SCC Holdings Berhad Annual Report 2017

40 SCC Holdings Berhad (511477-A) | Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2017 (CONT’D) 2. Basis of Preparation (Cont’d) (a) Statement of Compliance (cont’d) Standards issued but not yet effective (cont’d) (i) MFRS 9 Financial Instruments (IFRS 9 issued by IASB in July 2014) (cont’d) (a) Classification of financial assets (cont’d) At 31 December 2017, the Group: (i) held an investment securities classified as available-for-sale with a fair value of RM68,000 that are held for long-term strategic purpose. Under MFRS 9, the Group has elected to designate this investment to be measured at FVOCI; Consequently, for financial assets designated to be measured at FVOCI, all fair value gains and losses will be reported in other comprehensive income, no impairment losses will be recognised in profit or loss and no gains or losses will be reclassified to profit or loss on disposal for these financial assets. (b) Impairment of financial assets MFRS 9 replaces the “incurred loss” model in MFRS 139 with a forward-looking “expected credit loss” (“ECL”) model. This will require considerable judgement about how changes in economic factors affect ECLs, which will be determined on a probability-weighted basis. The new impairment model will apply to financial assets measured at AC or FVOCI, except for investment securities. Under MFRS 9, loss allowances will be measured on either of the following bases: • 12-month ECLs: these are ECLs that result from possible default events within the 12 months after the reporting date; or • Lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial instrument. Lifetime ECL measurement applies if the credit risk of a financial asset at the reporting date has increased significantly since initial recognition and 12-month ECL measurement applies if it has not increased significantly. A financial asset’s credit risk deemed not increased significantly if the asset has low credit risk at the reporting date. However, the Group and the Company have adopted lifetime ECL measurements for loans and receivables due to the expected lifetime period of loans and receivables are generally less than 12 months. (c) Classification of financial liabilities MFRS 9 largely retains the existing requirements in MFRS 139 for the classification of financial liabilities. These include amortised cost accounting for most financial liabilities, with bifurcation of embedded derivatives. The main changes is that, in case where the fair value option is taken for financial liabilities, the part of fair value change due to entity’s own credit risk is recoded in other comprehensive income rather than in profit or loss, unless this create an accounting mismatch. Based on the assessments undertaken to date, the Group and the Company do not expect the above new requirements to affect the classification and measurements of its financial assets and financial liabilities. On the ECL impact, the Group and the Company expect an increase in the Group’s and the Company’s allowance for impairment by less than 5% of loans and receivables.