209 NOTES TO THE FINANCIAL STATEMENTS (CONT’D) For the financial year ended 31 January 2023 ACCOUNTABILITY (FINANCIAL STATEMENTS) 2. Summary of significant accounting policies (continued) 2.17 Financial instruments (continued) (ii) Impairment of financial assets (continued) The measurement of ECL reflects: • an unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes; • the time value of money; and • reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions. (a) General 3-stage approach for financial assets and contract assets at amortised cost At each reporting date, the Group and the Company measure 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. Other financial assets at amortised cost comprise other receivables, finance lease receivables and cash and cash balances. The general 3-stage approach is applied for other financial assets at amortised cost other than trade receivables and contract assets. The Group and the Company consider the probability of default upon initial recognition of the 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 asset as at the reporting date with the risk of default as at the date of initial recognition. It considers available reasonable and supportable forward-looking information. The following indicators are incorporated: • internal credit rating; • external credit rating (as far as available); • actual or expected significant adverse changes in business, financial or economic conditions that are expected to cause a significant change to the debtor’s ability to meet its obligations; • actual or expected significant changes in the operating results of the debtor; • significant increases in credit risk on other financial instruments of the same debtor; • significant changes in the value of the collateral supporting the obligation or in the quality of third-party guarantees or credit enhancements; and • significant changes in the expected performance and behaviour of the debtor, including changes in the payment status and changes in the operating results of the debtor. Macroeconomic information (such as market interest rates or growth rates) is incorporated as part of the internal rating model. Regardless of the analysis above, a significant increase in credit risk is presumed if a debtor is more than 30 days past due in making a contractual payment. Note 41(b) sets out the measurement details of ECL.
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