Page 97 - ar2012

annual report 2012
95
Notes to the Financial Statements
3 Significant accounting policies (cont’d)
3.4 Financial instruments (cont’d)
Derivative fnancial instruments, including hedge accounting
Derivative fnancial instruments are held to hedge foreign currency and interest rate risk exposures.
Embedded derivatives are separated from the host contract and accounted for separately if the
economic characteristics and risks of the host contract and the embedded derivative are not closely
related, a separate instrument with the same terms as the embedded derivative would meet the
defnition of a derivative, and the combined instrument is not measured at fair value through the
statement of total return.
On initial designation of the hedge, the relationship between the hedging instrument(s) and
hedged item(s) is formally documented, 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. An assessment is made, both at the inception of the
hedge relationship as well as on an ongoing basis, whether the hedging instruments are expected
to be “highly effective” in offsetting the changes in the fair value or cash fows 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 fow hedge of a forecast transaction,
the transaction should be highly probable to occur and should present an exposure to variations
in cash fows that could ultimately affect reported net income.
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. The gain or loss on re-measurement to fair value is recognised immediately in the
statement of total return. However, where derivatives qualify for hedge accounting, recognition of
any resultant gain or loss depends on the nature of the item being hedged.
Cash fow hedges
Changes in the fair value of the derivative hedging instrument designated as a cash fow hedge
are recognised directly in unitholders’ funds to the extent that the hedge is effective. To the extent
that the hedge is ineffective, changes in fair value are recognised in the statement of total return.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold,
terminated or exercised, hedge accounting is discontinued prospectively. The cumulative gain or loss
previously recognised in unitholders’ funds remains there until the forecast transaction occurs. When
the hedged item is a non-fnancial asset, the amount recognised in unitholders’ funds is transferred
to the carrying amount of the asset when it is recognised. In other cases, the amount recognised in
unitholders’ funds is transferred to the statement of total return in the same period that the hedged
item affects the total return.