81
81
2015/2016 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS
for the financial year ended 31 March 2016
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(o) Derivative financial instruments
The Group holds derivative financial instruments to hedge its foreign currency and interest rate risk
exposures.
On initial designation of the derivative as the hedging instrument, the Group formally documents the
relationship between the hedging instrument and the hedged item, including the risk management
objectives and strategy in undertaking the hedge transaction and the hedged risk, together with the
methods that will be used to assess the effectiveness of the hedging relationship. The Group makes
an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, of
whether the hedging instruments are expected to be “highly effective” in offsetting the changes in the
fair value or cash flows of the respective hedged items attributable to the hedged risk, and whether the
actual results of each hedge are within a range of 80% - 125%. For a cash flow hedge of a forecast
transaction, the transaction should be highly probable to occur and should present an exposure to
variations in cash flows that could ultimately affect reported profit or loss.
Derivatives are recognised initially at fair value and the attributable transaction costs are recognised in
profit or loss as incurred. Subsequent to initial recognition, the derivatives are measured at fair value,
and changes therein are accounted for as described below.
Cash flow hedges
When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows
attributable to a particular risk associated with a recognised asset or liability or a highly probable
forecast transaction that could affect profit or loss, the effective portion of changes in the fair value of
the derivative is recognised in other comprehensive income and presented in the hedging reserve in
equity. Any ineffective portion of changes in the fair value of the derivative is recognised immediately
in profit or loss.
The amount accumulated in equity is reclassified to profit or loss in the same period that the hedged
item affects profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting,
expires or is sold, terminated or exercised, or the designation is revoked, then hedge accounting is
discontinued prospectively. If the forecast transaction is no longer expected to occur, then the balance
in equity is reclassified to profit or loss.
