EirGrid plc Annual Report 2011

EirGrid plc Annual Report & Accounts 2011
2. Statement of Accounting Policies
(continued)
Financial assets and liabilities
Financial assets and liabilities are recognised on the
Balance Sheet when the Group becomes a party to
the contractual provisions of an instrument.
Trade receivables are measured at initial recognition
at invoice value, which approximates to fair value.
Appropriate allowances for estimated irrecoverable
amounts are recognised in the Income Statement
when there is objective evidence that the carrying
value of the asset exceeds the recoverable amount.
Financial assets and liabilities are derecognised from
the Balance Sheet when the Group ceases to be a
party to the contractual provisions of the instrument.
Where market participants have entered into
Settlement Reallocation Agreements the related
receivables and payables are stated net, as there is
an intention to settle these simultaneously on a net
basis under the trading and settlement code.
Cash and cash equivalents comprise cash on hand
and demand deposits and other short-term highly
liquid investments that are readily convertible
to a known amount of cash and are subject to an
insignificant risk of changes in value.
Trade payables are measured at initial recognition at
invoice value, which approximates to fair value and
subsequently carried at amortised cost.
Derivative financial instruments
The Group enters into interest rate swaps to manage
its exposure to interest rate risk. The Group uses
foreign exchange forward contracts to manage
its exposure to foreign currency risk arising from
Sterling VAT receivables relating to the East-West
Interconnector project. Further details of derivative
financial instruments are disclosed in note 25.
Derivative financial instruments are initially
recognised at fair value at the date the derivative
contract is entered into and are subsequently
re-measured to their fair value at each Balance
Sheet date. The fair value of interest rate swaps at
the reporting date is determined by discounting the
future cash flows using the interest rate curves at the
reporting date. The fair value of the foreign exchange
forwards at the reporting date are determined by
measuring quoted forward exchange rates matching
the maturity of the contracts. The resulting gain
or loss is recognised in profit or loss immediately
unless the derivative is designated and effective as a
hedging instrument, in which event the timing of the
recognition in profit or loss depends on the nature of
the hedge relationship.
Hedging instruments
The Group designates its interest rate swaps as
cash flow hedges. At the inception of the hedge
relationship, the Group documents the relationship
between the hedging instrument and the hedged
item, along with its risk management objectives
and its strategy for undertaking various hedge
transactions. Furthermore, at the inception of
the hedge and on an ongoing basis, the Group
documents whether the hedging instrument that is
used in a hedging relationship is highly effective in
offsetting changes in cash flows of the hedged item.
The effective portion of changes in the fair value
of interest rate swaps that are designated and
qualify as cash flow hedges are deferred in equity.
The gain or loss relating to the ineffective portion
is recognised immediately in profit or loss, and is
included in finance costs in the Income Statement.
Amounts deferred in equity are recycled in profit
or loss in the periods when the hedged item is
recognised in profit or loss, on the same line of the
Income Statement as the recognised hedged item,
or is included as a base adjustment to a non-financial
hedged item.
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