years |
| Customer
relationship and backlog |
|
1-15 |
| Acquired
technology |
|
2-8 |
| Brand
names and patents |
|
5-10 |
Gains
or losses arising from the derecognition of an intangible asset are determined as the difference between the net disposal proceeds
and the carrying amount of the asset and are recognized in the statement of profit or loss.
The
useful life of these assets is reviewed annually to determine whether their indefinite life assessment continues to be supportable.
If the events and circumstances do not continue to support the assessment, the change in the useful life assessment from indefinite
to finite is accounted for prospectively
as a change in accounting estimate, and on that date the asset is tested for impairment. Commencing from that date, the asset
is amortized systematically over its useful life.
| 21) | Impairment
of non-financial assets: |
The
Group evaluates the need to record an impairment of non-financial assets (property, plant and equipment, capitalized software
costs and other intangible assets, goodwill, investments in joint venture) whenever events or changes in circumstances indicate
that the carrying amount is not recoverable.
If
the carrying amount of non-financial assets exceeds their recoverable amount, the assets are reduced to their recoverable amount.
The recoverable amount is the higher of fair value less costs of sale and value in use. In measuring value in use, the expected
future cash flows are discounted using a pre-tax discount rate that reflects the risks specific to the asset. The recoverable
amount of an asset that does not generate independent cash flows is determined for the cash-generating unit to which the asset
belongs. Impairment losses are recognized in profit or loss.
An
impairment loss of an asset, other than goodwill, is reversed only if there have been changes in the estimates used to determine
the asset’s recoverable amount since the last impairment loss was recognized. Reversal of an impairment loss, as above, shall
not be increased above the lower of the carrying amount that would have been determined (net of depreciation or amortization)
had no impairment loss been recognized for the asset in prior years and its recoverable amount. The reversal of impairment loss
of an asset presented at cost is recognized in profit or loss.
The
following criteria are applied in assessing impairment of these specific assets:
| i. | Goodwill
in respect of subsidiaries: |
For
the purpose of impairment testing, goodwill acquired in a business combination is allocated, at the acquisition date, to each
of our cash-generating units that are expected to benefit from the synergies of the combination.
The
Group reviews goodwill for impairment once a year, on December 31, or more frequently if events or changes in circumstances indicate
that there is an impairment.
Goodwill
is tested for impairment by assessing the recoverable amount of the cash-generating unit (or group of cash-generating units) to
which the goodwill has been allocated. An impairment loss is recognized if the recoverable amount of the cash-generating unit
(or group of cash-generating units) to which goodwill has been allocated is less than the carrying amount of the cash-generating
unit (or group of cash-generating units). Any impairment loss is allocated first to goodwill. Impairment losses recognized for
goodwill cannot be reversed in subsequent periods.
| ii. | Investment
in associate or joint venture using the equity method: |
After
application of the equity method, the Group determines whether it is necessary to recognize any additional impairment loss with
respect to the investment in associates or joint ventures. The Group determines at each reporting date whether there is objective
evidence that the carrying amount of the investment in the associate or the joint venture is impaired. The test of impairment
is carried out with reference to the entire investment, including the goodwill attributed to the associate or the joint venture.
During
the years ended December 31, 2016, 2017 and 2018, no impairment indicators were identified.
| 22) | Financial
instruments: |
As
described in Note 2 (30)(B) regarding the initial adoption of IFRS 9, “Financial Instruments” (the “Standard”),
the Group elected to adopt the provisions of the Standard retrospectively without restatement of comparative data.
The
accounting policy for financial instruments applied until December 31, 2017 is as follows:
Financial
assets within the scope of IAS 39 are initially recognized at fair value plus directly attributable transaction costs, except
for financial assets measured at fair value through profit or loss in respect of which transaction costs are recorded in profit
or loss. After initial recognition, the accounting treatment of financial assets is based on their classification as follows:
| i. | Financial
assets at fair value through profit or loss: |
This
category includes financial assets held for trading and a dividend preference derivative in TSG (for a description of the TSG
derivative, see Note 8).
| ii. | Loans
and receivables: |
Loans
and receivables are investments with fixed or determinable payments that are not quoted in an active market. After initial recognition,
loans are measured based on their terms at amortized cost plus directly attributable transaction costs using the effective interest
method and less any impairment losses. Short-term borrowings are measured based on their terms, normally at face value.
| iii. | Available-for-sale
financial assets: |
Available-for-sale
financial assets are (non-derivative) financial assets that are designated as available for sale or are not classified in any
of the three preceding categories. After initial recognition, available-for-sale financial assets are measured at fair value.
