The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements and by all companies included in the consolidation, except those explained in Note 2.5, which address changes in accounting policies.
3.1 New standards and interpretations not yet adopted
A number of new standards, amendments to standards, and interpretations are effec-tive for annual periods beginning after 1 January 2022, and have not been applied in preparing these consolidated financial statements. They will be applied as of 1 October 2022 or later:
Amendments to IFRS 3, IAS 16, IAS 37 and annual improvements 2018-2020. The amendments in IAS 37 specify which costs an entity includes in determining the cost of fulfilling a contract for the purpose of assessing whether the contract is onerous. At the date of initial application, the cumulative effect of applying the amendments is recognized as an opening balance adjustment to retained earnings or other components of equity, as appropriate. The comparatives are not restated;
Amendments to IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non-current. The amendments clarify how the classifi¬cation of liabilities as current or non-current should be determined;
Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting policies. The amendments to IAS 1 require entities to disclose their material accounting policies rather than their significant accounting policies;
Amendments to IAS 8 Accounting policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates;
Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction. The amendments clarify how companies account for deferred tax on transactions such as leases and decommissioning obligations. The main change is an exemption from the initial recognition exemption provided in IAS 12.15(b) and IAS 12.24. Accordingly, the initial recognition exemption does not apply to transactions for which equal amounts of deductible and taxable temporary differences arise on initial recognition;
Amendments to IFRS 16 Leases: Lease Liability in a Sale and Leaseback. The new requirements do not prevent a seller-lessee from recognizing in profit or loss any gain or loss relating to the partial or full termination of a lease provided that the transaction satisfies the requirements in IFRS 15 to be accounted for as a sale.
Except for the changes in IAS 37, these amendments are not expected to have a material impact on profit or equity. Management is currently investigating the impact of the changes in IAS 37.
A number of other changes to IFRSs are not applicable to the Group.
3.2 Consolidation principles
3.2.1 Business combinations
All business combinations are accounted for using the acquisition method when the acquired set of activities and assets meets the definition of a business and control is transferred to the Group. In determining whether a particular set of activities and assets is a business, the Group assesses whether the set of assets and activities acquired includes, as a minimum, an input and a substantive process and whether the acquired set has the ability to produce outputs.
The Group has an option to apply a ‘concentration test’ that permits a simplified assessment of whether an acquired set of activities and assets constitutes a business. The optional concentration test is met if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets.
The consideration transferred in the acquisition is in general measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is immediately recognized in profit or loss. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities.
The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are in general recognized in profit or loss.
Any consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, it is not remeasured, and settlement is accounted for within equity. If not, other contingent consideration is remeasured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recognized in profit or loss.
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.
A list of significant subsidiaries is included in Note 27 List of subsidiaries.
3.2.4 Loss of control of subsidiaries
When the Group loses control of a subsidiary, it derecognizes the assets and liabilities of the subsidiary, and any related non-controlling interest and other components of other comprehensive income. Any resulting gain or loss is recognized in the statement of profit or loss.
3.2.5 Transactions eliminated on consolidation
Intra-group balances, intra-group transactions and any unrealized gains or losses on transactions within the Group are eliminated in preparing the consolidated financial statements.
Unrealized gains on transactions with equity accounted investees and jointly controlled entities are eliminated to the extent of the Group’s interest in the entity. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.
3.2.6 Investments in equity accounted investees (associates)
The Group’s investments in equity accounted investees comprise investments in associates.
Associates are those entities in which the Group has significant influence - as opposed to control or joint control - over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20 and 50% of the voting power in another entity.
Investments in associates are accounted for using the equity method and are recognized initially at cost. The Group’s investment includes goodwill identified at acquisition, net of accumulated impairment losses. The consolidated financial statements include the Group’s share of the income and expenses and other comprehensive income of equity accounted investees, after adjustment to align the accounting policies with those of the Group, from the date significant influence commences until the date that significant influence ceases. When the Group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest, including any long-term loans, is reduced to nil, and the recognition of further losses is discontinued except to the extent that the Group has an obligation to fund the investee’s operations or has made payments on behalf of the investee.
The result on a sale of equity accounted investees is separately presented in the consolidated statement of profit or loss and comprehensive income.
