FGV Audited Financial Statements 2019

71 01 S E C T I O N NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2019 AUDITED FINANCIAL STATEMENTS 2019 4 FINANCIAL RISK MANAGEMENT (CONTINUED) (a) Financial risk management policies (continued) Credit risk (continued) (i) Impairment of financial assets The Group’s financial assets that are subject to the expected credit loss (ECL) model include trade receivables, contract assets, other receivables, amounts due from intercompany, debt investments carried at amortised cost and FVOCI. While cash and cash equivalents are also subject to the impairment requirements of MFRS 9, the impairment loss is expected to be immaterial. a) Trade receivables, trade amounts due from intercompany and contract assets using simplified approach The Group applies the MFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables, trade amounts due from intercompany and contract assets. To measure the expected credit losses, trade receivables and contract assets have been grouped based on shared credit risk characteristics and the days past due. The contract assets relate to amounts due from customers on contracts and unbilled work in progress and have substantially the same risk characteristics as the trade receivables for the same types of contracts. The Group has therefore concluded that the expected loss rates for trade receivables are a reasonable approximation of the loss rates for the contract assets. The expected loss rates are based on the payment profiles of sales over a period of 24 months before reporting date and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the receivables. No significant changes to estimation techniques or assumptions were made during the reporting period. Trade amounts due from intercompany and trade receivables that are credit impaired are assessed for ECL on individual basis. The trade amounts due from intercompany and trade receivables are categorised into the following categories for ECL purposes: Category Group’s definition of category Credit-impaired Default amounts that meets the unlikeliness to pay criteria (Note 3(h)(iii)) Non-credit impaired Amounts that are not credit-impaired, including amounts assessed based on collective assessments. b) Other receivables, loans due from intercompany and non-trade amounts due from intercompany using general 3-stage approach The Group uses three categories for other receivables which reflect their credit risk and how the loss allowance is determined for each of those categories (3 stage approach). These financial assets are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the group, and a failure to make contractual payments for a period of greater than 365 days past due.