HTC 2015 Annual Report Download - page 124

Financial information
Financial information
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1. IFRS 9 “Financial Instruments”
Recognition and measurement of financial assets
With regards to financial assets, all recognized
financial assets that are within the scope of IAS
39 “Financial Instruments: Recognition and
Measurement” are subsequently measured at
amortized cost or fair value. Under IFRS 9, the
requirement for the classification of financial assets is
stated below.
For the Company's debt instruments that have
contractual cash flows that are solely payments
of principal and interest on the principal amount
outstanding, their classification and measurement are
as follows:
a. For debt instruments, if they are held within a
business model whose objective is to collect the
contractual cash flows, the financial assets are
measured at amortized cost and are assessed
for impairment continuously with impairment
loss recognized in profit or loss, if any. Interest
revenue is recognized in profit or loss by using the
effective interest method;
b. For debt instruments, if they are held within a
business model whose objective is achieved by
both the collecting of contractual cash flows
and the selling of financial assets, the financial
assets are measured at fair value through other
comprehensive income (FVTOCI) and are
assessed for impairment. Interest revenue is
recognized in profit or loss by using the effective
interest method, and other gain or loss shall be
recognized in other comprehensive income,
except for impairment gains or losses and foreign
exchange gains and losses. When the debt
instruments are derecognized or reclassified, the
cumulative gain or loss previously recognized in
other comprehensive income is reclassified from
equity to profit or loss.
Except for above, all other financial assets are
measured at fair value through profit or loss.
However, the Company may make an irrevocable
election to present subsequent changes in the fair
value of an equity investment (that is not held for
trading) in other comprehensive income, with only
dividend income generally recognized in profit or loss.
No subsequent impairment assessment is required,
and the cumulative gain or loss previously recognized
in other comprehensive income cannot be reclassified
When applying IFRS 15, an entity shall recognize
revenue by applying the following steps:
• Identify the contract with the customer;
• Identify the performance obligations in the
contract;
• Determine the transaction price;
• Allocate the transaction price to the performance
obligations in the contracts; and
• Recognize revenue when the entity satisfies a
performance obligation.
When IFRS 15 is effective, an entity may elect to apply
this Standard either retrospectively to each prior
reporting period presented or retrospectively with the
cumulative effect of initially applying this Standard
recognized at the date of initial application.
Except for the above impact, as of the date the consolidated
financial statements were authorized for issue, the Company
is continuously assessing the possible impact that the
application of other standards and interpretations will have on
the Company's financial position and financial performance,
and will disclose the relevant impact when the assessment is
completed.
4. SIGNIFICANT ACCOUNTING POLICIES
Statement of Compliance
These consolidated financial statements have been prepared
in accordance with the Regulations Governing the Preparation
of Financial Reports by Securities Issuers and IFRSs as
endorsed by FSC.
Basis of Preparation
These consolidated financial statements have been prepared
on the historical cost basis except for financial instruments
which are measured at fair value.
The fair value measurements are grouped into Levels 1 to
3 based on the degree to which the fair value measurement
inputs are observable and the significance of the inputs to the
fair value measurement in its entirety, which are described as
follows:
a. Level 1 inputs are quoted prices (unadjusted) in active
markets for identical assets or liabilities;
b. Level 2 inputs are inputs other than quoted prices
included within Level 1 that are observable for the asset
or liability, either directly (i.e. as prices) or indirectly (i.e.
derived from prices); and
c. Level 3 inputs are unobservable inputs for the asset or
liability.
For readers' convenience, the accompanying consolidated
financial statements have been translated into English
from the original Chinese version prepared and used in the
Republic of China. If inconsistencies arise between the
English version and the Chinese version or if differences arise
in the interpretations between the two versions, the Chinese
version of the consolidated financial statements shall prevail.
However, the accompanying consolidated financial statements
do not include the English translation of the additional
footnote disclosures that are not required under accounting
principles and practices generally applied in the Republic of
China but are required by the Securities and Futures Bureau
for their oversight purposes.
Classification of Current and Non-current Assets
and Liabilities
Current assets include:
a. Assets held primarily for trading purposes;
b. Assets to be realized within twelve months after the
reporting period; and
c. Cash and cash equivalents unless the asset is restricted
from being exchanged or used to settle a liability for at
least twelve months after the reporting period.
Current liabilities are:
a. Liabilities held primarily for the purpose of trading;
b. Liabilities due to be settled within twelve months after
the reporting period, even if an agreement to refinance, or
to reschedule payments, on a long-term basis is completed
after the reporting period and before the consolidated
financial statements are authorized for issue; and
c. Liabilities for which the Company does not have an
unconditional right to defer settlement for at least twelve
months after the reporting period. Terms of a liability
that could, at the option of the counterparty, result in its
settlement by the issue of equity instruments do not affect
its classification.
Aforementioned assets and liabilities that are not classified as
current are classified as non-current.
Basis of Consolidation
The consolidated financial statements incorporate the
financial statements of the HTC and the entities controlled
by the HTC (i.e. its subsidiaries). Income and expenses of
subsidiaries acquired or disposed of during the period are
included in the consolidated statement of profit or loss and
from equity to profit or loss.
The impairment of financial assets
IFRS 9 requires that impairment loss on financial
assets is recognized by using the “Expected Credit
Losses Model”. The credit loss allowance is required
for financial assets measured at amortized cost,
financial assets mandatorily measured at FVTOCI,
lease receivables, contract assets arising from IFRS 15
“Revenue from Contracts with Customers”, certain
written loan commitments and financial guarantee
contracts. A loss allowance for the 12-month
expected credit losses is required for a financial asset
if its credit risk has not increased significantly since
initial recognition. A loss allowance for full lifetime
expected credit losses is required for a financial asset
if its credit risk has increased significantly since initial
recognition and is not low. However, a loss allowance
for full lifetime expected credit losses is required for
trade receivables that do not constitute a financing
transaction.
For purchased or originated credit-impaired financial
assets, the Company takes into account the expected
credit losses on initial recognition in calculating the
credit-adjusted effective interest rate. Subsequently,
any changes in expected losses are recognized as
a loss allowance with a corresponding gain or loss
recognized in profit or loss.
Hedge accounting
The main changes in hedge accounting amended the
application requirements for hedge accounting to
better reflect the entity's risk management activities.
Compared with IAS 39, the main changes include: (1)
enhancing types of transactions eligible for hedge
accounting, specifically broadening the risk eligible
for hedge accounting of non-financial items; (2)
changing the way hedging derivative instruments are
accounted for to reduce profit or loss volatility; and (3)
replacing retrospective effectiveness assessment with
the principle of economic relationship between the
hedging instrument and the hedged item.
2. IFRS 15 “Revenue from Contracts with
Customers”
IFRS 15 establishes principles for recognizing revenue
that apply to all contracts with customers, and will
supersedes IAS 18 “Revenue”, IAS 11 “Construction
Contracts” and a number of revenue-related
interpretations from January 1, 2018.