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12 AWEMainta Diaranson, 30 Juni 2021

Notes to the Abbreviated Financial Statements (continued)

are the portion of ECL that results from default events that are in effect. Customers were required, in some cases, to bring their default date, taking into account expected changes in the expo-
possible within the 12 months after the reporting date. accounts back up to date, and in other cases, to resume monthly sure after the reporting date, including repayments of principal and
payments without yet bringing their accounts up to date. Where interest, whether scheduled by contract or otherwise.
For receivables, the Company applies the simplified approach a customer has been granted a temporary extension in the credit
permitted by IFRS 9, which requires expected lifetime losses to be period as a result of the COVID-19 pandemic and was not later The assessment of the probability of default and loss given default
recognised from initial recognition of the receivables. required to bring their accounts up to date, the past-due status is is based on historical data adjusted by forward-looking information.
based on the extended credit period. Any accounts that were 30 Forward-looking information considered by the Company includes
Loss allowances for ECL are presented in the financial statements days past due at year end, whether a deferral had been previous- economic data and forecasts published by governmental bodies
as follow: ly taken or not, were considered to have had a significant increase and monetary authorities, supranational organisations such as the
in credit risk. Organization for Economic Cooperation and Development and
• Financial assets measured at amortised cost: the loss allow- the International Monetary Fund, and selected private-sector and
ance is deducted from the gross carrying amount of the assets Despite the aforementioned, the Company assumes that the academic forecasters.
in the statement of financial position. Movement in ECL is credit risk on a financial instrument has not increased significantly
recognised in the statement of income. since initial recognition if the financial instrument is determined to Expected credit losses are measured as the present value of all
• Debt instruments measured at fair value through other have low credit risk at the reporting date. A financial instrument is cash shortfalls i.e. the difference between the cash flows due to
comprehensive income: the loss allowance is recognised in determined to have low credit risk if the financial instrument has a the Company in accordance with the contract and the cash flows
other comprehensive income with the corresponding entry low risk of default, the debtor has a strong capacity to meet its that the Company expects to receive, discounted at the original
recognised in the statement of income. The loss allowance contractual cash flow obligations in the near term and adverse effective interest rate.
does not reduce the carrying amount of the financial asset in changes in economic and business conditions in the longer term
the statement of financial position. may, but will not necessarily, reduce the ability of the debtor to fulfil The mechanics of the expected credit losses method are sum-
its contractual cash flow obligations. The Company considers a debt marised below:
Significant increase in credit risk instrument to have low credit risk when its credit risk rating is equiv-
In assessing whether the credit risk on a financial instrument has alent to the globally understood definition of ‘investment grade’. • A financial instrument that is not credit-impaired on initial
increased significantly since initial recognition, the Company recognition, a 12-month ECL allowance is calculated. The
compares the risk of a default occurring as at the reporting date Credit-impaired financial assets Company calculates the 12-month ECL allowance based on
with the risk of default occurring as at the date of initial recognition. At each reporting date, the Company assesses whether financial the expectation of a default occurring in the twelve months
In making this assessment, the Company considers both quantita- assets carried at amortised cost and debt instruments carried at following the reporting date. The expected 12-month default
tive and qualitative information that is reasonable and supportable, fair value through comprehensive income are credit-impaired. A probability is applied to a forecast exposure at default and
including historical experience and forward-looking information financial asset is credit-impaired when one or more events that multiplied by the expected loss given default, and discounted
that is available without undue cost or effort. Forward-looking have a detrimental impact on the estimated future cash flows of by the original effective interest rate.
information considered includes the future prospects of the indus- the financial asset have occurred. • When a financial instrument has shown a significant increase
tries in which the Company’s debtors operate, obtained from in credit risk since initial recognition, the Company records an
economic expert reports, financial analysts, governmental bodies Evidence that a financial asset is credit-impaired includes the fol- allowance for life-time ECL. The mechanics are similar to
and other similar organisations, as well as consideration of various lowing observable data: 12-month ECL calculation on a financial instrument that is not
external sources of actual and forecast economic information that credit-impaired on initial recognition, but default probability
relate to the Company’s core operations. • Significant financial difficulty of the debtor or issuer; and loss given default are estimated over the life of the
• A breach of contract, such as a default or past due event; instrument.
