Annual Report - Ahli United Bank

ahliunited.com

Annual Report - Ahli United Bank

3 ACCOUNTING POLICIES (continued)3.3 Summary of significant accounting policies (continued)(g) Impairment of financial assets (continued)impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previouslyrecognised impairment loss is increased or reduced by adjusting the allowance account. If a write-off is later recovered, therecovery is credited to the ‘provision for loan losses and contingencies - net’ in the consolidated statement of income.(h) Hedge accountingThe Group enters into derivative instruments including futures, forwards, swaps and options to manage exposures to interestrate and foreign currency risks, including exposures arising from forecast transactions. In order to manage particular risks,the Group applies hedge accounting for transactions which meet the specified criteria. Derivatives are stated at fair value.Derivatives with positive market values are included in “other assets” and derivatives with negative market values are includedin “other liabilities” in the consolidated balance sheet.At inception of the hedge relationship, the Group formally documents the relationship between the hedged item andthe hedging instrument, including the nature of the risk, management objectives and strategy for undertaking thehedge. The methods that will be used to assess the effectiveness of the hedging relationship form part of the Group’sdocumentation.Also at the inception of the hedge relationship, a formal assessment is undertaken to ensure the hedging instrument isexpected to be highly effective in offsetting the designated risk in the hedged item. Hedges are formally assessed at eachreporting date. A hedge is regarded as highly effective if the changes in fair value or cash flows attributable to the hedged riskduring the period for which the hedge is designated were offset in a range of 80% to 125%. For situations where the hedgeditem is a forecast transaction, the Group assesses whether the transaction is highly probable and presents an exposure tovariations in cash flows that could ultimately affect the consolidated statement of income.For the purposes of hedge accounting, hedges are classified into two categories: (i) fair value hedges which hedge the exposureto changes in the fair value of a recognised asset or liability; and (ii) cash flow hedges which hedge exposure to variability incash flows that is attributable to a particular risk associated with a recognised asset or liability or a forecasted transaction.(i)Fair value hedgesFor fair value hedges which meet the conditions for hedge accounting, any gain or loss from remeasuring the hedginginstrument at fair value is recognised immediately in the consolidated statement of income. The hedged item is adjusted forfair value changes relating to the risk being hedged and the difference is recognised in the consolidated statement of income.If the hedging instrument expires or is sold, terminated or exercised, or where the hedge no longer meets the criteriafor hedge accounting, the hedge relationship is terminated. For hedged items recorded at amortised cost, the differencebetween the carrying value of the hedged item on termination and the value at which it would have been carried withoutbeing hedged is amortised over the remaining term of the original hedge. If the hedged item is derecognised, theunamortised fair value adjustment is recognised immediately in the consolidated statement of income.(ii)Cash flow hedgesFor cash flow hedges which meet the conditions for hedge accounting, the portion of the gain or loss on the hedginginstrument which is determined to be an effective hedge is recognised initially in equity. The ineffective portion of thegain or loss, if any, on the hedging instrument is recognised immediately in the consolidated statement of income as“trading income - net”.The gains or losses on effective cash flow hedges recognised initially in equity are either transferred to the consolidatedstatement of income in the period in which the hedged transaction impacts the consolidated statement of income orincluded in the initial measurement of the related asset or liability.AUB Annual Report 200959

More magazines by this user
Similar magazines