Wah Seong Corporation Berhad Annual Report 2020

185 ANNUAL REPORT 2020 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2020 45 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Credit risk (continued) (a) Receivables The Group’s and the Company’s exposure to credit risk is monitored on an ongoing basis. The Group and the Company have credit policies in place to manage the credit risk exposure. The risk is managed through the application of the Group’s and the Company’s credit management procedures which include the application of credit evaluations or approvals and follow up procedures. The Group and the Company actively monitor the utilisation of credit limits to manage the risk of any material loss from the non-performance of its counterparties. Simplified approach for finance lease receivables, trade receivables and contract assets (including intercompany trade balances) The Group and the Company apply simplified approach to providing for ECL prescribed by MFRS 9, which permits the use of the lifetime expected loss provision for all finance lease receivables, trade receivables and contract assets. The Group and the Company account for its credit risk by appropriately providing for ECL on timely basis. In calculating credit loss rate, the finance lease receivables, trade receivables and contract assets have been assessed based on credit risk categories and the days past due and adjust for forward-looking information. Financial assets are written off when there is no reasonable expectation of recovery, such as a debtor failing to engage in a repayment plan with the Group and the Company. The Group and the Company categorise a receivable for write off when a debtor fails to make contractual payments and the recoverability of the receivables is remote. Where receivables have been written off, the Group and the Company continue to engage in enforcement activity to attempt to recover the receivable due. Where recoveries are made, these are recognised in profit or loss. General 3-stage approach for other debt instruments financial assets ECL for other debt instruments financial assets at amortised costs, which include other receivables, non- trade intercompany balances, time deposits and cash and bank balances are measured using general 3-stage approach. The Group and the Company use three categories to reflect their credit risk and how the loss allowance is determined for each of those categories. A summary of the assumptions underpinning the Group’s and the Company’s ECL model is as follows: Category Group’s and Company’s definition of category Basis for recognising ECL Performing Debtors have a low risk of default and a strong capacity to meet contractual cash flows. 12 month ECL Underperforming Debtors for which there is a significant increase in credit risk or significant increase in credit risk is presumed if the forward-looking information and indicators available signify impairment to debtors’ ability to repay. Lifetime ECL Not performing Debtors’ ability to repay or likelihood of repayment is determined as fully impaired when it meets one or more of the indicators in accounting policy 2.17(d). Lifetime ECL (credit impaired)