Gains or losses from fair value adjustments, except for interest, exchange rate differences that relate to debt instruments and
dividends from an equity instrument, are recognized in other comprehensive income. When the investment is disposed of or in case
of impairment, the other comprehensive income (loss) is transferred to profit or loss.
Financial
liabilities are initially recognized at fair value. Loans and other liabilities measured at amortized cost are presented less
direct transaction costs. After initial recognition, the accounting treatment of financial liabilities is based on their classification
as follows:
| i. | Financial
liabilities at amortized cost: |
After
initial recognition, loans and other liabilities are measured based on their terms at amortized cost less directly attributable
transaction costs using the effective interest method.
| ii. | Financial
liabilities at fair value through profit or loss: |
Financial
liabilities at fair value through profit or loss include financial liabilities classified as held for trading and financial liabilities
designated upon initial recognition as at fair value through profit or loss. Derivatives, including separated embedded derivatives,
are classified as held for trading unless they are designated as effective hedging instruments.
| C. | Offsetting
financial instruments: |
Financial
assets and financial liabilities are offset and the net amount is presented in the statement of financial position if there is
a legally enforceable right to set off the recognized amounts and there is an intention either to settle on a net basis or to
realize the asset and settle the liability simultaneously.
The
right of set-off must be legally enforceable not only during the ordinary course of business of the parties to the contract but
also in the event of bankruptcy or insolvency of one of the parties. In order for the right of set-off to be currently available,
it must not be contingent on a future event, there may not be periods during which the right is not available, or there may not
be any events that will cause the right to expire.
| D. | Compound
financial instruments: |
| i. | Convertible
debentures which contain both an equity component and a liability component are separated
into two components. This separation is performed by first determining the liability
component based on the fair value of an equivalent non-convertible liability. The value
of the conversion component is determined to be the residual amount. Directly attributable
transaction costs are apportioned between the equity component and the liability component
based on the allocation of proceeds to the equity and liability components. |
| ii. | Convertible
debentures that are denominated in foreign currency contain two components: the conversion
component and the debt component. The liability conversion component is initially recognized
as a financial derivative at fair value. The balance is attributed to the debt component.
Directly attributable transaction costs are allocated between the liability conversion
component and the liability debt component based on the allocation of the proceeds to
each component. |
The
Group assesses the existence of an embedded derivative and whether it is required to be separated from a host contract when the
Group first becomes party to the contract. Reassessment of the need to separate an embedded derivative only occurs if there is
a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required.
| F. | Put
option granted to non-controlling interests: |
When
the Group grants to non-controlling interests a put option to sell part or all of their interests in a subsidiary, during a certain
period, even if such purchase obligation is conditional on the counterparty’s exercise of its contractual right to cause
such redemption, if the put option agreement does not transfer to the Group any benefits incidental to ownership of the equity
instrument (i.e. the Group does not have a present ownership in the shares concerned), then at the end of each reporting period
the non-controlling interests (to which a portion of net profit attributable to non-controlling interests is allocated) are classified
as a financial liability, as if such put-able equity instrument was redeemed on that date. The difference between the non-controlling
interests carrying amount at the end of the reporting period and the present value of the liability is recognized directly in
equity of the Group, under “Additional paid-in capital”.
The
Group remeasures the financial liability at the end of each reporting period based on the estimated present value of the consideration
to be transferred upon the exercise of the put option.
If
the option is exercised in subsequent periods, the consideration paid upon exercise is treated as settlement of the liability.
If the option expires, the liability is settled and it is a portion of the investment in the subsidiary disposed of, without loss
of control therein.
If
the Group has present ownership in the shares concerned, these non-controlling interests are accounted for as if they are held
by the Group and changes in the amount of the liability are carried to profit or loss.
| G. | Derecognition
of financial instruments: |
A
financial asset is derecognized when the contractual rights to the cash flows from the financial asset expire or the Group has
transferred its contractual rights to receive cash flows from the financial asset or assumes an obligation to pay the cash flows
in full without material delay to a third party, and, in addition it has transferred substantially all the risks and rewards of the asset, or has neither
transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
A
transaction involving factoring of accounts receivable and credit card vouchers is derecognized when the above-mentioned conditions
are met.