3.3 Foreign currency
Transactions in foreign currencies are translated to the Group’s functional currency at the exchange rate as at the dates of the transactions. Monetary assets and liabilities denominated in foreign currency are translated at the exchange rate as at the reporting date. Foreign exchange differences arising on translation are recognized in the statement of profit or loss and other comprehensive income.
3.4 Hedge accounting
When derivative financial instruments are used to hedge exposure to foreign exchange risks of recognized monetary assets or liabilities, hedge accounting is not applied. A gain or loss on the hedging instrument is recognized in the statement of profit or loss.
3.5 Financial instruments
3.5.1 Recognition and initial measurement
Trade receivables and debt securities issued are initially recognized when they are originated. All other financial assets and financial liabilities are initially recognized when the Group becomes a party to the contractual provisions of the instrument.
A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus, for an item not at fair value through profit or loss (FVTPL), transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.
3.5.2 Classification and subsequent measurement
On initial recognition, a financial asset is classified as measured at: amortized cost; fair value through other comprehensive income (FVOCI) – debt investment; FVOCI – equity investment; or FVTPL.
Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets. In this case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.
A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL:
It is held within a business model, the objective of which is to hold assets to collect contractual cash flows; and
Its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:
It is held within a business model, the objective of which is achieved by both collecting contractual cash flows and selling financial assets; and
Its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment’s fair value in other comprehensive income (OCI). This election is made on an investment-by-investment basis. The Group has not elected to present subsequent changes in the investment’s fair value in OCI for any equity investments.
All financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets. On initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortized cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise. The Group has not designated any financial asset to be measured at FVTPL.
The Group makes an assessment of the objective of the business model in which a financial asset is held at a portfolio level as this best reflects the way in which the busi-ness is managed and information is provided to management.
For the purposes of assessing whether the contractual cash flows are solely payments of principal and interest, ‘principal’ is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time, and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin. In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition.
After initial recognition, financial instruments are valued in the manner described below.
Financial assets at FVTPL
These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognized in profit or loss.
Financial assets at amortized cost
These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment losses are recognized in profit or loss. Any gain or loss on derecognition is also recognized in profit or loss.
Debt investments at FVOCI
These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment losses are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.
Equity investments at FVOCI
These assets are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to profit or loss.
Financial liabilities are classified as measured at amortized cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative, or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognized in profit or loss. Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognized in profit or loss. Any gain or loss on derecognition is also recognized in profit or loss.
The Group has the following other non-derivative financial liabilities: loans and borrowings, and trade and other payables.
The Group derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.
The Group derecognizes a financial liability when its contractual obligations are discharged or cancelled, or expire. The Group also derecognizes a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognized at fair value.
On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognized in profit or loss.
Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group currently has a legally enforceable right to set off the amounts and it intends to either settle them on a net basis or to realize the asset and settle the liability simultaneously.
3.5.5 Derivative financial instruments
Derivatives are initially measured at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are in general recognized in profit or loss.
3.6 Property, plant and equipment
3.6.1 Owned assets
Property, plant and equipment are measured at cost less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset.
Where property, plant and equipment consist of significant parts that have different useful lives, they are accounted for as separate items under property, plant and equipment.
3.6.2 Right-of-use assets
For information regarding right-of-use assets, see Note 3.7 Leases.
3.6.3 Subsequent costs
Subsequent expenditure is capitalized only when it is probable that the future economic benefits associated with the expenditure will flow to the Group, and the cost of the asset can be measured reliably. All other costs are recognized as expenses in the statement of profit or loss and other comprehensive income when they are incurred.
Depreciation is recognized in the statement of profit or loss and other comprehensive income in accordance with the straight-line method over the estimated useful life of each part of an item of property, plant and equipment.
The estimated useful lives are as follows:
Fittings, fixtures and alterations: up to ten years;
Computers and communications equipment: five to eight years;
Office furniture and equipment: five to eight years depending on the lease term;
Buildings: up to fifteen years depending on the lease term;
Lease cars: four to five years depending on the lease term.
Depreciation methods, estimated useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
The Group has long-term property leases, leases for cars and leases for printers and photocopiers.
At the inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for a consideration.
The Group recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of either the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements or modifications of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. In general, the Group uses its incremental borrowing rate as the discount rate.
