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Notes to Financial Statements
December 31, 2014
2. Summary of Significant Accounting Policies (cont’d)
ADOPTION OF NEW AND REVISED STANDARDS (cont’d)
Consequential amendments were also made to various standards as a result of these new/revised standards.
The management anticipates that the adoption of the above FRSs in future periods will not have a material impact on
the financial statements of the Group and Co-operative in the period of their initial adoption except for the following:
FRS 109 Financial Instruments
FRS 109 was issued in December 2014 to replace FRS 39
Financial Instruments
:
Recognition and Measurement
and introduced new requirements for (i) the classification and measurement of financial assets and financial
liabilities (ii) derecognition (iii) general hedge accounting (iv) impairment requirements for financial assets.
Key requirements of FRS 109:
• all recognised financial assets that are within the scope of FRS 39 are now required to be subsequently measured
at amortised cost or fair value through profit or loss (FVTPL). Specifically, debt investments that are held within a
business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that
are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at
the end of subsequent accounting periods. Debt instruments that are held within a business model whose objective
is achieved both by collecting contractual cash flows and selling financial assets, and that have contractual terms that
give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount
outstanding, are measured at fair value through other comprehensive income (FVTOCI). All other debt investments
and equity investments are measured at FVTPL at the end of subsequent accounting periods. In addition, under FRS
109, entities may make an irrevocable election, at initial recognition, to measure an equity investment (that is not held
for trading) at FVTOCI, with only dividend income generally recognised in profit or loss.
• with some exceptions, financial liabilities are generally subsequently measured at amortised cost. With regard to the
measurement of financial liabilities designated as at FVTPL, FRS 109 requires that the amount of change in fair value of
the financial liability that is attributable to changes in the credit risk of that liability is presented in other comprehensive
income, unless the recognition of the effects of changes in the liability’s credit risk in other comprehensive income
would create or enlarge an accounting mismatch to profit or loss. Changes in fair value attributable to a financial
liability’s credit risk are not subsequently reclassified to profit or loss. Under FRS 39, the entire amount of the change
in the fair value of the financial liability designated as at FVTPL is presented in profit or loss.
• in relation to the impairment of financial assets, FRS 109 requires an expected credit loss model, as opposed to an
incurred credit loss model under FRS 39. The expected credit loss model requires an entity to account for expected
credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since
initial recognition. In other words, it is no longer necessary for a credit event to have occurred before credit losses
are recognised.
• the new general hedge accounting requirements retain the three types of hedge accounting mechanisms currently
available in FRS 39. Under FRS 109, greater flexibility has been introduced to the types of transactions eligible for
hedge accounting, specifically broadening the types of instruments that qualify for hedging instruments and the
types of risk components of non-financial items that are eligible for hedge accounting. In addition, the effectiveness
test has been overhauled and replaced with the principle of an ‘economic relationship’. Retrospective assessment of
hedge effectiveness is also no longer required. Enhanced disclosure requirements about an entity’s risk management
activities have also been introduced.