If
the Group transfers its rights to receive cash flows from an asset and neither transfer nor retains substantially all the risks
and rewards of the asset nor transfers control of the asset, a new asset is recognized to the extent of the Group’s continuing
involvement in the asset. When continuing involvement takes the form of guaranteeing the transferred asset, the extent of the
continuing involvement is the lower of the original carrying amount of the asset and the maximum amount of consideration received
that the Group could be required to repay. As of December 31, 2017, the Group has no open factoring transactions.
| ii. | Financial
liabilities: |
A
financial liability is derecognized when it is extinguished, that is when the obligation is discharged or cancelled or expires.
A financial liability is extinguished when the debtor (the Group) discharges the liability by paying in cash, other financial
assets, goods or services or is legally released from the liability.
| H. | Impairment
of financial assets: |
The
Group assesses at the end of each reporting period whether there is any objective evidence of impairment of a financial asset
or group of financial assets as follows:
| i. | Financial
assets carried at amortized cost: |
Objective
evidence of impairment exists when one or more events that have occurred after initial recognition of the asset have a negative
impact on the estimated future cash flows. The amount of the loss recorded in profit or loss is measured as the difference between
the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not
yet been incurred) discounted at the financial asset’s original effective interest rate. If the financial asset has a variable
interest rate, the discount rate is the current effective interest rate. In a subsequent period, the amount of the impairment
loss is reversed if the recovery of the asset can be related objectively to an event occurring after the impairment was recognized.
The amount of the reversal, up to the amount of any previous impairment, is recorded in profit or loss.
| ii. | Available-for-sale
financial assets: |
For
equity instruments classified as available-for-sale financial assets, evidence of impairment includes a significant or prolonged
decline in the fair value of the asset below its cost and evaluation of changes in the technological, economic or legal environment
or in the market in which the issuer of the instrument operates. The determination of a significant or
prolonged impairment depends on the circumstances at each reporting date. In making such a determination, historical volatility
in fair value is considered, as well as a decline in fair value of 20% or more, or a decline in fair value whose duration is six
months or more. Where there is evidence of impairment, the cumulative loss recorded in other comprehensive income is reclassified
to profit or loss. In subsequent periods, any reversal of the impairment loss is recognized in other comprehensive income.
During
2016 and 2017 the Group did not recognize an impairment charge over its investments in available-for-sale marketable securities.
The
accounting policy for financial instruments applied commencing from January 1, 2018, is as follows:
Financial
assets within the scope of the Standard, are measured at the date of initial recognition at their fair value, plus transaction
costs that can be directly attributed to the acquisition of the financial asset, except in the case of a financial asset measured
at fair value through profit or loss, in respect of which, transaction costs are charged to profit or loss.
The
Group classifies and measures the debt instruments in its financial statements on the basis of the following criteria:
| ● | the
Group’s business model for the management of financial assets; and |
| ● | the
contractual cash flow characteristics of the financial asset. |
| i. | The
Group measures debt instruments at amortized cost when: |
The
Group’s business model is the holding of financial assets in order to collect contractual cash flows, and the contractual
terms of the financial asset provide entitlement on defined dates to cash flows, that are only principal and interest payments
in respect of the amount of the principal, that has not yet been repaid. Subsequent to initial recognition, instruments in this
group shall be presented at their cost at cost plus transaction costs directly using the amortized cost method. In addition, on
the date of initial recognition, an entity may irrevocably designate a debt instrument at fair value through profit or loss, if
such designation eliminates or significantly reduces inconsistencies in measurement or recognition, for example, if the related
financial liabilities, are also measured at fair value through profit or loss.
| ii. | The
Group measures debt instruments at fair value through other comprehensive income when: |
The
Group’s business model is the holding of financial assets in order to collect contractual cash flows and the sale of the
financial assets, and the contractual terms of the financial asset provide entitlement on defined dates to cash flows that are
only principal and interest payments in respect of the amount of the principal that has not yet been repaid. Subsequent to initial
recognition, instruments in this group are measured at fair value. Gains or losses arising
from adjustments to fair value, other than interest and exchange rate differentials, are recognized in other comprehensive income.
| iii. | The
Group measures debt instruments at fair value through profit or loss when: |
A
financial asset which is a debt instrument does not meet the criteria for measurement at amortized cost or at fair value through
other comprehensive income. After initial recognition, the financial asset is measured at fair value and gains or losses from
fair value adjustments are recognized in profit or loss.
