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AfrAsia Bank Limited and its Group Entities
Annual Report 2015
page 201
noteS to the finanCial StatementS
for the year ended 30 June 2015
2. ACCOUNTING POLICIES (CONTINUED)
2.5 Summary of significant accounting policies (Continued)
(b) Financial instruments - initial recognition and subsequent measurement
(i) Date of recognition
All financial assets and liabilities are initially recognised on the trade date, i.e. the date that the Group become a party to the contractual provisions of the instrument.
This includes regular way trades: purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or
convention in the marketplace.
(ii) Initial measurement of financial instruments
The classification of financial instruments at initial recognition depends on the purpose and characteristics and management’s intention in acquiring them. All financial
instruments are measured initially at their fair value plus transaction costs, except in the case of financial assets and financial liabilities recorded at fair value through
profit or loss.
(iii) Derivatives recorded at fair value through profit or loss
The Group use derivatives such as forward foreign exchange contracts and options on foreign currencies. Derivatives are recorded at fair value and carried as assets
when their fair value is positive and as liabilities when their fair value is negative. Changes in the fair value are included in Net trading income.
(iv) Financial assets or financial liabilities held-for-trading
Financial assets or financial liabilities held-for-trading are recorded in the statements of financial position at fair value. Changes in fair value are recognised in ‘Net
trading income’. Interest and dividend income or expense is recorded in ‘Net trading income’ according to the terms of the contract, or when the right to receive the
income/make the payment has been established.
Included in this classification are debt securities, which have been acquired principally for the purpose of selling or repurchasing in the near term.
(v) ‘Day 1’ profit or loss
When the transaction price differs from the fair value of other observable current market transactions in the same instrument or based on a valuation technique whose
variables include only data from observable markets, the Group immediately recognises the difference between the transaction price and fair value (a ‘Day 1’ profit or
loss) in ‘Net trading income’. In case where fair value is determined using data which is not observable, the difference between the transaction price and model value
is only recognised in the statements of profit or loss and other comprehensive income when the inputs become observable, or when the instrument is derecognised.
(vi) Held-to-maturity financial investments
Held-to-maturity financial investments are non-derivative financial assets with fixed or determinable payments and have fixed maturities, which the Group has the
intention and ability to hold to maturity. After initial measurement, held-to-maturity financial investments are subsequently measured at amortised cost using the
effective interest rate method less allowance for impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees that
are an integral part of the effective interest rate. The amortisation is included in ‘Interest income’ in the statements of profit or loss and other comprehensive income.
The losses arising from impairment of such assets are recognised in profit or loss.
If the Group was to sell or reclassify more than an insignificant amount of held-to-maturity financial assets before maturity (other than in certain specific circumstances),
the entire category would be tainted and would have to be reclassified as available-for-sale. Furthermore, the Group would be prohibited from classifying any financial
asset as held-to-maturity during the following two years.