Our performance in 2009 - Sappi

• Financial assets and financial liabilities at fair value
through profit or loss
Financial instruments at fair value through profit or loss consist of
items classified as held for trading. The group has not designated
any financial instruments as at fair value through profit or loss.
• Non-trading financial liabilities
All financial liabilities, other than those at fair value through profit
or loss, are classified as non-trading financial liabilities and are
measured at amortised cost.
• Loans and receivables
Loans and receivables are carried at amortised cost, with interest
revenue recognised in profit and loss for the period using the
effective interest method.
• Available-for-sale financial assets
Available-for-sale financial assets are measured at fair value, with
any gains and losses recognised directly in equity along with the
associated deferred taxation. Any foreign currency translation
gains or losses or interest revenue, measured on an effectiveyield
basis, are recognised in profit or loss.
(iv) Embedded derivatives
Certain derivatives embedded in financial and host contracts,
are treated as separate derivatives and recognised on a standalone
basis, when their risks and characteristics are not closely
related to those of the host contract and the host contract is not
carried at fair value, with unrealised gains and losses reported in
profit or loss.
(v) Derecognition
The group derecognises a financial asset when the rights to
receive cash flows from the asset have expired or have been
transferred and the group has transferred substantially all risks
and rewards of ownership.
A financial liability is derecognised when and only when the
liability is extinguished, ie when the obligation specified in the
contract is discharged, cancelled or has expired.
(vi) Impairment of financial assets
• Loans and receivables
An impairment loss is recognised in profit or loss when there is
evidence that the group will not be able to collect all amounts
due according to the original terms of the receivables.
• Available-for-sale financial assets
When there is objective evidence that an available-for-sale
financial asset is impaired, the cumulative unrealised gains and
losses previously recognised in equity are removed from equity
and recognised in profit or loss even though the financial asset
has not been derecognised.
If, in a subsequent period, the fair value of a debt instrument
classified as available-for-sale increases due to an objective
event occurring after the impairment loss was recognised in
profit or loss, the impairment loss is reversed in profit or loss for
the period. Impairment losses recognised in profit or loss for an
2009 annual report
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investment in an equity instrument classified as available-for-
sale are not reversed through profit or loss.
(vii) Derivatives and hedge accounting
Hedge accounting recognises the offsetting effects on profit or
loss of changes in the fair values of the hedging instrument and
the hedged item.
Hedging relationships are of three types:
• Fair value hedges
If a fair value hedge meets the conditions for hedge accounting,
any gain or loss on the hedged item attributable to the hedged
risk is included in the carrying amount of the hedged item and
recognised in profit or loss. The changes in the fair value of the
hedging instrument and the hedged item is recognised in net
finance costs in profit or loss.
• Cash flow hedges
In relation to cash flow hedges, which meet the conditions for
hedge accounting, the portion of the gain or loss on the hedging
instrument that is determined to be an effective hedge is recognised
directly in equity and the ineffective portion is recognised in
profit or loss.
The gains or losses, which are recognised directly in shareholders’
equity, are transferred to profit or loss in the same period in which
the hedged transaction affects profit or loss.
If the forecasted transaction results in the recognition on a nonfinancial
asset or non-financial liability, the associated cumulative
gain or loss is transferred from equity to the underlying asset or
liability on the transaction date.
• Hedge of a net investment in a foreign operation
The group does not currently have any hedges of net investments
in foreign operations.
Hedge accounting is discontinued on a prospective basis
when the hedge no longer meets the hedge accounting criteria
(including when it becomes ineffective), when the hedge instrument
is sold, terminated or exercised when, for cash flow hedges, the
designation is revoked and the forecast transaction is no longer
expected to occur. Where a forecasted transaction is no longer
expected to occur, the cumulative gain or loss deferred in equity
is transferred to profit or loss.
Critical areas of judgement and the use of estimates involving
hedge accounting are included in section 2.3 of the accounting
policies.
(viii) Offsetting financial instruments and related income
Financial assets and liabilities are offset and the net amount
reported in the balance sheet only when there is a legally
enforceable right to set off and there is an intention of settling
on a net basis or realising the asset and settling the liability
simultaneously. Income and expense items are offset only to
the extent that their related instruments have been offset in the
balance sheet, with the exception of those relating to hedges,
which are disclosed in accordance with the profit or loss effect
of the hedged item.
financials