| B. | Impairment
of financial assets: |
The
Group examines at each reporting date the provision for loss in respect of financial debt instruments that are not measured at
fair value through profit or loss. The Group distinguishes between two situations of recognition of a provision for loss:
| i. | Debt
instruments for which there has been no significant deterioration in the quality of their
credit since the initial recognition or in cases where the credit risk is low –
in this situation, the provision for loss recognized for this debt instrument will take
into account expected credit losses in a period of 12 months after the reporting date; |
| ii. | Debt
instruments whose credit quality has deteriorated significantly since their initial recognition
and for which the credit risk is not low – in this situation, the provision for
a loss to be recognized will take into account projected credit losses - over the remaining
life of the instrument. |
The
Group has financial assets with short credit periods, such as customers, for which it applies the relief prescribed in the model.
In other words, the Group measures the provision for loss in an amount equal to expected credit losses throughout the life of
the instrument.
Impairment
in respect of debt instruments measured at amortized cost, will be carried to profit or loss against provision, while impairment
in respect of debt instruments measured at fair value through other comprehensive income, will be carried to profit or loss against
other comprehensive income, and will not reduce the book value of the financial asset in the statement of financial position.
The
Group implements the relief prescribed in the Standard, according to which it assumes that the credit risk of a debt instrument
that did not increase significantly from the date of initial recognition if it was determined at the reporting date that the instrument
has a low credit risk, for example when the instrument has an external rating of “investment grade”.
| C. | Derecognition
of financial assets: |
The
Group derecognizes a financial asset when and only when:
| i. | The
contractual rights to the cash flows from the financial asset expire; or |
| ii. | The
Group transfers substantially all the risks and rewards deriving from the contractual
rights to receive the cash flows from the financial asset or when some of the risks and
rewards of transferring the financial asset remain with the entity but it may be said
that it transferred control over the asset; or |
| iii. | The
Group retains the contractual rights to receive the cash flows arising from the financial
asset but assumes a contractual obligation to pay these cash flows in full to a third
party, without material delay. |
| i. | Financial
liabilities measured at amortized cost: |
Financial
liabilities are initially recognized at fair value less transaction costs that are directly attributable to the issue of the financial
liability. After initial recognition, the Group measures all financial liabilities at amortized cost using the effective interest
rate method, except for:
| ● | Financial
liabilities at fair value through profit or loss, such as derivatives; |
| ● | Financial
liabilities that arise when a transfer of a financial asset does not qualify for derecognition
or when the continuing involvement approach applies; |
| ● | Financial
guarantee contracts; |
| ● | Contingent
consideration recognized by an acquirer in a business combination as to which IFRS 3
applies. |
| ii. | Financial
liabilities measured at fair value through profit or loss: |
At
initial recognition, the Group measures financial liabilities that are not measured at amortized cost at fair value. Transaction
costs are recognized in profit or loss. After initial recognition, changes in fair value are recognized in profit or loss.
| E. | Derecognition
of financial liabilities: |
A
financial liability is derecognized when it is extinguished, that is, when the obligation is discharged or cancelled or expires.
A financial liability is extinguished when the debtor discharges the liability by paying in cash, other financial assets, goods
or services or is legally released
from the liability.
When
there is a modification in the terms of an existing financial liability, the Group evaluates whether the modification is substantial.
If
the terms of an existing financial liability are substantially modified, such modification is accounted for as an extinguishment
of the original liability and the recognition of a new liability. The difference between the carrying amounts of the above liabilities
is recognized in profit or loss.
If
the modification is not substantial, the Group recalculates the carrying amount of the liability by discounting the revised cash
flows at the original effective interest rate and any resulting difference is recognized in profit or loss.
When
evaluating whether the modification in the terms of an existing liability is substantial, the Group considers both quantitative
and qualitative factors
| F. | Offsetting
financial instruments: |
Financial
assets and financial liabilities are offset and the net amount is presented in the statement of financial position if there is
a legally enforceable right to set off the recognized amounts and there is an intention either to settle on a net basis or to
realize the asset and settle the liability simultaneously.
