LensCrafters 2013 Annual Report Download - page 173

Footnotes to the statutory financial statements as of December 31, 2013 Page 6 of 71
2. RISK MANAGEMENT
Derivative financial instruments
Derivative instruments are initially recognized at fair value through profit or loss. Subsequent measurement is
always at fair value; fair value adjustments are recognized through profit or loss, except for interest rate swaps
designated as cash flow hedges and currency risk hedges entered into with Luxottica Trading and Finance Ltd, a
Group company.
Derivatives qualifying as cash flow hedges
The Company assesses the effectiveness of a hedge in offsetting changes in cash flows attributable to the hedged
risk. Such an assessment is made at the inception of a hedge and on an ongoing basis throughout its duration.
The effective portion of fair value adjustments to a designated hedge is recognized directly in equity, while the
ineffective portion is recognized in profit or loss.
Amounts recognized directly in equity are reflected in profit or loss in the same period during which the hedged item
affects profit or loss.
When an instrument expires or is sold, or no longer meets the criteria for hedge accounting, the cumulative fair value
adjustments recognized in equity remain in equity until the hedged item affects profit or loss. If the hedged item is
no longer expected to have any impact on profit or loss, the cumulative fair value adjustments recognized in equity
are immediately reclassified to profit or loss.
Derivatives qualifying as fair value hedges
If a financial instrument is designated as a hedge of the exposure to changes in fair value of a recognized asset or
liability, that is attributable to a particular risk that could affect profit or loss, the gain or loss from remeasuring the
hedging instrument at fair value is recognized in profit or loss; the gain or loss on the hedged item attributable to the
hedged risk adjusts the carrying amount of the hedged item and is recognized in profit or loss.
Derivatives not qualifying as hedging instruments
Fair value adjustments to instruments that do not meet the criteria for hedge accounting are recognized immediately
in profit or loss.
Policies associated with the various hedging activities
The principal classes of risk to which the Company is exposed are interest rate risk and exchange rate risk.
Management constantly and continuously monitors financial risks to identify those assets and liabilities that might
generate currency or interest rate risks, and hedges such risks according to the different market conditions and in
compliance with the Financial Risk Policy revised by the Board of Directors on February 28, 2013.