ITF

ITF FINANCIAL STATEMENTS I 57 5. Summary of signifi cant accounting policies (continued) At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management and strategy objective for undertaking the hedge. The documentation includes identifi cation of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument's effectiveness in offsetting the exposure to changes in the hedged item's fair value or cash fl ows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash fl ows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the fi nancial reporting periods for which they were designated. Hedges which meet the strict criteria for hedge accounting are accounted for as follows: Fair value hedges – The change in the fair value of a hedging derivative is recognised in income and expenditure. The change in the fair value of the hedged item attributable to the risk hedged is recorded as a part of the carrying value of the hedged item and is also recognised in income and expenditure. For fair value hedges relating to items carried at amortised cost, the adjustment to carrying value is amortised through income and expenditure over the remaining term to maturity. Any adjustment to the carrying amount of a hedged fi nancial instrument, for which the effective interest rate method is used, is amortised through income and expenditure. Amortisation may begin as soon as an adjustment exists and shall begin no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged. If the hedge item is derecognised, the unamortised fair value is recognised immediately in income and expenditure. When an unrecognised fi rm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the fi rm commitment attributable to the hedged risk is recognised as an asset or liability with a corresponding gain or loss recognised in income and expenditure. The changes in the fair value of the hedging instrument are also recognised in income and expenditure. Cash fl ow hedges – The effective portion of the gain or loss on the hedging instrument is recognised directly in equity, while any ineffective portion is recognised immediately in income and expenditure. Amounts taken to equity are transferred to income and expenditure when the hedged transaction affects income and expenditure, such as when the hedged fi nancial income or fi nancial expense is recognised or when a forecast sale occurs. Where the hedged item is the cost of a non-fi nancial asset or non-fi nancial liability, the amounts taken to equity are transferred to the initial carrying amount of the non-fi nancial asset or liability. If the forecast transaction or fi rm commitment is no longer expected to occur, amounts previously recognised in equity are transferred to income and expenditure. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognised in equity remain in equity until the forecast transaction or fi rm commitment occurs. Hedges of a net investment – Hedges of a net investment in a foreign operation, including a hedge of a monetary item that is accounted for as part of the net investment, are accounted for in a way similar to cash fl ow hedges. Gains or losses on the hedging instrument relating to the effective portion of the hedge are recognised directly in equity while any gains or losses relating to the ineffective portion are recognised in income and expenditure. On disposal of the foreign operation, the cumulative value of any such gains or losses recognised directly in equity is transferred to income and expenditure. Notes (forming part of the fi nancial statements)

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