The
right of set-off must be legally enforceable not only during the ordinary course of business of the parties to the contract but
also in the event of bankruptcy or insolvency of one of the parties. In order for the right of set-off to be currently available,
it must not be contingent on a future event, there may not be periods during which the right is not available, or there may not
be any events that will cause the right to expire.
| G. | Put
option granted to non-controlling interests: |
When
the Group grants to non-controlling interests a put option to sell part or all of their interests in a subsidiary, during a certain
period, even if such purchase obligation is conditional on the counterparty’s exercise of its contractual right to cause
such redemption, if the put option agreement does not transfer to the Group any benefits incidental to ownership of the equity
instrument (i.e. the Group does not have a present ownership in the shares concerned) then at the end of each reporting period
the non-controlling interests (to which a portion of net profit attributable to non-controlling interests is allocated) are classified
as a financial liability, as if such put-able equity instrument was redeemed on that date. The difference between the non-controlling
interests carrying amount at the end of the reporting period and the present value of the liability is recognized directly in
equity of the Group, under “Additional paid-in capital”.
The
Group remeasures the financial liability at the end of each reporting period based on the estimated present value of the consideration
to be transferred upon the exercise of the put option.
If
the option is exercised in subsequent periods, the consideration paid upon exercise is treated as settlement of the liability.
If the option expires, the liability is settled and it is a portion of the investment in the subsidiary disposed of, without loss
of control therein.
If
the Group has present ownership of the non-controlling interests, these non-controlling interests are accounted for as if they
are held by the Group, and changes in the amount of the liability are carried to profit or loss.
| 23) | Fair
value measurement: |
Fair
value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. Fair value measurement is based on the assumption that the transaction will take place in
the asset’s or the liability’s principal market, or in the absence of a principal market, in the most advantageous market.
The
fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset
or liability, assuming that market participants act in their economic best interest. Fair value measurement of a non-financial
asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best
use or by selling it to another market participant that would use the asset in its highest and best use. The Group uses valuation
techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing
the use of relevant observable inputs and minimizing the use of unobservable inputs.
All
assets and liabilities measured at fair value or for which fair value is disclosed are categorized into levels within the fair
value hierarchy based on the lowest level input that is significant to the entire fair value measurement:
| |
Level
1 |
- |
quoted
prices (unadjusted) in active markets for identical assets or liabilities. |
| |
|
|
|
| |
Level
2 |
- |
inputs
other than quoted prices included within Level 1 that are observable directly or indirectly. |
| |
|
|
|
| |
Level
3 |
- |
inputs
that are not based on observable market data (valuation techniques which use inputs that are not based on observable market
data). |
Company
shares held by the Company and/or subsidiaries are recognized at cost of purchase and presented as a deduction from equity. Any
gain or loss arising from a purchase, sale, issue or cancellation of treasury shares is recognized directly in equity.
A
provision in accordance with IAS 37 is recognized when the Group has a present obligation (legal or constructive) as a result
of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation
and a reliable estimate can be made of the amount
of the obligation. If the effect is material, provisions are measured according to the estimated future cash flows discounted
using a pre-tax interest rate that reflects the market assessments of the time value of money and, where appropriate, those risks
specific to the liability. When the Group expects part or all of the expense to be reimbursed, for example under an insurance
contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense
is recognized in the statement of profit or loss net of any reimbursement.
Following
are the types of provisions included in the financial statements:
A
provision for claims is recognized when the Group has a present legal or constructive obligation as a result of a past event,
it is more likely than not that an outflow of resources embodying economic benefits will be required by the Group to settle the
obligation and a reliable estimate can be made of the amount of the obligation.
| ii. | Contingent
liability recognized in a business combination: |
A
contingent liability in a business combination is measured at fair value upon initial recognition. In subsequent periods, it is
measured at the higher of the amount initially recognized less, when appropriate, cumulative amortization, and the amount that
would be recognized at the end of the reporting period in accordance with IAS 37.
| 26) | Derivative
financial instruments and hedging: |
The
Group enters into contracts for derivative financial instruments such as forward currency contracts and options contracts to hedge
risks associated with foreign exchange rates resulting from international activities and interest rate fluctuations. The derivative
instruments primarily hedge or offset exposures to Euro, Japanese Yen and New Israeli Shekel (“NIS”) exchange rate fluctuations.
The
Group’s options and forward contracts do not qualify for hedging accounting. Any gains or losses arising from changes in
the fair values of the derivatives are recorded immediately in profit or loss as financial income or expense.
| 27) | Employee
benefit liabilities: |
The
Group has several employee benefit plans:
| i. | Short-term
employee benefits: |
Short-term
employee benefits are benefits that are expected to be settled wholly before twelve months after the end of the annual reporting
period in which the employees render the related services. These benefits include salaries, paid annual leave, paid sick leave,
recreation and social security contributions and are recognized as expenses as the services are rendered. A liability in respect
of a cash bonus or a profit-sharing plan is recognized when the Group has a legal or constructive obligation to make such payment
as a result of past service rendered by an employee and a reliable estimate of the amount can be made.
| ii. | Post-employment
benefits: |
The
plans are normally financed by contributions to insurance companies and classified as defined contribution plans or as defined
benefit plans.
