Page 114 - Annual Report 2019

111 ANNUAL REPORT 2019 QFC REGULATORY AUTHORITY FINANCIAL STATEMENTS

Financial assets

Classification Recognition and measurement Subsequent measurement
The QFC Regulatory Authority classifies its financial Financial assets are classified, at initial recognition, as For purposes of subsequent measurement, financial
assets in the following measurement category: subsequently measured at amortised cost, fair value assets are classified into four categories:
• those to be measured at amortised cost through other comprehensive income (OCI), and fair
value through profit or loss. The classification of financial • Financial assets at amortised cost (debt instruments)
The classification is based on two criteria: assets at initial recognition depends on the financial • Financial assets at fair value through OCI with recycling
• The QFC Regulatory Authority’s business asset’s contractual cash flow characteristics and the QFC of cumulative gains and losses (debt instruments)
model for managing the assets; and Regulatory Authority’s business model for managing them. • Financial assets designated at fair value through
• Whether the instruments’ contractual cash flows represent The QFC Regulatory Authority initially measures a financial OCI with no recycling of cumulative gains and
“solely payments of principal and interest (profit) on the asset at its fair value plus, in the case of a financial asset losses upon de-recognition (equity instruments)
principal amount outstanding (the ‘SPPI criterion’)”. not at fair value through profit or loss, transaction costs. • Financial assets at fair value through profit or loss

Business model In order for a financial asset to be classified and measured Financial assets at amortised cost (debt instruments)
at amortised cost or fair value through OCI, it needs
The business model reflects how the QFC Regulatory to give rise to cash flows that are “solely payments of This category is the most relevant to the QFC
Authority manages the assets in order to generate cash principal and interest (SPPI)” on the principal amount Regulatory Authority. The QFC Regulatory Authority
flows, according to two possible objectives. One objective is outstanding. This assessment is referred to as the measures financial assets at amortised cost if
for the QFC Regulatory Authority to collect the contractual SPPI test and is performed at an instrument level. both of the following conditions are met:
cash flows from the assets. A second possible objective is
to collect both the contractual cash flows and cash flows The QFC Regulatory Authority’s business model for managing • The financial asset is held within a business model with
arising from the sale of assets. If neither of these is applicable financial assets refers to how it manages its financial the objective to hold financial assets in order to collect
(e.g. financial assets are held for trading purposes), then the assets in order to generate cash flows. The business model contractual cash flows and
financial assets are classified as part of a business model determines whether cash flows will result from collecting • The contractual terms of the financial asset give rise on
“other” and measured at fair value through profit or loss contractual cash flows, selling the financial assets, or both. specified dates to cash flows that are solely payments of
(“FVTPL”). Factors considered by the QFC Regulatory Authority principal and interest on the principal amount outstanding
in determining the business model for a group of assets Purchases or sales of financial assets that require delivery
include past experience on how the cash flows for these assets of assets within a time frame established by regulation or Financial assets at amortised cost are subsequently
were collected, how the asset’s performance is evaluated convention in the market place (regular way trades) are measured using the effective interest (EIR) method
and reported to key management personnel, how risks are recognised on the trade date, i.e., the date that the QFC and are subject to impairment. Gains and losses are
assessed and managed, and how managers are compensated. recognised in the statement of comprehensive income
Regulatory Authority commits to purchase or sell the asset.
when the asset is de-recognised, modified or impaired.
SPPI
Where the business model is to hold assets to collect The QFC Regulatory Authority’s financial assets at amortised
contractual cash flows or to collect contractual cash flows cost include interest receivables, other receivables,
and sell, the QFC Regulatory Authority assesses whether financial penalties receivable, amounts due from related
the financial instruments’ cash flows represent solely parties, bank balances and short-term deposits.
payments of principal and interest (profit) (the “SPPI test”).