NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2022 45 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Credit risk (continued) (a) Receivables (continued) 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 including amounts owing by subsidiaries, amounts owing by associates and amounts owing by joint ventures, 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) Based on the above, loss allowance is measured on either 12 month ECL or lifetime ECL using a PD x LGD x EAD methodology as follows: • PD (“probability of default”) – the likelihood that the debtor would not be able to repay during the contractual period; • LGD (“loss given default”) – the percentage of contractual cash flows that will not be collected if default happens; and • EAD (“exposure at default”) – the outstanding amount that is exposed to default risk. In deriving the PD and LGD, the Group and the Company consider available, reasonable and supportive forward-looking information, such as: • significant changes in the expected performance and behaviour of the debtor, including changes in the payment status of debtor and changes in the business of the debtor; and • debtor’s past history and existing market conditions. Wah Seong Corporation Berhad Annual Report 2022 198
RkJQdWJsaXNoZXIy NDgzMzc=