NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2022 2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.17 Financial assets (continued) (d) Impairment of financial assets (continued) (i) General 3-stage approach for other receivables, loans to subsidiaries and financial guarantee contracts (continued) The Group and the Company define a financial instrument as default, which is fully aligned with the definition of credit-impaired, when it meets one or more of the following criteria: • when the counterparty fails to make contractual payment as they fall due • the debtor is in breach of financial covenants • concessions have been made by the lender relating to the debtor’s financial difficulty • it is becoming probable that the debtor will enter bankruptcy or other financial reorganisation • the debtor is insolvent Financial instruments have been grouped based on shared credit risk characteristics and the days past due in measuring ECL. Financial instruments that are credit-impaired are assessed on individual basis. (ii) Simplified approach for trade receivables, contract assets and lease receivables The Group and the Company apply the MFRS 9 simplified approach to measure ECL which uses a lifetime ECL for all trade receivables, contract assets and lease receivables. Individual assessment is made to these financial assets which are in default or credit-impaired. (e) Write-off Financial assets are written off when the Group and the Company have exhausted all practical recovery efforts and have concluded that there is no reasonable expectation of recovery. Indicator of no reasonable expectation of recovery include failure of a debtor to engage in a repayment plan with the Group and the Company. The Group and the Company may write-off financial assets that are still subject to enforcement activity. Impairment losses are presented as net impairment losses within ‘impairment of financial assets’. Writeoffs are recognised in profit or loss within ‘administrative and general expenses’. Subsequent recoveries of amounts previously written off are credited against the same line item. (f) De-recognition Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group and the Company have transferred substantially all the risks and rewards of ownership. 2.18 Financial liabilities (a) Classification Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. (i) Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities held for trading include derivatives entered into by the Group and the Company that do not meet the hedge accounting criteria. Liabilities in this category are classified within current liabilities if they are either held for trading or are expected to be settled within 12 months after the reporting date. Otherwise, they are classified as non-current. Annual Report 2022 Wah Seong Corporation Berhad 123
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