CFSL Integrated Report 2022

CIM FINANCE. INTEGRATED REPORT 2022 | 125 EXPLANATORY NOTES 30 SEPTEMBER 2022 2. A CCOUNTING POLICIES (CONT’D) 2.7 Significant accounting policies (Cont’d) (n) Financial instruments - Initial recognition and subsequent measurement (Cont’d) Continuing involvement that takes the formof a guarantee over the transferred asset ismeasured at the lower of the original carrying amount of the asset and themaximumamount of consideration that the Group and the Company could be required to repay. The Group and the Company also derecognise a financial asset, in particular, a loan to customer when the terms and conditions have been renegotiated to the extent that it substantially became a new loan, with the difference, i.e. difference between the original loan’s carrying amount and the new loan’s carrying amount (present value), recognised as impairment in the profit or loss. (ii) Financial Liabilities A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. The difference between the carrying value of the original financial liability and the consideration paid is recognised in profit or loss. (p) Determination of fair value In order to show how fair values have been derived, financial instruments are classified based on a hierarchy of valuation techniques, as summarised below: Level 1 financial instruments −Thosewhere the inputs used in the valuation are unadjusted quoted prices fromactivemarkets for identical assets or liabilities that the Group and the Company have access to at the measurement date. The Group and the Company consider markets as active only if there are sufficient trading activities with regards to the volume and liquidity of the identical assets or liabilities and when there are binding and exercisable price quotes available at the reporting date. Level 2 financial instruments−Thosewhere the inputs that are used for valuation and are significant, are derived fromdirectly or indirectly observablemarket data available over the entire period of the instrument’s life. Such inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical instruments in inactive markets and observable inputs other than quoted prices such as interest rates and yield curves, implied volatilities, and credit spreads. In addition, adjustments may be required for the condition or location of the asset or the extent to which it relates to items that are comparable to the valued instrument. However, if such adjustments are based on unobservable inputs which are significant to the entire measurement, the Group and the Company will classify the instruments as Level 3. Level 3 financial instruments −Those that include one or more unobservable inputs that are significant to themeasurement as whole. For assets and liabilities that are recognised in the financial statements at fair value on a recurring basis, the Group and the Company determine whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. TheGroup’s and theCompany’s management determine the policies andprocedures for both recurring fair valuemeasurement, such as investment properties, unquoted available for sale financial assets andderivatives, and for non-recurringmeasurement, such as assets acquired and liabilities assumed in a business combination. External valuers are involved for valuation of significant assets, such as properties. Involvement of external valuers is determined annually bymanagement. Selection criteria includemarket knowledge, reputation, independence andwhether professional standards aremaintained. Management decides, after discussions with the Group’s and the Company’s external valuers, which valuation techniques and inputs to use for each case. At each reporting date, management analyses themovements in the values of assets and liabilities which are required to be remeasured or re-assessed according to the Group’s and the Company’ s accounting policies. For this analysis, management verifies themajor inputs applied in the latest valuation by agreeing the information in the valuation computation to contracts and other relevant documents. Management, in conjunction with the Group’s and the Company’s external valuers, also compares the change in the fair value of each asset and liability with relevant external sources to determine whether the change is reasonable.

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