ITF

NOTES (CONT.) (FORMING PART OF THE FINANCIAL STATEMENTS) 5. Summary of significant accounting policies (continued) n) Cash and cash equivalents o) Derivative financial instruments and hedging The group has hedges which meet the criteria for cash flow hedge accounting and are accounted for as follows: 6. Significant accounting judgements, estimates and assumptions Judgements Cash and cash equivalents comprise cash at bank and in hand and short-term deposits with an original maturity date of three months or less. For the consolidated cash flow statement, cash and cash equivalents are net of outstanding bank overdrafts. In the process of applying the ITF's accounting policies, management has made the following judgements, apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial statements: The preparation of the ITF's financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in future. When a hedging instrument expires, or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative deferred gain or loss in equity at that time remains in equity until the forecast transaction occurs. When the forecast transaction is no longer expected to occur, the cumulative gain or loss and deferred costs of hedging that were reported in equity are reclassified to profit or loss. When forward contracts are used to hedge forecast transactions, the group designates the full change in fair value of the forward contract (including forward points) as the hedging instrument. The gains or losses relating to the effective portion of the change in fair value of the entire forward contract are recognised in the cash flow hedge reserve within equity. The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in the cash flow hedge reserve within equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss. The fair values of derivative financial instruments designated in hedge relationships are disclosed in note 36. Movements in the hedging reserve in equity are shown in note 37. The full fair value of a hedging derivative is classified as a current asset or liability. The group uses derivative financial instruments such as forward currency contracts to hedge its risks associated with foreign currency fluctuations. Such derivative financial instruments are initially recognised at fair value on the date at which a derivative contract is entered into and are subsequently restated at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. For the purpose of hedge accounting, hedges utilised by the ITF are classified as cash flow hedges. Cash flow hedges are when hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability, or a highly probable forecast transaction, or the foreign currency risk in an unrecognised firm commitment. At the inception of a hedge relationship, the group documents the economic relationship between hedging instruments and hedged items including whether changes in the cash flow of the hedging instruments are expected to offset changes in the cash flows of hedged items. The group documents its risk management objective and strategy for undertaking its hedge transactions. 18

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