PSH-Annual-Report

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Annual Report December 31, 2014Notes to Financial Statements (continued)2. SUMMARY OF SIGNIFICANTACCOUNTING POLICIES (continued)Financial instruments are designated at fair valuethrough profit or loss upon initial recognition. Thesefinancial assets and financial liabilities aredesignated upon initial recognition on the basisthat they are part of a group of financial assets andfinancial liabilities which are managed and havetheir performance evaluated on a fair value basis,in accordance with risk management andinvestment strategies of the Company, as set outin the Company’s Articles of Incorporation.(ii) RecognitionThe Company recognizes financial assets held asfair value through profit or loss on trade date. Fromthis date, any gains and losses arising from thechanges in fair value of the assets are recognizedin the statement of comprehensive income.Purchases or sales of financial assets that requiredelivery of assets within the time frame generallyestablished by regulation or convention in themarket place (regular way trades) are recognizedon the trade date, i.e., the date that the Companycommits to purchase or sell the asset.(iii) Initial MeasurementFinancial assets and financial liabilities at fair valuethrough profit or loss are recorded in the statementof financial position at fair value. All transactioncosts for such instruments are recognized directlyin the statement of comprehensive income.(iv) Subsequent MeasurementAfter initial measurement, the Company measuresfinancial instruments which are classified at fairvalue through profit or loss, at fair value.Subsequent changes in the fair value of thosefinancial instruments are recorded in net gain orloss on financial assets and liabilities at fair valuethrough profit or loss in the statement ofcomprehensive income. Interest and dividendsearned or paid on these instruments are recordedseparately in interest income or expense anddividend income or expense.(v) DerecognitionA financial asset (or, where applicable, a part of afinancial asset or a part of a group of similarfinancial assets) is derecognized when the rights toreceive cash flows from the asset have expired, orthe Company has transferred its rights to receivecash flows from the asset, or has assumed anobligation to pay the received cash flows in fullwithout material delay to a third party under apass-through arrangement, and either:(a) the Company has transferred substantiallyall of the risks and rewards of the asset, or(b) the Company has neither transferred norretained substantially all of the risks andrewards of the asset, but has transferredcontrol of the asset.When the Company has transferred its right toreceive cash flows from an asset (or has enteredinto a pass-through arrangement), and has neithertransferred nor retained substantially all of the risksand rewards of the asset nor transferred control ofthe asset, the asset is recognized to the extent ofthe Company’s continuing involvement in theasset. In that case, the Company also recognizesan associated liability. The transferred asset andthe associated liability are measured on a basisthat reflects the rights and obligations that theCompany has retained. The Companyderecognizes a financial liability when theobligation under the liability is discharged,cancelled or expired.Fair Value MeasurementThe Company measures its investments infinancial instruments, such as equities, options andother derivatives, at fair value at each reportingdate. Fair value is the price that would be receivedto sell an asset or paid to transfer a liability in anorderly transaction between market participants atthe measurement date.In general, the Company values securities listed ona national securities exchange at the last sale pricereported by the exchange on which the securitiesare primarily traded on the date of determination.In the event that the date of determination is not aday on which the relevant exchange is open forbusiness, such securities will be valued at the lastsale price reported by the exchange on the mostrecent business day prior to the date ofdetermination. Exchange-traded options, securitiestraded on an exchange in which there were notransactions on the date of determination (otherthan because the relevant exchange was not open46 PERSHING SQUARE HOLDINGS, LTD.
Annual Report December 31, 2014Notes to Financial Statements (continued)2. SUMMARY OF SIGNIFICANTACCOUNTING POLICIES (continued)for business on the date of determination), andsecurities not listed on a national securitiesexchange, are valued at the average of the mostrecent “bid” and “ask” prices.The valuation committee of the InvestmentManager considers the appropriateness of thevaluation methods and inputs, and may requestthat alternative valuation methods be applied tosupport the valuation arising from the methoddiscussed. Any material changes in valuationmethods are discussed and agreed with the Boardof Directors.In the years ended 2014 and 2013, investmentswhere no such market prices were available werevalued at fair value based upon counterparty andindependent third-party prices.The Company’s investments in affiliated entitiesare valued at fair value and represent theCompany’s proportionate interest in the net assetvalue of the affiliated entities at the reporting date.Having considered whether there are anycircumstances requiring the need for adjustmentsto the net asset value of the affiliated entities inarriving at fair value, the Board of Directors inconsultation with the Investment Managerconcluded that no such adjustments werenecessary and that net asset value approximatedfair value. All unrealized gains and losses arereflected in the statement of comprehensiveincome.Offsetting of Financial InstrumentsThe standard requires financial assets andfinancial liabilities to be reported net bycounterparty on the statement of financial position,provided the legal right and intention of offsetexists. Financial assets and financial liabilities arereported gross by counterparty in the statement offinancial position as it is not the Company’sintention to offset financial assets and financialliabilities with the collateral pledged to or receivedfrom counterparties in the statement of financialposition. See Note 8 for the offset of theCompany’s derivative assets and liabilities, alongwith collateral pledged to or received fromcounterparties.Functional and Presentation CurrencyThe Company’s functional currency is the UnitedStates Dollar (“USD”), which is the currency of theprimary economic environment in which itoperates. The Company’s performance isevaluated and its liquidity is managed in USD.Therefore, the USD is considered as the currencythat most faithfully represents the economic effectsof the underlying transactions, events andconditions. The Company’s financial statements’presentation currency is USD. The Company’sstock is traded in USD and the price is quoted inUSD.Foreign Currency TranslationsAssets and liabilities denominated in non-U.S.currencies are translated into USD at the prevailingexchange rates at the reporting date. Transactionsin non-U.S. currencies are translated into USD atthe prevailing exchange rates at the time of thetransaction. The Company does not isolate thatportion of gains and losses on investments that isdue to changes in foreign exchange rates from theportion due to changes in market prices of theinvestments. Such fluctuations are included in netgain/(loss) on financial assets and liabilities at fairvalue through profit or loss in the statement ofcomprehensive income.Amounts Due To and Due From BrokersDue from brokers includes cash balances held atthe Company’s clearing brokers, cash collateralpledged to counterparties related to derivativecontracts and amounts receivable for securitiestransactions that have not settled at the reportingdate. Cash that is related to securities sold, not yetpurchased, is restricted until the securities arepurchased. Due to brokers consists of cashreceived from brokers to collateralize theCompany’s derivative contracts and amountspayable for securities transactions that have notsettled at the reporting date.Cash and Cash EquivalentsThe Company considers all highly liquid financialinstruments with a maturity of three months or lessat the time of purchase to be cash equivalents.Cash and cash equivalents in the statement offinancial position comprise cash at banks andmoney market funds which are invested in U.S.treasuries and obligations of the U.S. government.PERSHING SQUARE HOLDINGS, LTD. 47
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PSH-Annual-Report

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