ITF

NOTES (CONT.) (FORMING PART OF THE FINANCIAL STATEMENTS) 5. Summary of significant accounting policies (continued) 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 Davis Cup and Billie Jean King Cup postponement and IFRS 15 income recognition The group has recognised revenue associated with the delivery of the qualifier ties and lower rounds of the Davis Cup and Billie Jean King Cup competitions in 2020 using the percentage of participation payments made to nations as a basis for allocation of revenue per round (after allocation of contractual Finals costs for the Billie Jean King Cup). The result is the recognition of all revenue received for the Davis Cup ($10.3m), and partial recognition for Billie Jean King Cup ($5m with $3m deferred to 2021). Two significant judgements have been made, which are that the qualifiers and lower rounds represent a performance obligation and the value of rounds is proportional to participation payments. The group is confident that the judgements made are supported by the contracts and result in a revenue position that is a true and fair view of the state of the group's affairs. The fair values of derivative financial instruments designated in hedge relationships are disclosed in note 35. Movements in the hedging reserve in equity are shown in note 35. 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. 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. 18

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