Page 46 - SABN AR 2021

Recognition of credit losses is no longer dependent on the SABN first identifying a credit loss event. Instead, the SABN considers a broader range of information when assessing credit risk and measuring expected credit losses, including past events, current conditions as well as reasonable and supportable forecasts that affect the expected collectability of the future cash flows of the instrument.
In applying this forward-looking approach, a distinction is made between:
– financial instruments that have not deteriorated significantly in credit quality since initial recognition or that have low credit risk (‘Stage 1’);
– financial instruments that have deteriorated significantly in credit quality since initial recognition and whose credit risk is not low (‘Stage 2’); and
– financial assets that have objective evidence of impairment at the reporting date (‘Stage 3’).
The ‘12-month expected credit losses’ are recognised for the first category while ‘lifetime expected credit losses’ are recognised for the second category.
Measurement of the expected credit losses is determined by a probability-weighted estimate of credit losses over the expected life of the financial instrument.
Trade and other receivables and contract assets
The SABN makes use of a simplified approach in accounting for trade and other receivables as well as contract assets, and records the loss allowance as lifetime expected credit losses. These are the expected shortfalls in contractual cash flows, considering the potential for default at any point during the life of the financial instrument. In its calculations, the SABN uses its historical experience, external indicators and forward-looking information to calculate the expected credit losses using a provision matrix.
The SABN assesses the impairment of trade receivables on a collective basis as they possess shared credit risk characteristics, and are therefore grouped based on the days past due.
Loans to/from group companies
These include loans to and from holding companies, fellow subsidiaries of the SARB, SABN subsidiaries, joint ventures and associates. Such loans are recognised initially at fair value plus direct transaction costs.
Loans to group companies are classified as ‘financial assets measured at amortised cost’. Loans from group companies are classified as ‘financial liabilities measured at amortised cost’.
Trade and other receivables
Trade and other receivables are subsequently measured at amortised cost using the effective interest method which approximates the fair value. Gains and losses are recognised in profit or loss and relate to derecognition and the amortisation process.
Trade and other payables
Liabilities for trade and other amounts payable are subsequently measured at amortised cost using the effective interest method which approximates the fair value of the consideration to be paid in the future for goods and services received. Gains and losses are recognised in profit or loss when the liabilities are derecognised and through the amortisation process.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and cash on hand. For the purposes of the statement of cash flows, cash and cash equivalents are defined as net of outstanding bank overdrafts.
46 Annual Report 2021
South African Bank Note Company (RF) Proprietary Limited