AP ACCOUNTING PRINCIPLES
Financial instruments recognized in the balance sheet include cash and cash equivalents, securities, other financial receivables, trade receivables, trade payables, loans and derivatives.
Current investments and derivatives are recognized on the trade date. Financial assets and loans are recognized on the settlement date. Trade receivables and trade payables are recognized in the balance sheet once the invoice has been sent or received, respectively.
Financial assets are initially recognized at cost, and transaction costs are included for certain instruments that are not measured at fair value. Financial assets are recognized in the balance sheet until the rights in the agreement have been realized or the company no longer has the rights to the asset. Financial assets measured at amortized cost are continuously reviewed according to the expected loss model to assess the need for credit loss provisions.
Financial liabilities are measured at amortized cost, except in cases where they are recognized at fair value using hedge accounting. Financial liabilities are derecognized from the balance sheet when Essity has met its commitments.
Essity recognizes financial instruments with a remaining maturity of less than 12 months as current assets and liabilities and those that exceed 12 months as non-current assets and liabilities.
Fair value measurement
For the financial instruments for which market quotations are available, actual prices are used for fair value measurement (Level 1). In the absence of market quotations for the instruments, Essity determines fair values with the aid of common valuation models, using quoted prices of similar assets or liabilities in active markets (Level 2).
The fair value of non-current loans measured at prevailing market interest rates is presented in Note E4 Financial liabilities on page 99. The fair value of current financial liabilities and investments is considered to correspond to the carrying amount, since a change in market interest rates does not have a significant effect on market value.
Classification and subsequent recognition
Under IFRS 9 Financial Instruments, financial assets are to be classified on the basis of the company’s business model and the purpose of contractual cash flows.
Amortized cost
Financial assets held to collect contractual cash flows, and whose cash flows only consist of interest and the principal amount, are to be measured at amortized cost. The main rule is that financial liabilities are measured at amortized cost with the exception of the liabilities described in the mea- surement categories below. Since the majority of Essity’s financial assets is held to collect contractual cash flows and are held to maturity, they are recognized at amortized cost according to the effective interest method. All liabilities, excluding derivatives, and the liabilities included in a hedging relationship, are measured at amortized cost.
Fair value through comprehensive income
Financial assets held to collect contractual cash flows, and which only consist of interest and the principal amount, and to sell the asset before maturity, are measured at fair value through other comprehensive income with the option to recirculate to profit or loss. Essity did not recognize any assets in this category during the year.
For financial assets comprising an equity instrument, the company can, on initial recognition, make an irrevocable choice to recognize the asset at fair value through comprehensive income without the option of recircula- tion to profit or loss. Essity has an asset valued at SEK 96m recognized in this category.
Fair value through profit or loss
Financial assets that do not fulfill the requirements as stated in the catego- ries described above are to be measured at fair value through profit or loss. Financial assets and liabilities can, on initial recognition, irrevocably and under certain circumstances, be recognized at fair value through profit or loss if this leads to more relevant information. Derivatives are recognized at fair value through profit or loss. During the year, Essity did not recognize any financial assets or liabilities, except for derivatives and liabilities that are part of a hedging relationship, in this category. For more information, refer to Note E6 Derivatives and hedge accounting on page 100.
Accounting for derivatives used for hedging purposes
All derivatives are initially and continuously recognized at fair value in the balance sheet. Gains and losses on remeasurement of derivatives used for hedging purposes are recognized in accordance with the accounting prin- ciples stated in Note E6 Derivatives and hedge accounting on page 100.
E1.
FINANCIAL INSTRUMENTS BY CATEGORY AND MEASUREMENT LEVEL, CONT.Financial instruments by category and measurement level
SEKm Note
Measure- ment
level 2020 2019 2018
Financial assets measured at fair value through profit or loss
Derivatives – Non-current financial assets E2 2 90 52 36 Derivatives – Current financial assets E2 2 450 302 198 Derivatives – Other current receivables D4 2 31 12 59
Total 571 366 293
Financial liabilities measured at fair value through profit or loss
Non-current financial liabilities E4 2 10,615 13,167 16,083 Current financial liabilities E4 2 5,038 – 905 Derivatives – Non-current financial
liabilities E4 2 2 95 58
Derivatives – Current financial liabilities E4 2 610 486 327 Derivatives – Other current liabilities D5 2 70 48 14
Total 16,335 13,796 17,387
Loan and trade receivables measured at amortized cost
Non-current financial assets E2 – 18 20 28 Current financial assets E2 – 231 155 95 Trade receivables E3 – 17,825 19,864 18,687 Cash and cash equivalents E2 – 4,982 2,928 3,008
Total 23,056 22,967 21,818
Financial assets measured at fair value through other comprehensive income
Non-current financial assets E2 1 96 96 87 Financial liabilities measured at
amortized cost
Non-current financial liabilities E4 – 24,861 26,796 27,359 Non-current lease liabilities E4 – 2,724 3,021 – Current financial liabilities E4 – 2,206 7,560 9,580 Current lease liabilities E4 – 807 851 – Trade payables – – 14,791 15,802 15,911
Total 45,389 54,030 52,850
Derivatives used for hedge accounting
Non-current financial assets E2 2 534 526 483
Other non-current assets – 2 79 3 85
Other current receivables D4 2 154 8 265 Current financial assets E2 2 312 68 129
Total 1,079 605 962
Other non-current liabilities D5 2 6 42 8 Current financial liabilities E4 2 27 86 15 Other current liabilities D5 2 38 234 21
Total 71 362 44
These financial instruments are measured at fair value, with the exception of loans and trade receivables and financial liabilities measured at amortized cost. According to Essity’s assessment, the fair value essentially corresponds to the carrying amount, with the exception of non-current liabilities, the fair value of which is disclosed in Note E4 Financial liabilities on page 99.
Measurement levels
Level 1: Quoted prices on an active market for identical assets or liabilities,
such as shares or bonds quoted on the stock exchange.
Level 2: Other observable inputs for the asset or liability than quoted prices
included in Level 1, either directly (price quotations) or indirectly (obtained from price quotations), such as forward contracts or interest rate swaps.
Financial instruments in other notes to the balance sheet
2020 2019 2018 SEKm Note Financial instru- ments Of which deriva- tives Financial instru- ments Of which deriva- tives Financial instru- ments Of which deriva- tives Assets Financial assets, cash and cash
equivalents E2 6,713 1,386 4,147 948 4,064 846 Other non-current assets 79 79 3 3 85 85 Trade receivables E3 17,825 – 19,864 – 18,687 – Other current receivables D4 185 185 20 20 324 324 Total 24,802 1,650 24,034 971 23,160 1,255 Liabilities Financial liabilities E4 46,890 639 52,062 667 54,327 400 Other non-current liabilities D5 6 6 42 42 8 8 Trade payables 14,791 – 15,802 – 15,911 – Other current liabilities D5 108 108 282 282 35 35 Total 61,795 753 68,188 991 70,281 443