Page 29 - awe30062_compressed

Diahuebs 30 di Juni 2022

Notes to the Abbreviated Financial Statements (continued)

(ii) Loss given default - an estimate of the loss arising in the case In assessing value in use, the estimated future cash flows are dis- Level 1 — Quoted (unadjusted) market prices in active markets
where a default occurs at a given time; and counted to their present value using a pre-tax discount rate that for identical assets or liabilities.
(iii) Exposure of default - an estimate of the exposure at a future reflects current market assessments of the time value of money
default date, taking into account expected changes in the expo- and the risks specific to the asset. In determining fair value less Level 2 — Valuation techniques for which the lowest level input
sure after the reporting date, including repayments of principal and costs of disposal, recent market transactions are taken into account. that is significant to the fair value measurement is directly or indi-
interest, whether scheduled by contract or otherwise. If no such transactions can be identified, an appropriate valuation rectly observable.
model is used. These calculations are corroborated by valuation
The assessment of the probability of default and loss given default multiples, quoted share prices for publicly traded companies or Level 3 — Valuation techniques for which the lowest level input
is based on historical data adjusted by forward-looking information. other available fair value indicators. that is significant to the fair value measurement is unobservable.
Forward-looking information considered by the Company includes Assets and liabilities, with the exception of freehold and invest-
economic data and forecasts published by governmental bodies The Company bases its impairment calculations on detailed bud- ment properties, included in level 3 are held at cost, being the fair
and monetary authorities, supranational organisations such as the gets and forecast calculations, which are prepared separately for value of the consideration paid on acquisition and are regularly
Organization for Economic Cooperation and Development and the each of the Company’s CGUs to which the individual assets are assessed for impairment. Freehold and investment properties
International Monetary Fund, and selected private-sector and allocated. These budgets and forecast calculations generally cover included in level 3 are held at fair value which is the estimated
academic forecasters. a period of three years. For longer periods, a long-term growth replacement value.
rate is applied to project future cash flows after the third year.
Expected credit losses are measured as the present value of all For assets and liabilities that are recognized in the financial state-
cash shortfalls i.e. the difference between the cash flows due to Impairment losses of continuing operations are recognized in the ments on a recurring basis, the Company determines whether
the Company in accordance with the contract and the cash flows statement of income in those expense categories consistent with transfers have occurred between levels in the hierarchy by re-
that the Company expects to receive, discounted at the original the function of the impaired asset. assessing categorization (based on the lowest level input that is
effective interest rate. significant to the fair value measurement as a whole) at the end of
For assets excluding goodwill, an assessment is made at each re- each reporting period.
The mechanics of the expected credit losses method are sum- porting date as to whether there is any indication that previously
marised below: recognized impairment losses may no longer exist or may have Offsetting financial instruments
• A financial instrument that is not credit-impaired on initial recog- decreased. If such an indication exists, the Company makes an Financial assets and financial liabilities are offset and the net
nition, a 12-month ECL allowance is calculated. The Company estimate of the recoverable amount. A previous impairment loss is amount reported in the statement of financial position only when
calculates the 12-month ECL allowance based on the expecta- reversed only if there has been a change in the estimates used to there is a legally enforceable right to offset the recognized
tion of a default occurring in the twelve months following the determine the asset’s recoverable amount since the last impair- amounts and there is an intention to settle on a net basis or realize
reporting date. The expected 12-month default probability is ment loss was recognized. If that is the case, the carrying amount the assets and settle the liabilities simultaneously.
applied to a forecast exposure at default and multiplied by the of the asset is increased to its recoverable amount. That increased
expected loss given default, and discounted by the original amount cannot exceed the carrying amount that would have Cash and cash equivalents
effective interest rate. been determined, net of depreciation, had no impairment loss Cash and cash equivalents include cash in hand, deposits held at
• When a financial instrument has shown a significant increase been recognized for the asset in prior years. Such reversal is rec- call with banks and other short-term highly liquid investments
in credit risk since initial recognition, the Company records an ognized in the statement of income unless the asset is carried at with original maturities of three months or less, and bank over-
allowance for life-time ECL. The mechanics are similar to the revalued amount, in which case the reversal is treated as a drafts. Bank overdrafts, when they arise, are shown within bor-
12-month ECL calculation on a financial instrument that is not revaluation increase. rowings in current financial liabilities on the statement of financial
credit-impaired on initial recognition, but default probability and position. Cash and cash equivalents are carried at amortised cost