The qualitative assessment to identify whether credit risk has in- • The disappearance of an active market for a financial asset • A financial instrument that is credit-impaired, but is not a
creased significantly since initial recognition takes into account the because of financial difficulties; purchased or originated credit-impaired financial instrument,
following: • It is becoming probable that the debtor will enter bankruptcy the Company records an allowance for lifetime ECL calculated
or other financial reorganisation; or similar to lifetime ECL on a financial instrument that has shown
• the remaining lifetime probability of default as at the reporting • Rating agencies’ assessments of creditworthiness. a significant increase in credit risk since initial recognition.
date; with • Purchased or credit-impaired financial assets are assets that
• the remaining lifetime probability of default for this point in Definition of default are credit-impaired on initial recognition. ECL on these assets
time that was estimated at the time of initial recognition of the The Company considers a financial asset to be in default when: are always measured on a lifetime basis, discounted by a
exposure. credit adjusted effective interest rate. The Company has no
• the debtor is unlikely to pay its credit obligations to the purchased or credit-impaired financial instruments.
The qualitative assessment to identify whether credit risk has Company in full, without recourse by the Company to actions
increased significantly since initial reccognition takes into account such as realising security (if any is held); or Where lifetime ECL is measured on a collective basis to cater for
the following: • the debtor is past due more than 90 days unless the Company cases where evidence of significant increases in credit risk at the
has reasonable and supportable information to demonstrate individual instrument level may not yet be available, the financial
• Actual or expected significant deterioration in the financial that a more lagging default criterion is more appropriate. instruments are grouped on the basis of shared risk characteristics
instrument’s external (if available) or internal credit rating; that include: instrument type; credit risk ratings; nature, size and
• Actual or expected significant adverse changes in business, In assessing whether a debtor is in default, the Company considers industry of debtors; collateral type; and geographic location of the
financial or economic conditions that are expected to cause a indicators that are qualitative, quantitative and based on data devel- debtor.
significant change to the debtor’s ability to meet its obligations; oped internally and obtained from external sources.
• Actual or expected significant changes in the operating results If the Company has measured the loss allowance for a financial
of the debtor; Write-off instrument at an amount equal to lifetime ECL in the previous
• Significant increases in credit risk on other financial instru- The Company writes off financial assets, either partially or in full, reporting period, but determines at the current reporting date that
ments of the debtor; when it has exhausted all practical recovery efforts and has con- the conditions for lifetime ECL are no longer met, the Company
• Significant changes in the expected performance and behaviour cluded there is no reasonable expectation of recovery. Indicators measures the loss allowance at an amount equal to 12-month
of the debtor, including changes in the payment status of debtor; that there is no reasonable expectation of recovery include ceas- ECL at the current reporting date.
• Actual or expected significant adverse change in the regulatory, ing enforcement activity and where the Company’s recovery
economic, or technological environment of the debtor that method is foreclosing on collateral and the value of the collateral is Impairment of non-financial assets
results in a significant change in the debtor’s ability to meet its such that there is no reasonable expectation of recovering in full. The Company assesses at each reporting date whether there is an
debt obligation. If the amount to be written off is greater than the accumulated indication that an asset may be impaired. If any such indication
loss allowance, the difference is first treated as an addition to the exists, or when annual impairment testing for an asset is required,
Irrespective of the outcome of the above assessment, the Compa- allowance that is then applied against the gross carrying amount. the Company estimates the asset’s recoverable amount. An asset’s
ny presumes that the credit risk on a financial asset has increased recoverable amount is the higher of an asset’s or cash-generating
significantly since initial recognition when contractual payments Measurement of expected credit losses unit’s (CGU) fair value less costs to sell and its value in use. The
are more than 30 days past due, unless the Company has reason- The measurement of expected credit losses is a function of: recoverable amount is determined on an individual asset basis,
able and supportable information that demonstrated otherwise. unless the asset does not generate cash inflows that are largely
During the year ended 31 December 2020, as a direct result of (i)Probability of default - an estimate of the likelihood of default independent of those from other assets or group of assets. When
the Covid-19 pandemic the Company offered a deferral in premi- over a given time horizon; the carrying amount of an asset or CGU exceeds its recoverable
um payments from customers for a period of up to 3 months, amount, the asset or CGU is considered impaired and written
thereby temporarily extending credit terms to up to 120 days. (ii) Loss given default - an estimate of the loss arising in the case down to its recoverable amount.
Because these were blanket offers to all customers, acceptance of where a default occurs at a given time; and
the offer was not taken as an indicator of a significant increase in In assessing value in use, the estimated future cash flows are dis-
credit risk. As at 31 December 2020, this deferral was no longer (iii) Exposure of default - an estimate of the exposure at a future counted to their present value using a pre-tax discount rate that