Lease payments included in the measurement of the lease liability comprise the following:
Fixed payments, including in-substance fixed payments;
Amounts expected to be payable under a residual value guarantee;
The exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Group is reasonably certain not to terminate early.
The lease liability is measured at amortized cost using the effective interest method. It is remeasured if there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, or if the Group changes its assessment of whether it will exercise a purchase, extension or termination option.
When a lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in the profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
The Group has elected not to recognize right-of-use assets and lease liabilities for short-term leases of cars that have a lease term of 12 months or less. The Group recognizes the lease payments associated with the leases as an expense on a straight-line basis over the lease term.
For disclosure on right-of-use assets, please see Note 26;
For disclosures regarding interest expenses on lease liabilities, please see Note 11;
For disclosure on leasing related cash outflows and the split between interest and principal payments, refer to the consolidated statement of cash flows;
For disclosures on lease liabilities and maturity analysis, please see Note 21;
For future lease obligations, please see Note 25.3.
When the Group acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease. To classify each lease, the Group makes an overall assessment of whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, it is considered an operating lease. As part of this assessment, the Group considers certain indicators such as whether the lease is for the major part of the economic life of the asset.
When the Group acts as an intermediate lessor, it accounts for its interests in the head lease and the sub-lease separately. It assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with reference to the underlying asset.
The Group applies the derecognition and impairment requirements in IFRS 9 to the net investment in the lease. The Group further regularly reviews estimated unguaranteed residual values used in calculating the gross investment in the lease.
The Group recognizes lease payments received under operating leases as income on a straight-line basis over the lease term as part of ‘other income’.
3.8 Intangible assets and goodwill
Goodwill is stated at cost less accumulated impairment losses, if any. An impairment loss is recognized if the recoverable amount of the cash generating unit to which the goodwill pertains, is lower than its carrying value.
3.8.2 Intangible assets
Purchased software and licenses are stated at cost. Software development expenditure is capitalized only if the expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. If not, the costs of software development are recognized in profit or loss as incurred. Subsequent to initial recognition, software is measured at cost less accumulated amortization and any accumulated impairment losses. Expenditure on research activities is recognized in profit or loss as incurred.
Each category is amortized over its estimated useful life, except for licenses with an indefinite useful life, as follows:
Software five to eight years;
Software under construction is not amortized until ready for use or sale.
Amortization methods, useful lives and residual values are reviewed at each reporting date and adjusted if necessary.
The useful life of an intangible asset that is not being amortized is reviewed in each annual reporting period to determine whether events and circumstances continue to support an indefinite useful life for that asset.
3.9 Unbilled services
Unbilled services represent the gross unbilled amount expected to be collected from customers for rendering services performed to date. It is measured at cost plus profit recognized to date, in proportion to the progress of the project, less progress billings and recognized losses.
Unbilled services are presented as part of contract assets for all contracts in which costs incurred plus recognized profits exceed progress billings. If progress billings exceed costs incurred plus recognized profits, then the difference is presented as part of contract liabilities.
3.10.1 Intangible and tangible assets
The carrying amount of the Group’s tangible and intangible assets with a definite useful life is reviewed in case there is an objective indication of impairment. If such an indication exists, the recoverable amount of the asset is estimated. In the event that the recoverable amount is lower than the carrying amount an impairment loss is recognized in the consolidated statement of profit or loss. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, the recoverable amount is estimated each year at the same time, irrespective of indications that they are impaired.
The recoverable amount of an asset represents the greater of the fair value less cost to sell and the value in use. In determining the value in use, the present value of the estimated future cash flows is calculated on the basis of a discount factor before tax that reflects the current market estimates of the time value of money and the specific risk to the asset.
For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generate cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the cash-generating unit, or CGU).
Impairment losses in respect of goodwill cannot be reversed. An impairment loss related to other assets is reversed if and to the extent there has been a change in the estimates used to determine the recoverable amount, and only to the extent that the asset’s carrying amount on the reporting date does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
3.10.2 Financial assets measured at amortized cost
The Group recognizes loss allowances for expected credit losses (ECLs) on:
Financial assets measured at amortized cost; and
The Group currently does not own any debt investments measured at FVOCI.