loss given default are estimated over the life of the instrument. Fair value measurement on the statement of financial position.
• A financial instrument that is credit-impaired, but is not a pur- The Company measures financial instruments and non-financial
chased or originated credit-impaired financial instrument, the assets at fair value at each reporting date. Share capital
Company records an allowance for lifetime ECL calculated simi- Shares are classified as equity when there is no obligation to transfer
lar to lifetime ECL on a financial instrument that has shown a Fair value is the price that would be received to sell an asset or cash or other assets.
significant increase in credit risk since initial recognition. paid to transfer a liability in an orderly transaction between market
• Purchased or credit-impaired financial assets are assets that are participants at the measurement date. The fair value measure- Provisions
credit-impaired on initial recognition. ECL on these assets are ment is based on the presumption that the transaction to sell the Provisions are made when the Company has a present legal or
always measured on a lifetime basis, discounted by a credit asset or transfer the liability takes place either: constructive obligation as a result of past events, for which is more
adjusted effective interest rate. The Company has no purchased likely than not that an outflow of resources will be required to
or credit-impaired financial instruments. • In the principal market for the asset or liability, or settle the obligation, and the amount has been reliably estimated.
• In the absence of a principal market, in the most advantageous Provisions are not recognized for future operating losses. Where
Where lifetime ECL is measured on a collective basis to cater for market for the asset or liability. there are a number of similar obligations, the likelihood that an
cases where evidence of significant increases in credit risk at the outflow will be required in settlement is determined by consider-
individual instrument level may not yet be available, the financial The principal or the most advantageous market must be accessi- ing the class of obligations as a whole. A provision is recognized
instruments are grouped on the basis of shared risk characteristics ble by the Company. even if the likelihood of an outflow with respect to any one item
that include: instrument type; credit risk ratings; nature, size and included in the same class of obligations may be small.
industry of debtors; collateral type; and geographic location of the The fair value of an asset or a liability is measured using the as-
debtor. sumptions that market participants would use when pricing the Insurance and investment contracts
asset or liability, assuming that market participants act in their eco-
If the Company has measured the loss allowance for a financial nomic best interest. (a) Classification
instrument at an amount equal to lifetime ECL in the previous re- The Company issues contracts that transfer insurance risk or finan-
porting period, but determines at the current reporting date that A fair value measurement of a non-financial asset takes into ac- cial risk or both. Insurance contracts are those contracts that trans-
the conditions for lifetime ECL are no longer met, the Company count a market participant’s ability to generate economic benefits fer significant insurance risk. Such contracts may also transfer fi-
measures the loss allowance at an amount equal to 12-month by using the asset in either its highest and best use, or by selling nancial risk. As a general guideline, the Company defines as
ECL at the current reporting date. it to another market participant that would use the asset in its significant insurance risk the possibility of having to pay benefits
highest and best use. on the occurrence of an insured event that are at least 10% more
Impairment of non-financial assets than the benefits payable if the insured event did not occur.
The Company assesses at each reporting date whether there is an When one is available, the Company measures the fair value of an
indication that an asset may be impaired. If any such indication instrument using the quoted price in an active market. If there is Investment contracts are those contracts that transfer financial risk
exists, or when annual impairment testing for an asset is required, no quoted price in an active market, the Company establishes fair with no significant insurance risk.
the Company estimates the asset’s recoverable amount. An value by using valuation techniques. These include the use of
asset’s recoverable amount is the higher of an asset’s or cash- recent arm’s length transactions, reference to other instruments (b) Recognition and measurement
generating unit’s (CGU) fair value less costs to sell and its value in that are substantially the same and discounted cash flow analysis The Company issues short-term insurance contracts. These con-
use. The recoverable amount is determined on an individual asset making maximum use of market inputs and relying as little as tracts are principally property, motor, casualty (employers’ liability,
basis, unless the asset does not generate cash inflows that are possible on entity-specific inputs. public liability), and marine.
largely independent of those from other assets or group of assets.
When the carrying amount of an asset or CGU exceeds its recov- All assets and liabilities for which fair value is measured or dis- For all these contracts, premiums are recognized as revenue
erable amount, the asset or CGU is considered impaired and writ- closed in the financial statements are categorized within the fair (earned premiums) proportionally over the period of coverage.
ten down to its recoverable amount. value hierarchy, described as follows, based on the lowest level The portion of premiums received on in-force contracts that relate
input that is significant to the fair value measurement as a whole: to unexpired risks at the statement of financial position date is
29