Experian 2013 Annual Report Download - page 109
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Business review Business overview Governance Financial statements
5. Significant accounting policies (continued)
(j) Financial assets
The Group classifies its financial assets in the four categories set out below, with the classification determined at initial recognition and
dependent on the purpose for which such assets are acquired.
Loans and receivables (note 32)
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are
included in current assets, except for maturities more than one year after the balance sheet date which are classified as non-current assets. The
Group’s loans and receivables comprise trade and other receivables and cash and cash equivalents.
Derivatives used for hedging (note 32)
Derivative financial assets used for hedging are included in current assets, except for maturities more than one year after the balance sheet
date which are classified as non-current assets. Derivatives utilised by the Group include interest rate swaps, cross currency swaps, foreign
exchange contracts and equity swaps.
Assets at fair value through profit and loss (note 32)
Assets at fair value through profit and loss comprise non-hedging derivative financial instruments.
Available-for-sale financial assets (note 31)
Available-for-sale financial assets are non-derivative financial assets that are either designated to this category or not classified in the other
financial asset categories. They are carried at fair value and are included in non-current assets unless management intends to dispose of the
assets within one year of the balance sheet date.
(k) Derivative financial instruments (note 32)
The Group uses derivative financial instruments to manage its exposures to fluctuations in foreign exchange rates, interest rates and certain
obligations, including social security obligations, relating to share incentive plans. Such instruments utilised by the Group include interest rate
swaps, cross currency swaps, foreign exchange contracts and equity swaps. These are recognised as assets or liabilities as appropriate and are
classified as non-current unless they mature within one year after the balance sheet date.
Derivatives are initially recognised at their fair value at the date a contract is entered into, and are subsequently remeasured at their fair value.
The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument and, if so, the
nature of the hedge relationship. The Group designates certain derivatives as:
•Fair value hedges – hedges of the fair value of a recognised asset or liability or a firm commitment; or
•Cash flow hedges – hedges of a particular risk associated with a recognised asset or liability or a highly probable forecast transaction; or
•Net investment hedges – hedges of a net investment in an operation whose functional currency is not US dollars.
The Group documents the relationship between hedging instruments and hedged items at the hedge inception, as well as its risk management
objective and strategy for undertaking various hedge transactions. The Group also documents its assessment as to whether the derivatives that
are used in hedging transactions are highly effective in offsetting changes in fair values of hedged items. This effectiveness testing is performed
at every reporting date throughout the life of the hedge to confirm that the hedge remains, and will continue to remain, highly effective. Hedge
accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised or no longer qualifies for hedge accounting.
Amounts payable or receivable in respect of interest rate swaps are taken to net finance costs over the period of the contracts, together with the
interest differentials reflected in foreign exchange contracts.
Fair value hedges
Changes in the fair value of derivatives that are designated and qualify as fair value hedging instruments are recognised in the Group income
statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The ineffective
portion of a fair value hedge is recognised in net finance costs in the Group income statement.
Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other
comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in total operating expenses in the Group
income statement.
Amounts accumulated in equity are reclassified in the Group income statement in the period when the hedged item impacts the Group income
statement. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset or liability, the gains and
losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset or liability.