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Financial
Statements
169
3 SIGNIFICANT ACCOUNTING POLICIES (continued)
3.7 Financial instruments (continued)
Derivative financial instruments and hedging activities (continued)
On initial designation of the hedge, the Group formally documents the relationship between the hedging
instrument(s) and hedged item(s), including the risk management objectives and strategy in undertaking
the hedge transaction, 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 during the period
for which the hedge is designated, 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
total return.
Derivatives are recognised initially at fair value; attributable transaction costs are recognised in the Statement
of Total Return when incurred. Subsequent to initial recognition, 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 Statement of Total Return, the effective portion of changes in the fair value
of the derivative is recognised in Unitholders’ funds and presented in the hedging reserve in equity.
Any ineffective portion of changes in the fair value of the derivative is recognised immediately in Statement
of Total Return.
When the hedged item is a non-financial asset, the amount accumulated in Unitholders’ funds is included
in the carrying amount of the asset when the asset is recognised. In other cases, the amount accumulated
in Unitholders’ funds is reclassified to Statement of Total Return in the same period that the hedged
item affects Statement of Total Return. 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
Unitholders’ funds is reclassified to Statement of Total Return.
Separable embedded derivatives
Changes in the fair value of separable embedded derivatives are recognised immediately in the Statement
of Total Return.
Other non-trading derivatives
When a derivative financial instrument is not designated in a hedge relationship that qualifies for hedge
accounting, all changes in its fair value are recognised immediately in Statement of Total Return.