The Group measures loss allowances at an amount equal to lifetime ECLs, except for the following, which are measured at 12-month ECLs:
Debt securities and bank deposits that are determined to have low credit risk at the reporting date; and
Other debt securities and bank balances for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition.
Loss allowances for trade receivables are always measured at an amount equal to lifetime ECLs. The Group uses an allowance matrix to measure the ECLs of trade receivables from individual customers, which comprise a very large number of small balances.
When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group’s historical experience, together with informed credit assessment and including forward-looking information.
The Group assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days overdue.
The Group considers a financial asset to be in default if:
The borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as realizing security (if any is held); or
The financial asset is more than 90 days overdue.
The Group considers a debt security to have low credit risk if its credit risk rating is equivalent to the globally understood definition of ‘investment grade’. The Group considers this to be Baa3 or higher based on the rating scale employed by credit rating agency Moody’s Investor Services, or BBB- or higher as per S&P Global Ratings or Fitch Ratings.
ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive).
ECLs are discounted at the effective interest rate of the financial asset.
At each reporting date, the Group assesses whether financial assets carried at amortized cost and debt securities at FVOCI, if any, are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Evidence that a financial asset is credit-impaired includes the following observable data:
Significant financial difficulty experienced by the borrower or issuer;
A breach of contract such as a default or being more than 90 days overdue;
The restructuring of a loan or advance by the Group on terms that the Group would not otherwise consider;
It is probable that the borrower will enter bankruptcy or other financial reorganization; or
The disappearance of an active market for a security due to financial difficulties.
Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets.
For debt securities at FVOCI, the loss allowance is charged to profit or loss and is recognized in OCI.
The gross carrying amount of a financial asset is written off when the Group has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof.
The Group measures ECLs on a collective basis. Financial assets are grouped on the basis of shared credit risk characteristics, where the main driver is instrument type. In addition, credit-impaired or defaulted loans are assessed individually.
3.11 Employee benefits
3.11.1 Short-term employee benefits
Short-term employee benefits are expensed as the related service is provided. A liability is recognized for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and if the obligation can be estimated reliably.
3.11.2 Pension schemes
The Group has an individual defined contribution pension plan (het.kpmg.pensioen) for all employees which is administered by an insurance company.
3.11.3 Long-term employee benefits
The net obligation in respect of long-term employee benefits is the amount of future benefits that employees have earned in return for their services in the current and prior periods. The obligation is calculated using the projected unit credit method, and is discounted to determine its present value. The discount rate is the yield at the reporting sheet date on AA credit-rated corporate bonds that have maturity dates approximating the term of the obligations.
These employee benefits relate primarily to supplementary WIA (Occupational Disability Insurance Act) benefits and a provision for long-service benefits.
A provision is recognized in the statement of financial position when, as a result of a past event, the Group has a legal or constructive obligation that can be reliably measured and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the obligation.
Revenue is measured based on the consideration specified in a contract with a customer. The Group has determined that for assurance and advisory services, the Group recognizes revenue when (or as) it satisfies a performance obligation by transferring services (or a good) to a customer. The customer simultaneously receives and consumes the benefits provided by the Group’s performance as the Group performs.
The Group has elected to apply the practical expedient of IFRS 15.63. That means it does not adjust the promised amount of the consideration for the effects of a significant financing component if the Group expects, at the inception of a contract, that the period between when the Group transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.
Information about the nature and timing of the satisfaction of performance obligations in contracts with customers, including significant payment terms, and the related revenue recognition policies, is described below.
Assurance and advisory services
Nature and timing of satisfaction of performance obligations, including significant payment terms
The Group has determined that for assurance and advisory services, the customer controls all of the work in progress as the services are being provided. Furthermore, under such contracts services provided do not create an asset with an alternative use to the Group as they relate to facts and circumstances that are specific to the customer and, in the event that a contract is terminated by the customer, the Group is entitled to reimbursement of the costs incurred to date, including a reasonable margin.
Invoices are issued according to contractual terms and are usually payable within 15 days. Amounts not yet invoiced are presented as unbilled services, as part of contract assets or contract liabilities.
Revenue is recognized over time by measuring the proportion of costs incurred to date compared with the estimated total costs of the service.