Formula’s
and its Israeli investees’ (as defined with respect to their Israeli employee contribution plans pursuant to section 14
of Israel’s Severance Pay Law, 1963 (the “Severance Pay Law”)) pay fixed contributions to those plans and will
have no legal or constructive obligation to pay further contributions if the fund into which those contributions are paid does
not hold sufficient amounts to pay all employee benefits relating to employee service in the current and prior periods. Contributions
to the defined contribution plan in respect of severance or retirement pay are recognized as an expense when contributed concurrently
with performance of the employee’s services.
Formula
and its Israeli investees also operate a defined benefit plan in respect of severance pay to their Israeli employees pursuant
to the Severance Pay Law. According to the Severance Pay Law, employees are entitled to severance pay upon dismissal or retirement.
The liability for termination of employment is measured using the projected unit credit method. The actuarial assumptions include
rates of employee turnover and future salary increases based on the estimated timing of payment. The amounts are presented based
on discounted expected future cash flows using a discount rate determined by reference to market yields at the reporting date
on high quality corporate bonds that are linked to Israel’s Consumer Price Index with a term that is consistent with the
estimated term of the severance pay obligation.
In
respect of its severance pay obligation to certain of its employees, the Group makes current deposits in pension funds and insurance
companies (the “plan assets”). Plan assets comprise assets held by a long-term employee benefit fund or qualifying
insurance policies. Plan assets are not available to the Group’s own creditors and cannot be returned directly to the Group.
The
liability for employee benefits shown in the statement of financial position reflects the present value of the defined benefit
obligation, less the fair value of the plan assets. Remeasurements of the net liability are recognized in other comprehensive
income in the period in which they occur.
Total
expenses in respect of employee benefit liabilities for the years 2016, 2017 and 2018 were $29,557, $35,036 and $30,941, respectively.
Earnings
per share are calculated by dividing the net income attributable to equity holders of the Company by the weighted number of ordinary
shares outstanding during the period. Potential ordinary shares are included in the computation of diluted earnings per share
when their conversion decreases earnings per share from continuing operations. Potential ordinary shares that are converted during
the period are included in diluted earnings per share only until the conversion date and from that date in basic earnings per
share. The Company’s share of earnings of investees is included based on its share of earnings per share of the investees multiplied
by the number of shares held by the Company.
| 29) | Concentration
of credit risk: |
Financial
instruments that potentially subject the Group to concentrations of credit risk consist principally of cash and cash equivalents,
short-term bank deposits, restricted cash, trade receivables, marketable securities and foreign currency derivative contracts.
The
majority of the Group’s cash and cash equivalents, bank deposits and marketable securities are invested with major banks in Israel,
the United States and Europe. Management believes that these financial instruments are held in financial institutions with high
credit standing, and accordingly, minimal credit risk exists with respect to these investments. Cash and cash equivalents and
short-term deposits in the United States may be in excess of insured limits and are not insured in other jurisdictions. Generally,
these banks deposits may be redeemed upon demand and therefore bear minimal risk.
The
Group’s marketable securities include investments in commercial and government bonds and foreign banks. The Group’s marketable
securities are considered to be highly liquid and have a high credit standing. In addition, managements of the Group’s investees
limit the amount that may be invested in any one type of investment or issuer, thereby reducing credit risk concentrations and
consider their portfolios in foreign banks to be well-diversified (also refer to Note 5).
The
Group’s trade receivables are generally derived from sales to large organizations located mainly in Israel, North America, Europe
and Asia Pacific. The Group performs ongoing credit evaluations of its customers and to date has not experienced any material
losses. In certain circumstances, Formula and its investees may require letters of credit, other collateral or additional guarantees.
From time to time, the Group’s subsidiaries sell certain of its accounts receivable to financial institutions, within the
normal course of business.
The
Group maintains an allowance for doubtful accounts receivable based upon management’s experience and estimate of collectability
of each outstanding invoice. The allowance for doubtful accounts is determined with respect to specific debts or which collection
is doubtful. The risk of collection associated with accounts receivable is mitigated by the diversity and number of customers.
