Notes to the Financial Statements FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2023 2 MATERIAL 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 At each reporting date, the Group and the Company measure ECL through loss allowance at an amount equal to 12 month ECL if credit risk on a financial instrument or a group of financial instruments has not increased significantly since initial recognition. For all other financial instruments, a loss allowance at an amount equal to lifetime ECL is required. The Group and the Company consider the probability of default upon initial recognition of financial asset and whether there has been a significant increase in credit risk on an ongoing basis throughout each reporting period. To assess whether there is a significant increase in credit risk, the Group and the Company compare the risk of a default occurring on the financial asset as at the reporting date with the risk of default as at the date of initial recognition. Available, reasonable and supportable forward-looking information are also considered. 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 creditimpaired. (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’. Write-offs 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. Integrated Annual Report 2023 184
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