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8- Part 2 - Coggle Diagram

- - - - There is an economic relationship between the hedged items and the hedging instrument that is the hedging instrument and the hedged item have values that generally move in the opposite direction because of the same risk, which is the hedged risk
      - The effect of credit risk does not dominate the value changes that result from that economic relationship, that is the gain or loss from credit risk does not frustrate the effect of changes in the underlying on the value of the hedging instrument or the hedged item, even if those changes were significant
      - The hedged ratio of the hedging relationship (quantity of hedged instrument vs quantity of hedged item) is the same as that resulting from the quantity of the hedged item that the entity actually hedges and the quantity of the hedging instrument that the entity actually uses to hedge that quantity of the hedged item.
  - - - Hedge the change in value of a recognised asset or liability (or unrecognised firm commitment) that could affect profit or loss
      - All gains or losses on both the hedged item and hedging instrument are recognised as follows
        
        Immediately in P/L (except for hedges of investment in equity instruments held at FVTOCI)
        
        Immediately in OCI if the hedged item is an investment in an equity instrument held at FVTOCI. This ensures that hedges of investment of equity instruments held at FVTOCI can be accounted for as hedges.
      - In both cases, the gain or loss on the hedged item adjusts the CA of the hedged item
    - - This hedges the risk of change in value of future cash flows from a recognised asset or liability (or highly probable forecast transaction) that could affect profit or loss
      - Accounted for as follows
        
        The portion of the gain or loss on the hedging instrument that is effective (that is up to the value of the loss or gain on cash flows hedged) is recognised in OCI (items that may be reclassified subsequently to P/L) and the cash flow hedge reserve
        
        Any excess is recognised immediately in the P/L
      - The amount that has been accumulated in the cash flow hedge reserve is then accounted for as follows
        
        If a hedged forecast transaction subsequently results in the recognition of a non-financial asset or liability, the amount shall be removed from cash flow reserve and be included directly in the initial cost or CA of the asset or liability
        
        For all other cash flow hedges, the amount shall be reclassified from OCI to P/L in the same period that the hedged expected future cash flows affect P/L
- - - - Treated as held for trading and measured at FVTPL
    - - To be separated from the host contract and therefore be measured at FVTPL like other derivatives
        
        Host contract that is bond
        
        Accounted for as normal amortised cost
        
        Embedded derivatives that is option on equities
        
        Treat as derivatives that is remeasured to FV with changes recognised to P/L
- - - - Financial asset measured at amortised cost (business model- objective- to collect CCC of principal and interest)
      - Investment in debt instrument measured at FVTOCI, business model; objective is to collect CCC of principal and interest and to sell financial asset
    - - This is because subsequent measurement at FV will already take into account any impairment
  - - - A loss allowance for expected credit losses must be recognised
    - - A loss allowance = to 12 months expected credit losses must be recognised
        
        12 months credit losses
        
        The portion of lifetime expected credit losses that result from default events on a financial instrument that are possibly within the 12 months after the reporting date
        
        They are calculated by multiplying the probability of default in the next 12 months by the PV of the lifetime expected credit losses that would result from the default
        
        Lifetime expected credit losses
        
        The expected credit losses that result from all possible default events over the expected life of the financial instrument
    - - The loss allowance required depends on whether there has been a significant increase in credit risk of that financial instrument since initial recognition
      - 3 Situations
        
        No significant increase in credit risk since initial recognition
        
        Recognised 12 months expected credit losses
        
        Effective interest calculated on gross CA of financial asset
        
        Significant increase in credit risk since initial recognition
        
        Recognised lifetime expected credit losses
        
        Effective interest calculated on gross amount of CA of financial asset
        
        To determine whether credit risk has increased significantly, management should assess whether there has been a significant increase in the risk of fault
        
        There is a rebuttable presumption that credit risk has increased significantly when contractual payments are more than 30 days past due
        
        Objective evidence of impairment at the reporting date
        
        Recognised lifetime expected credit losses
        
        Effective interest calculated on net CA of financial asset
    - - Management needs to exercise their professional judgment
      - For example, assessing whether there has been a significant increase in the credit risk of financial asset since initial recognition requires management to consider forward looking and past due information in making a considered opinion
      - Entity needs to disclose in depth, of how entity has applied the impairment model, what are the results of applying the model are and the reasons for any changes in expected losses
    - - Investment in debt instrument measured at amortised cost
        
        Treatment of credit losses
        
        Recognised in P/L
        
        Credit losses held in a separate allowance account offset against the CA of the asset
        
        Financial asset - Allowance for credit losses = CA (net allowance for credit losses)
      - Investment in debt instrument measured at FVTOCI
        
        Treatment of credit losses
        
        Portion of the fall in FV relating to credit losses recognised in the P/L
        
        Remainder recognised in OCI
        
        No allowance account necessary because already carried at FV (which is automatically reduced for any fall in value, including credit losses)
    - - The measurement of expected credit losses should reflect
        
        An unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes
        
        The time VFM
        
        Reasonable and supportable information that is available without undue cost and effort at the reporting date about past events, current conditions and forecasts of future economic conditions
      - Impairment loss reversal
        
        If an entity has measured the loss allowance at an amount = to lifetime expected credit losses in the previous reporting date, but determines that the conditions are no longer met, it should revert to measuring the loss allowance at an amount= to 12 months credit losses
        
        The gain is recognised in the P/L
      - Trade receivables, contract assets and lease receivables
        
        A simplified approach is permitted
        
        For trade receivables and contract assets that do not have a significant IFRS 15 financing element, the loss allowance is measured at the lifetime expected credit losses. from initial recognition
        
        For other trade receivables, and contract assets and lease receivables, the entity can choose to apply the 3 stage approach or to recognise for lifetime expected credit losses from initial recognition
    - - A financial asset may already be credit-impaired when it is purchased. In this case, it is originally recognised as a single figure with no separate allowance for credit losses
      - However, any subsequent changes in lifetime expected credit losses are recognised as a separate allowance
- - - - The significance of financial instruments for the entity's financial position and performance
      - The nature and extent of risks arising from financial instrument to which the entity is exposed. and how the entity manages those risks
  - - - Breakdown of CA by class of FI
      - Details of financial asset reclassified
      - Pls read the rest in the workbook
    - - Qualitative
        
        Exposure to risk
        
        Policies for risk management
      - Quantitative
        
        Credit risk
        
        Liquidity risk
        
        Market risk