CFSL - Annual report 2018

65 CIM FINANCIAL SERVICES LTD ANNUAL REPORT 2018 EXPLANATORY NOTES 30 SEPTEMBER 2018 2. ACCOUNTING POLICIES (CONT’D) 2.5 New or revised standards and interpretations (Cont’d) (i) IFRS 9 Financial Instruments (Cont’d) Classification and measurement All financial assets are measured at fair value on initial recognition, adjusted for transaction costs if the instruments are not measured at fair value through profit and loss. Debt instruments are subsequently measured at amortized cost (AC), fair value through other comprehensive income (FVOCI) or fair value through profit and loss (FVTPL). The classification and measurement of financial assets into the categories mentioned above will depend on how these are managed (the entity’s business model) and their contractual cash flow characteristics. There is a fair value option that allows financial assets to be designated at FVTPL at initial recognition if that eliminates or significantly reduces an accounting mismatch. Equity instruments are generally classified at FVTPL, however entities have an irrevocable option to present changes in fair value of non-trading instruments in other comprehensive income without recycling to profit or loss. IFRS 9 retains almost all of the existing requirements from IAS 39 on the classification of financial liabilities, including those relating to embedded derivatives except for financial liabilities classified at FVTPL using the fair value option. The amount of change in fair value of such financial liabilities that is attributable to changes in credit risk must be presented in OCI. The remainder of the change in fair value is presented in profit or loss, unless presentation of the fair value change in respect of the liability’s credit risk in OCI would create or enlarge an accounting mismatch in profit or loss. The Group has reviewed its financial assets and liabilities and made an assessment of the impact from the adoption of the new standard on 1 October 2018: • Loans and advances, deposits with banks, government bond, and trade and other receivables are held to collect contractual cash flows and are expected to give rise to cash flows representing solely payments of principal and interest. The Group analysed the contractual cash flow characteristics of those instruments and concluded that they meet the criteria for amortised cost measurement under IFRS 9. Therefore, reclassification for these instruments is not required. Net finance lease receivables, hire purchase and other credit agreements are not impacted as they are not in the scope of the recognition and measurement under IFRS 9. • Financial assets currently held at financial assets at fair value through profit or loss, including derivatives will continue to be measured as such. • Available for sale investments consisting of equity shares will be reclassified to financial assets at fair value through profit or loss. There will be no impact on the reserves and the fair value losses were considered to be impairment and recognised in profit or loss. Accordingly, the Group shall use themodified retrospective approach and does not expect the new guidance to significantly affect the classification and measurement of these financial assets. The derecognition rules have been transferred from IAS 39 Financial Instruments : Recognition and Measurement and have not been changed. Impairment The incurred loss model for provisioning under IAS 39 is replaced by an expected credit loss model for provisioning under IFRS 9. In the case of the Group, the new impairment requirements are applied to debt instruments accounted for at amortized cost or at FVOCI; most loan commitments; and lease receivables under IAS 17 Leases. Under IFRS 9, impairment is measured as either 12 month expected credit loss (ECL) (stage 1) or Life time ECL (stage 2/stage 3). Financial assets in stage 1 can be shifted to stage 2 in case of significant increase in credit risk since initial recognition (or when the commitment or guarantee was entered into).