EXCEL FORCE MSC BERHAD Annual Report 2017

57 2. Basis of Preparation (cont’d) (a) Statement of compliance (cont’d) Standards issued but not yet effective (cont’d) MFRS 9 Financial Instruments (IFRS 9 issued by IASB in July 2014) MFRS 9 (IFRS 9 issued by IASB in July 2014) replaces earlier versions of MFRS 9 and introduces a package of improvements which includes a classification and measurement model, a single forward looking ‘expected loss’ impairment model and a substantially reformed approach to hedge accounting. MFRS 9 when effective will replace MFRS 139 Financial Instruments: Recognition and Measurement . MFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through other comprehensive income and fair value through profit or loss. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in other comprehensive income without subsequent recycling to profit or loss. There is now a new expected credit losses model that replaces the incurred loss impairment model used in MFRS 139. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. MFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the ‘hedged ratio’ to be the same as the one management actually use for risk management purposes. Contemporaneous documentation is still required but is different to that currently prepared under MFRS 139. Based on the analysis of the Group’s and of the Company’s financial assets and liabilities as at 31 December 2017 and the facts and circumstances that existed at that date, the Directors of the Group and of the Company have assessed the impact of MFRS 9 to the Group’s and to the Company’s financial statements as follows: (i) Classification and measurement Based on the assessment, the Group and the Company believe that the new classification and measurement requirements will have no material impact on the Group’s and the Company’s financial assets and financial liabilities. (ii) Impairment The Group and the Company have chosen to apply the simplified approach prescribed by MFRS 9, which requires a lifetime expected credit loss to be recognised from initial recognition of the trade and other receivables, including financial assets. Due to the high creditworthiness quality of the Group’s and of the Company’s receivables, the Group and the Company believe that the new impairment model will not have any significant impact on the Group’s and the Company’s financial statements. (iii) Hedge accounting As the Group and the Company do not apply hedge accounting, the hedging requirements of MFRS 9 will not have a significant impact on the Group’s and the Company’s financial statements. The assessment is based on currently available information and may be subject to changes arising from further reasonable and supportable information being made available to the Group and the Company in the financial year ended 31 December 2018 when the Group and the Company adopt MFRS 9. The Group and the Company will apply the new rules retrospectively from 1 January 2018, with the practical expedients permitted under the standard and that comparatives will not be restated. Notes To The Financial Statements 31 December 2017 (cont’d)