Experian 2011 Annual Report Download - page 103

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Financial statements 101
5. Signicant accounting policies (continued)
A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all
amounts due according to the original terms of receivables. Such evidence is based primarily on the pattern of cash received compared to the
terms upon which the trade receivable is contracted. The amount of the provision is the difference between the carrying amount and the value
of estimated future cash ows. Any charge or credit in respect of such provisions is recognised in the Group income statement within other
operating charges. The cost of any irrecoverable trade receivables not included in the provision is recognised in the Group income statement
immediately within other operating charges. Subsequent recoveries of amounts previously written off are credited in the Group income
statement within other operating charges.
(i) Cash and cash equivalents
Cash and cash equivalents include cash in hand, term and call deposits held with banks and other short-term highly liquid investments with
original maturities of three months or less. Bank overdrafts are shown within borrowings in current liabilities on the Group balance sheet. For
the purposes of the Group cash ow statement, cash and cash equivalents are reported net of bank overdrafts.
(j) Borrowings and borrowing costs
Borrowings are recognised initially at fair value, net of any transaction costs incurred. Borrowings are subsequently stated at amortised cost
except where they are hedged by an effective fair value hedge, in which case the carrying value is adjusted to reect the fair value movements
associated with the hedged risk.
Borrowings are classied as non-current to the extent that the Group has an unconditional right to defer settlement of the liability for at least
one year after the balance sheet date.
Incremental transaction costs which are directly attributable to the issue of debt are capitalised and amortised over the expected life of the
borrowing using the effective interest rate method. All other borrowing costs are expensed in the year in which they are incurred.
(k) Derivative nancial instruments
The Group uses derivative nancial instruments to manage its exposures to uctuations in foreign exchange rates, interest rates and certain
obligations, including social security obligations, relating to share-based payments. Derivative 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.
Derivative nancial instruments are initially recognised at their fair value at the date a contract is entered into, and are subsequently
remeasured at their fair value. Depending on the type of the derivative nancial instrument, fair value calculation techniques include, but are not
limited to, quoted market value, present value of estimated future cashows (of which the valuation of interest rate swaps is an example) and
exchange rates at the balance sheet date (of which the valuation of foreign exchange contracts is an example). 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 rm commitment; or
•Cashow 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 the US dollar.
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, both at hedge inception and
on an ongoing basis, of 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 conrm that the hedge has
remained 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 qualies for hedge
accounting.
Derivative assets and liabilities are classied as non-current unless they mature within one year after the balance sheet date.
Amounts payable or receivable in respect of interest rate swaps are taken to netnance costs over the period of the contracts, together with the
interest differentials reected 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 recorded 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 nance costs in the Group income statement.
Cash ow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash ow 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.