From
time to time, the Group enters into foreign exchange forward and option contracts intended to protect against the changes in value
of forecasted non-dollar currency cash flows. These derivative instruments are designed to offset a portion of the Group’s
non-dollar currency exposure (see Note 2 (26) above).
| 30) | Changes
in accounting policies - initial adoption of new financial reporting and accounting standards: |
| A. | First
time implementation of IFRS 15 – Revenue from Contracts with Costumers: |
The
Group adopted IFRS 15 (or the “Standard”) on January 1, 2018 and elected to apply the modified retrospective approach
with the cumulative effect recognized as an adjustment to the opening retained earnings balance of $874 as of January 1, 2018.
The Group applied a practical expedient allowed under IFRS 15 and exempt from the restatement of comparable data. This means that
financial data reported for reporting periods prior to December 31, 2017 has been prepared on the basis of the following standards:
IAS 18 ‘Revenue’, IAS 11 ‘Construction Contracts’
as well as interpretations related to revenue recognition that were applicable before the effective date of IFRS 15. Results for
reporting periods beginning after January 1, 2018 are presented in accordance with IFRS 15.
The
effects of the initial application of the new Standard on the Group’s financial statements are as follows:
| i) | Term
license - under the legacy revenue standard, the Group recognized both the revenue from
sale of term license (which does not involve significant customization) and post-contract
support revenues ratably over the contract period whereas upon application of the provisions
of the new Standard, term license revenues are recognized up front, upon delivery, and
the associated post-contract support revenues are recognized over the contract period.
As a result, under the provisions of the new standard, the Group recognizes these revenues
in earlier period than the period these revenues were recognized under the old Standard. |
| ii) | Incremental
costs incurred to obtain contracts (mainly due to sales commissions) - under the legacy
revenue standard, the Group recognized these costs in selling and marketing expenses
when incurred, whereas upon application of the provisions of the new Standard, these
costs are recognized as an asset and amortized over the period when the Group satisfies
the performance obligations defined in the specific contract which exceeds one year.
As a result, under the provisions of the new Standard, the Group recognizes these costs
as expenses in periods later than the period these costs were recognized under the old
standard. |
The
effects of the above changes on the consolidated statements of financial position are as follows:
| As of January 1, 2018 | |
| |
| | |
As
previously
reported | | |
The change | | |
According to
IFRS 15 | |
| Current Assets | |
| | |
| | |
| |
| Trade receivables | |
| 385,778 | | |
| 20 | | |
| 385,798 | |
| Prepaid expenses and other accounts receivable | |
| 44,904 | | |
| 629 | | |
| 45,533 | |
| | |
| | | |
| | | |
| | |
| Current Liabilities | |
| | | |
| | | |
| | |
| Deferred revenues | |
| 58,905 | | |
| (1,397 | ) | |
| 57,508 | |
| | |
| | | |
| | | |
| | |
| Long-term Liabilities | |
| | | |
| | | |
| | |
| Other long-term liabilities | |
| 7,244 | | |
| 231 | | |
| 7,475 | |
| | |
| | | |
| | | |
| | |
| Equity | |
| | | |
| | | |
| | |
| Retained earnings | |
| 239,156 | | |
| 874 | | |
| 240,030 | |
| Non-controlling interests | |
| 413,720 | | |
| 941 | | |
| 414,661 | |
| As of December 31, 2018 | |
| | |
| | |
| |
| | |
According to
the previous
accounting
policy | | |
The change | | |
As
presented
in these
financial
statements | |
| Current Assets | |
| | |
| | |
| |
| Trade receivables | |
| 439,685 | | |
| 1,783 | | |
| 441,468 | |
| Prepaid expenses and other accounts receivable | |
| 41,668 | | |
| (1,271 | ) | |
| 40,397 | |
| | |
| | | |
| | | |
| | |
| Long-term Assets | |
| | | |
| | | |
| | |
| Prepaid expenses and other accounts receivable | |
| 21,475 | | |
| 1,646 | | |
| 23,121 | |
| | |
| | | |
| | | |
| | |
| Current Liabilities | |
| | | |
| | | |
| | |
| Deferred revenues | |
| 64,062 | | |
| (4,553 | ) | |
| 59,509 | |
| Other accounts payable | |
| 53,707 | | |
| 262 | | |
| 53,969 | |
| | |
| | | |
| | | |
| | |
| Current Liabilities | |
| | | |
| | | |
| | |
| Other long-term liabilities | |
| 8,628 | | |
| 106 | | |
| 8,734 | |
| | |
| | | |
| | | |
| | |
| Equity | |
| | | |
| | | |
| | |
| Retained earnings | |
| 259,538 | | |
| 3,019 | | |
| 262,557 | |
| Non-controlling interests | |
| 434,443 | | |
| 3,324 | | |