For those contracts with a constrained variable consideration that is highly susceptible to factors outside the Group’s influence (e.g. success fees), the constrained amount is not included in the transaction price until the uncertainty associated with the variable consideration is resolved.
In contracts with multiple performance obligations, the stand-alone selling price of assurance and advisory services is estimated based on the cost-plus margin approach.
Software as a Service (SaaS) licenses
Nature and timing of satisfaction of performance obligations, including significant payment terms
Customers obtain control of the SaaS over time, during the period that the customer has the ability to consume and receive benefit from its access to the SaaS. Invoices are issued according to contractual terms and are usually payable within 15 days. Amounts not yet invoiced are presented as unbilled services.
Revenue is recognized over time using a time basis as a measure of progress after the go-live date of the SaaS.
In contracts with multiple performance obligations, the stand-alone selling price of SaaS is based on the list prices at which the Group sells the SaaS licenses. In the event that discounts are given in those contracts, and there is no observable evidence that the discount corresponds completely to a single performance obligation, the discount is allocated proportionally to all performance obligations of the contract.
3.14 Other income
Included in other income are amounts billed to third parties for services other than assurance and advisory services. This relates to housing expenses and IT services charged externally, primarily Meijburg & Co and KPMG International, which occupy buildings leased by the Group. Furthermore, the Group employs personnel working for KPMG International at KPMG Staffing & Facility Services B.V. These costs are rebilled in full to KPMG International.
Grant amounts and comparable items of income are recognized in the same period as relevant expenses. Grants are recognized as receivable upon the actual occurrence of, or an earlier obligation to incur, the related investment or expense. Grants are recognized in other income in the same period as the relevant expenses. To the extent that grants recognized relate to depreciable assets, grant amounts are recognized in other income over the periods and in the proportions in which depreciation expense on those assets is recognized.
3.15 Finance expenses
Finance expenses comprise interest payable on borrowings, which is calculated using the effective interest method, interest on leases, which is calculated using the incre-mental borrowing rate, and foreign exchange gains and losses.
3.16 Finance income
Interest income is recognized as it accrues in the statement of profit or loss and other comprehensive income using the effective interest method.
3.17 Fees payable to Coöperatie KPMG U.A.
In accordance with KPMG regulations and management agreements, partners are entitled to a variable contractual fee as compensation for services performed. This variable fee is equal to the profit after tax of KPMG N.V. before deducting the variable fee and excluding the amount the Board of Management proposes to add to the reserves.
These contractual fees payable are recognized as expenses in the statement of profit or loss and comprehensive income.
3.18 Income taxes
Under management agreements, all earnings of KPMG N.V. are distributed to the partners, through Coöperatie KPMG U.A., who pay tax on these earnings. The Group has a ruling for corporate income tax purposes, under which the total net income before tax is subject to corporate income tax at the level of Coöperatie KPMG U.A., KPMG N.V. and the practice companies of the individual equity partners respectively. For this reason, the income tax payable by the Group itself is limited.
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for:
Temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;
Temporary differences related to investments in subsidiaries, associates and joint arrangements to the extent that the Group is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future;
Taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax assets are recognized for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. Such reductions are reversed when the probability of future taxable profits improves.
Unrecognized deferred tax assets are reassessed at each reporting date and recognized to the extent that it has become probable that future taxable profits will be available against which they can be used.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date. For the financial year 2021/2022 the tax rate applied was 25% for 2022 and 25.8% for 2023 and later years (2020/2021: 25% for 2021 and 25% for 2022 and later years).
The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset only in the event that certain criteria are met.
3.19 Principles for presentation of the consolidated cash flow statement
The cash flow statement is prepared according to the indirect method.
The funds in the cash flow statement consist of cash and cash equivalents. Cash equivalents can be considered to be highly liquid investments.
Considering the nature of the Group’s operations, the share in the results of equity accounted investees and dividends received is regarded as part of cash flows from operating activities.
Cash flows in foreign currencies are translated at the rate at the date of the cash flow. Exchange rate differences concerning finances are shown separately in the cash flow statement.
Corporate income taxes and dividends received are presented under the cash flow from operating activities. Dividends paid, issuance of share capital, interest received, interest paid and payments of lease liabilities are presented under the cash flow from financing activities.