34. FINANCIAL INSTRUMENTS (CONTINUED) 34.4 Credit risk (continued) Receivables and contract assets (continued) Recognition and measurement of impairment losses (continued) Loss rates are calculated using a ‘roll rate’ method based on the probability of a receivable progressing through successive stages of delinquency to 180 days past due. Consistent with the debt recovery process, invoices which are past due 180 days will be considered as credit impaired. Loss rates are based on actual credit loss experience over the past two years. The Group also considers differences between (a) economic conditions during the period over which the historic data has been collected, (b) current conditions and (c) the Group’s view of economic conditions over the expected lives of the receivables. Nevertheless, the Group believes that these factors are immaterial for the purpose of impairment calculation for the period. The Group and the Company apply the 3-stage general approach to measuring expected credit losses for its other receivables and non-trade amount owing by related parties. Under this approach, loss allowance is measured on either 12–month expected credit losses or lifetime expected credit losses, by considering the likelihood that the receivable would not be able to repay during the contractual period (probability of default, PD), the percentage of contractual cash flows that will not be collected if default happens (loss given default, LGD) and the outstanding amount that is exposed to default risk (exposure at default, EAD). In deriving the PD and LGD, the Group and the Company consider the receivable’s past payment status and its financial condition as at the reporting date. The PD is adjusted to reflect current and forward–looking information on macroeconomic factors affecting the ability of the receivable to settle its debts. Nevertheless, the Group believes that these factors are immaterial for the purpose of impairment calculation for the period. Integrated Report 2023 283
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