| 437,767 | |
The
effects of the above changes on the consolidated statements of profit or loss are as follows:
| Year ended December 31, 2018: | |
| | |
| | |
| |
| | |
According to
the previous
accounting
policy | | |
The change | | |
As
presented
in these
financial
statements | |
| | |
| | |
| | |
| |
| Revenues | |
| 1,488,378 | | |
| 4,610 | | |
| 1,492,988 | |
| Selling, marketing, general and administrative expenses | |
| 182,527 | | |
| (55 | ) | |
| 182,472 | |
| | |
| | | |
| | | |
| | |
| Taxes on income | |
| 24,164 | | |
| 137 | | |
| 24,301 | |
| Net income attributable to equity holders of the Company | |
| 30,220 | | |
| 2,145 | | |
| 32,365 | |
| Net income attributable to non-controlling interests | |
| 42,647 | | |
| 2,383 | | |
| 45,030 | |
Remaining
performance obligations represent contracted revenue that has not yet been recognized, which includes deferred revenue and amounts
that will be invoiced and recognized as revenue in future periods. The Group elected to apply a practical expedient permitted
under IFRS 15 whereby it does not disclose the aggregate amount of consideration allocated to unsatisfied or partially unsatisfied
performance obligations that are part of contracts that have an original expected duration of less than one year. In addition,
the Group has elected to apply a practical expedient permitted under IFRS 15 whereby it does not disclose the aggregate amount
of consideration allocated to unsatisfied or partially unsatisfied performance obligations for which the Group has a right to
consideration from a customer in an amount that corresponds directly with the value to the customer of the Group’s performance
completed to date (for example, a service contract in which an entity bills a fixed amount for each hour of service provided).
As
such, the aggregate amount of consideration allocated to performance obligations either not satisfied or partially unsatisfied
from fixed price projects and post contract support services was approximately $94,433 as of December 31, 2018. The Group expects
to recognize approximately 58% in 2019 from remaining performance obligations as of December 31, 2018 and the remainder thereafter.
Remaining performance obligations include the remaining non-cancelable, committed and fixed portion of these contracts for their
entire duration.
Contract
balances:
The
following table provides information about trade receivables, contract assets (unbilled receivables) and contract liabilities
(deferred revenues) from contracts with customers (in thousands):
| | |
December 31, | |
| | |
2018 | | |
2017 | |
| Trade receivables | |
$ | 362,853 | | |
$ | 322,325 | |
| Unbilled receivables | |
| 78,615 | | |
| 63,453 | |
| Long-term trade receivables(*) | |
| 3,932 | | |
| 950 | |
| Advances and deferred revenues | |
| (59,509 | ) | |
| (58,905 | ) |
| Long-term deferred revenues | |
| (4,906 | ) | |
| (9,340 | ) |
| (*) | Included
in long-term prepaid expenses and other accounts receivable |
Trade
receivable are recorded when the right to consideration becomes unconditional, and an invoice is issued to the customer. Unbilled
receivables relate to the Group’s contractual right to consideration for services performed and not yet invoiced.
Billing
terms and conditions generally vary by contract type. Amounts are billed as work progresses in accordance with agreed-upon contractual
terms, either at periodic intervals (e.g., monthly or quarterly) or upon achievement of contractual milestones.
No
impairment loss was recognized in respect of the Group’s outstanding contract assets during the year ended December 31,
2018.
Deferred
revenues represent contract liabilities, and include unearned amounts received under contracts with customers and not yet recognized
as revenues.
| B. | First
time implementation of IFRS 9 – Financial Instruments |
In
July 2014, the IASB issued the final and complete version of IFRS 9 - Financial Instruments (“IFRS 9”), which replaces
IAS 39 - Financial Instruments: Recognition and Measurement. IFRS 9 mainly changes the provisions of the classification and measurement
of financial assets and applies to all financial assets within the scope of IAS 39. The new standard is first implemented in these
financial statements. The new standard is applied retrospectively without restatement of comparative figures.
After
examining the implications of implementing the new standard, Group has determined that its implementation did not have a material
effect on the Group’s financial statements.
| 31) | Certain
amounts in the prior years’ financial statements have been reclassified to conform
to the current year’s presentation. |
|