IFRS 7 paras 33-38, credit risk certain disclosures, risks, policy, impairment, simplified approach for trade receivables

Asahi Group Holdings, Ltd – Annual report – 31 December 2017

Industry: food and drink

  1. Significant Accounting Policies (extract)

(9) Financial Instruments (extract)

(ii) Impairment of Financial Assets

The Group assesses recoverability of financial assets measured at amortized cost and estimates expected credit loss at each reporting date.

A loss allowance for expected credit losses is measured at an amount equal to 12-month expected credit losses for financial assets whose credit risk has not increased significantly since initial recognition. A loss allowance is measured at an amount equal to the lifetime credit losses for financial assets whose credit risk has increased significantly since initial recognition. Trade receivables, on the contrary, always require a loss allowance be measured at an amount equal to the lifetime credit losses.

Interest income for financial assets whose credit risk has significantly increased and there is an objective evidence of impairment is measured by applying the effective interest rate to the net carrying amount of the financial asset less loss allowance.

Indicators used by the Group to assess whether there is any objective evidence of impairment includes:

  • Significant financial difficulties of the issuer or the borrower;
  • A breach of contract, such as default or past due event in interest or principal payments;
  • The lender(s) of the borrower, for economic or contractual reasons relating to the borrower’s financial difficulty, having granted to the borrower a concession(s) that the lender(s) would not otherwise consider;
  • It is becoming probable that the borrower will enter bankruptcy or other financial reorganization; or
  • The disappearance of an active market for that financial asset because of financial difficulties

The Group directly reduce the gross carrying amount of a financial asset when there is no reasonable expectations of recovering the financial asset in its entirety or a portion thereof.

A loss allowance may be reversed when credit risk decreases due to a subsequent event which can be objectively related to the past impairment (such as an improvement in the borrower’s credit rating). The reversal of the previously recognized impairment loss is recognized in profit or loss.

  1. Trade and Other Receivables

Trade and other receivables are analyzed as follows:

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Trade and other receivables are classified as financial assets measured at amortized cost.

  1. Other Financial Assets (extract)

Other financial assets are analyzed as follows:

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Derivative assets are classified as financial assets measured at fair value through profit or loss, except for items to which hedge accounting is applied. Equity instruments are classified as financial assets measured at fair value through other comprehensive income. Bonds are classified as financial assets measured at amortized cost.

  1. Financial Instruments (extract)

(2) Risk Management (extract)

(ii) Credit Risk

The Group is exposed to credit risk associated with trade receivables (notes and accounts receivable), other receivable (non-trade receivables) and other financial assets (such as loans receivable to customers).

The Group monitors the financial situation of major customers on a regular basis in accordance with the Group’s accounting regulations for trade receivables and loans receivable to customers, and also controls due dates and outstanding balances for each customer on a daily basis. The Group also identifies credit-impaired receivables and acts in a timely manner to collect them.

The Group enters into derivative transactions generally only with highly rated financial institutions in order to reduce credit risk.

The Group classifies receivables based on customers’ credit risk features and measures loss allowance. Loss allowance for trade receivables is always measured at an amount equal to lifetime expected credit losses. Loss allowance for receivables other than trade receivables are measured at an amount equal to 12-month expected credit losses in principle, except for receivables, for example overdue, whose credit risk has significantly increased after the initial recognition. Loss allowance for those receivables are measured at an amount equal to lifetime expected credit losses.

Loss allowance is measured as follows:

  • Trade Receivables

The simplified approach is applied. Trade receivables are categorized according to customers’ credit risk features, and loss allowance is measured based on the historical credit loss ratio and expected future economic conditions for each category.

  • Receivables other than Trade Receivables

The general approach is applied. Loss allowance for receivables whose credit risk is considered not significantly increased is measured based on the historical credit loss ratio of similar receivables and expected future economic conditions. Loss allowance for receivables whose credit risk is considered significantly increased and credit-impaired financial instruments is measured as the difference between the present value of expected future cash flow discounted by the initial interest rate and the carrying amount.

Carrying amounts of financial assets subject to impairment and the amount of loss allowance are as follows:

The table below includes the carrying amount included in “Assets held for sale.”

Trade and Other Receivables

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Financial assets with loss allowance measured at lifetime expected credit losses consist mainly of credit-impaired financial assets.

Credit Risk Rating

The credit risk rating of financial assets with loss allowance measured at lifetime expected credit losses is relatively low compared to that of financial asset with loss allowance measured at 12-month expected credit losses, whereas that of financial assets to which the simplified approach is applied is equivalent to that of financial asset with loss allowance measured at 12-month expected credit losses. Credit risk of financial assets within the same stage is approximately the same.

The Group includes impairment loss related to credit risk in “Other operating expense” in the consolidated statement of profit or loss in the light of its immateriality.

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Other Financial Assets

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Financial assets with loss allowance measured at lifetime expected credit losses consist mainly of credit-impaired financial assets.

Credit Risk Rating

The credit risk rating of financial assets with loss allowance measured at lifetime expected credit losses is relatively low compared to that of financial asset with loss allowance measured at 12-month expected credit losses. Credit risk of financial assets within the same stage is approximately the same.

The Group includes impairment loss related to credit risk in “Other operating expense” in the consolidated statement of profit or loss in the light of its immateriality.

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Effect of Significant Changes in Gross Carrying Amount of Financial Instruments during the Year

There was no significant increase or decrease in gross carrying amount of the financial instruments which contributed to changes in the loss allowance during the current year and the previous year. 

Maximum Exposure to Credit Risk

The maximum exposure to the credit risk associated with financial assets is the carrying amount presented in the consolidated statement of financial position unless considering collateral and other credit enhancement held by the Group as of the reporting date. The maximum exposure to the credit risk with guarantees is as follows:

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Provision for expected credit losses on financial guarantees which may occur as a result of fulfillment of debt guarantee contracts stated above is not recorded because the amount is not expected to be material.

The amount of collateral and other credit enhancement held as a guarantee for the financial assets is ¥4,578 million at the end of the current year (¥5,918 million as of December 31, 2016 (previous year)). The collateral held as guarantee is mainly composed of deposit money.

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