Asus 2010 Annual Report Download - page 125

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The methods and assumptions used to estimate the fair values of the above financial
instruments are summarized below:
A. The above financial instruments exclude cash and cash equivalents, accounts/notes
receivable (including related parties), other receivables (including related parties),
refundable deposits, accounts/notes payable (including related parties), accrued
expenses, other current liabilities and guarantee deposits received. For such
financial instruments, the fair values were determined based on their carrying
values because of the short maturities of the instruments.
B. Financial assets at fair value through profit or loss and available-for-sale financial
instruments are regarded as quoted in an active market if quoted prices are readily
and regularly available from an exchange, dealer, broker, industry group, pricing
service or regulatory agency, and those prices represent actual and regularly
occurring market transactions on an arm’s length basis. If the market for a
financial instrument is not active, an entity establishes fair value by using a
valuation technique.
C. The fair value of convertible bonds payable is not available, and a valuation
technique is used. The assumptions used in the said valuation are the same as
those used by financial market traders when quoting their prices. However, the
fair value is not expected to equal future cash outflow.
D. The fair values of derivative financial instruments which include unrealized gain
or loss on unsettled contracts were determined based on the amounts to be
received or paid assuming that the contracts were settled as of the reporting date.
E. Financial assets carried at cost and held to maturity are invested in unquoted
equity instruments and mutual fund bond obligations that cannot estimate its fair
value in practice.
(3) Procedure of financial risk control
The Company adopted a comprehensive risk management and control system to
identify all market risks. Therefore, the management can effectively control
significant market risks after appropriately taking into consideration the economic
environment, competition, and changes of market value risk.
(4) Information of material financial risk
A. Market risk
(A) The main currency for purchases and sales of the Company is the US dollar.
The Company uses the principle of natural hedge to mitigate the risk and
utilizes spot or forward contracts and currency option contracts to hedge
foreign currency risk. The forward and currency option contracts’ duration
corresponds to the Company’s foreign currency assets’ and liabilities’ due date
and future cash flows. The exchange gain and loss resulting from foreign
currency assets and liabilities will be offset by the exchange gain and loss