213 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) 2.18 Derivative financial instruments (continued) The Group documents at the inception of the hedge relationship, the economic relationship between hedging instruments and hedged items including whether changes in the cash flows of the hedging instruments are expected to offset changes in the cash flows of hedged items. The Group documents its risk management objective and strategy for undertaking its hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis on whether the hedging relationship meets the hedge effectiveness requirements under MFRS 9. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. Derivatives are classified as a non-current asset or liability when the remaining maturity is more than 12 months, and the balance is classified as current. (a) Fair value hedge Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in profit or loss, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The Group applies fair value hedge accounting for hedging its exposure to foregin currency risk on firm commitments to purchase property, plant and equipment denominated in a foreign currency. If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortised to profit or loss over the period to maturity using a recalculated effective interest rate (b) Cash flow hedge For derivatives that qualify as cash flow hedges, the gain or loss relating to the ineffective portion of changes in the fair value is recognised in profit or loss. The gain or loss relating to the effective portion is recognised in other comprehensive income and later reclassified to profit or loss when the hedged item affects profit or loss. IBOR reform The Group has applied the following Phase 1 reliefs provided by the Amendments to MFRS 9 and MFRS 7 ‘Interest Rate Benchmark Reform’ for the hedging instruments used in the Group’s hedging strategies which reference IBOR and have not yet transitioned to an alternative benchmark rate: • When considering the ‘highly probable’ requirement, the Group has assumed that the IBOR interest rate on which the Group’s hedged borrowings is based does not change as a result of IBOR reform. • In assessing whether the hedge is expected to be highly effective on a forward-looking basis, the Group has assumed that the IBOR interest rate on which the cash flows of the hedged borrowings and the interest rate swap that hedges it are based is not altered by IBOR reform. • The Group has not recycled the cash flow hedge reserve for designated hedges that are subject to the IBOR reform. The Group ceases to apply the reliefs provided by the Phase 1 amendments at the earlier of (a) when there is no longer uncertainty arising from IBOR reform over the timing and amount of the IBORlinked cash flows of the hedged item, and (b) when the hedging relationship to which the reliefs are applied is discontinued.
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