axiata group berhad | annual report 2015
137
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(g) Offsetting financial instruments
Financial assets and liabilities are offset and the net amount presented in the statements of financial position when there is a legally enforceable
right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.
(h) Derivative financial instruments and hedging activities
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair
value.
The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the
nature of the item being hedged. The Group and the Company designate certain derivatives as either:
•
Hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge);
•
Hedges of a particular risk associated with a recognised asset or liability or a highly probable forecast transaction (cash flow hedge); or
•
Hedges of a net investment in a foreign operation (net investment hedge).
The Group and the Company document at the inception of the transaction, the relationship between hedging instruments and hedged items, as
well as its risk management objectives and strategy for undertaking various hedging transactions. The Group and the Company also document
its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in fair values or cash flows of hedged items.
The fair values of various derivative instruments used for hedging purposes are disclosed in Note 19 to the financial statements. Movements on
the hedging reserve in other comprehensive income are shown in the statement of changes in equity of the financial statements. The full fair value
of a hedging derivative is classified as a non-current asset or liability when the remaining hedged item is more than twelve (12) months and as a
current asset or liability when the remaining maturity of the hedged item is less than twelve (12) months. Trading derivatives are classified as a
current asset or liability.
(i) Fair value hedge
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the profit or loss, together with
any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The Group and the Company only
apply fair value hedge accounting for hedging fixed interest risk on borrowings. The gain or loss relating to the effective portion of cross
currency interest rate swaps (“CCIRS”) hedging fixed rate borrowings is recognised in the profit or loss within ‘finance costs’. The gain or
loss relating to the ineffective portion is recognised in the profit or loss within ‘other gains/(losses) - net’. Changes in the fair value of the
hedge fixed rate borrowings attributable to interest rate risk are recognised in the profit or loss within ‘finance cost’.
If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the
effective interest method is used and is amortised to profit or loss over the period to maturity.
(ii) Cash flow hedge
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other
comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in the profit or loss within ‘other gains/
(losses) - net’.
Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss (for example,
when the forecast sale that is hedged takes place). The gain or loss relating to the effective portion of interest rate swaps hedging variable
rate borrowings is recognised in the profit or loss within ‘finance costs’. The gain or loss relating to the ineffective portion is recognised in
the profit or loss within ‘other gains/(losses) - net’. However, when the forecast transaction that is hedged, results in the recognition of a
non-financial asset, the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement
of the cost of the asset. The deferred amounts are ultimately recognised in cost of goods sold in the case of inventory or in depreciation
in the case of PPE.
