(i) Classifi cation (continued) (a) Financial assets at FvTPL
Financial assets at FvTPL are fi nancial assets held for trading. A fi nancial asset is classifi ed in this category if it is acquired or incurred principally for the purpose of selling or repurchasing it in the near term. derivatives are also categorised as held for trading unless they are designated as hedges.
(b) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than twelve (12) months after the end of the reporting period.
These are classifi ed as non-current assets.
(c) AFS fi nancial assets
AFS fi nancial assets are non-derivatives that are either designated in this category or not classifi ed in any of the other categories. They are included in non-current assets unless the investment matures or management intends to dispose of it within twelve (12) months from the end of the reporting period.
(d) HTM fi nancial assets
HTM fi nancial assets are non-derivative fi nancial assets with fi xed or determinable payments and fixed maturities that the Group’s and Company’s management have the positive intention and ability to hold to maturity. If the Group and the Company were to sell other than an insignifi cant amount of HTM fi nancial assets, the whole category would be tainted and reclassifi ed as AFS. HTM fi nancial assets are included in non-current assets, except for those with maturities less than twelve (12) months from the end of the reporting period, which are classifi ed as current assets.
(ii) recognition and initial measurement
regular purchases and sales of fi nancial assets are recognised on the trade-date, the date on which the Group and the Company commit to purchase or sell the asset.
Financial assets are initially recognised at fair value plus transaction costs for all fi nancial assets not carried at FvTPL. Financial assets carried at FvTPL are initially recognised at fair value and transaction costs are expensed in profi t or loss.
(iii) Subsequent measurement – gains and losses
AFS fi nancial assets and fi nancial assets at FvTPL are subsequently carried at fair value. Loans and receivables and HTM fi nancial assets are subsequently carried at amortised cost using the eff ective interest method.
Changes in the fair values of financial assets at FvTPL, including the effects of currency translation are recognised in profi t or loss in the period in which the changes arise.
notes to tHe FinanCial stateMents
For tHe FinanCial Year ended 31 deCeMBer 2010
Axiata Group Berhad (242188-H)• annual report 2010 pg 184
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (f) Financial assets (continued)
(iv) Subsequent measurement – Impairment of fi nancial assets (a) Assets carried at amortised cost
The Group and the Company assess at the end of the reporting period whether there is objective evidence that a fi nancial asset or group of fi nancial assets is impaired. A fi nancial asset or a group of fi nancial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash fl ows of the fi nancial asset or group of fi nancial assets that can be reliably estimated.
The criteria that the Group and the Company use to determine that there is objective evidence of an impairment loss include:
• Signifi cant fi nancial diff iculty of the issuer or obligor;
• A breach of contract, such as a default or delinquency in interest or principal payments;
• The Group, for economic or legal reasons relating to the borrower’s fi nancial diff iculty, granting to the borrower a concession that the lender would not otherwise consider;
• It becomes probable that the borrower will enter bankruptcy or other financial reorganisation;
• Disappearance of an active market for that financial asset because of financial diff iculties; or
• Observable data indicating that there is a measurable decrease in the estimated future cash fl ows from a portfolio of fi nancial assets since the initial recognition of those assets, although the decrease cannot yet be identifi ed with the individual fi nancial assets in the portfolio, including:
(i) adverse changes in the payment status of borrowers in the portfolio; and
(ii) national or local economic conditions that correlate with defaults on the assets in the portfolio.
The amount of the loss is measured as the diff erence between the asset’s carrying amount and the present value of estimated future cash fl ows (excluding future credit losses that have not been incurred) discounted at the fi nancial asset’s original eff ective interest rate.
The asset’s carrying amount of the asset is reduced and the amount of the loss is recognised in profi t or loss. If ‘loans and receivables’ or a ‘HTM investment’ has a variable interest rate, the discount rate for measuring any impairment loss is the current eff ective interest rate determined under the contract. As a practical expedient, the Group and Company may measure impairment on the basis of an instrument’s fair value using an observable market price.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in profi t or loss.
when an asset is uncollectible, it is written off against the related accumulated impairment losses account. Such assets are written off after all the necessary procedures have been completed and the amount of the loss has been determined.
Financial Statements pg 185
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (f) Financial assets (continued)
(iv) Subsequent measurement – Impairment of fi nancial assets (b) Assets classifi ed as AFS
The Group and the Company assess at the end of the reporting period whether there is objective evidence that a fi nancial asset or a group of fi nancial assets is impaired.
For debt securities, the Group and the Company use criteria and measurement of impairment loss applicable for ‘assets carried at amortised cost’ above. If, in a subsequent period, the fair value of a debt instrument classified as AFS increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profi t or loss, the impairment loss is reversed through profi t or loss.
In the case of equity securities classifi ed as AFS, in addition to the criteria for ‘assets carried at amortised cost’ above, a signifi cant or prolonged decline in the fair value of the security below its cost is also considered as an indicator that the assets are impaired. If any such evidence exists for AFS fi nancial assets, the cumulative loss that had been recognised directly in equity is removed from equity and recognised in profi t or loss. The amount of cumulative loss that is reclassifi ed to profi t or loss is the diff erence between the acquisition cost and the current fair value, less any impairment loss on that fi nancial asset previously recognised in profit or loss. Impairment losses recognised in profit or loss on equity instruments classifi ed as AFS are not reversed through profi t or loss.
Change in accounting policy
The Group and the Company have changed their accounting policy for impairment of investments upon adoption of FrS 139 “Financial instruments: recognition and Measurement” on 1 January 2010.
Previously, for investments in non-current investments, allowance for diminution in value was made where, in the opinion of the directors, there was a decline other than temporary in the value of such investments. where there had been a decline other than temporary in the value of an investment, such a decline was recognised in profi t or loss in the period in which the decline was identifi ed. Marketable securities (within current assets) were carried at the lower of cost and market value. Changes in the carrying amount of marketable securities were credited/
charged to profi t or loss.
The Group and the Company have applied the new policy according to the transitional provisions by re-measuring all fi nancial assets, as appropriate, and recording any adjustments to the previous carrying amounts to opening retained earnings or, if appropriate, another category of equity, of the fi nancial year.
notes to tHe FinanCial stateMents
For tHe FinanCial Year ended 31 deCeMBer 2010
Axiata Group Berhad (242188-H)• annual report 2010 pg 186
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (f) Financial assets (continued)
(v) de-recognition
Financial assets are de-recognised when the rights to receive cash fl ows from the investments have expired or have been transferred and the Group and the Company have transferred substantially all risks and rewards of ownership to related party.
receivables that are factored out to banks and other fi nancial institutions with recourse to the Group and the Company are not derecognised until the recourse period has expired and the risks and rewards of the receivables have been fully transferred. The corresponding cash received from the fi nancial institutions is recorded as borrowings.
(g) Off setting fi nancial instruments
Financial assets and liabilities are off set and the net amount presented in the statement of fi nancial position when there is a legally enforceable right to off set the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.
(h) Derivative fi nancial instruments and hedging activities
derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group and the Company designate certain derivatives as either:
• Hedges of the fair value of recognised assets or liabilities or a fi rm commitment (fair value hedge);
• Hedges of a particular risk associated with a recognised asset or liability or a highly probable forecast transaction (cash fl ow hedge); or
• Hedges of a net investment in a foreign operation (net investment hedge).
The Group and the Company document at the inception of the transaction, the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Group and the Company also document its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly eff ective in off setting changes in fair values or cash fl ows of hedged items.
The fair values of various derivative instruments used for hedging purposes are disclosed in note 19 to the fi nancial statements. Movements on the hedging reserve in shareholders’ equity are shown in the statement of changes in equity of the fi nancial statements. The full fair value of a hedging derivative is classifi ed as a non-current asset or liability when the remaining hedged item is more than twelve (12) months, and as a current asset or liability when the remaining maturity of the hedged item is less than twelve (12) months. Trading derivatives are classifi ed as a current asset or liability.
Change in accounting policy
The Group and the Company have changed its accounting policy for derivatives upon adoption of FrS 139 “Financial instruments: recognition and Measurement” on 1 January 2010. Previously, derivative gains and losses were not recognised in the fi nancial statements on inception. Instead, they were recognised when settled, at which time they were included in the measurement of the transaction hedged.
Financial Statements pg 187