DESTINI AR 2017

2. Basis of Preparation (Cont’d) (a) Statement of compliance (Cont’d) Standards issued but not yet effective (Cont’d) The initial application of the abovementioned MFRSs is not expected to have any significant impacts on the financial statements of the Group and of the Company except as mentioned below: MFRS 9 Financial Instruments (IFRS 9 issued by IASB in July 2014) MFRS 9 (IFRS 9 issued by IASB in July 2014) replaces earlier versions of MFRS 9 and introduces a package of improvements which includes a classification and measurement model, a single forward looking ‘expected loss’ impairment model and a substantially reformed approach to hedge accounting. MFRS 9 when effective will replace MFRS 139 Financial Instruments: Recognition and Measurement . MFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through other comprehensive income and fair value through profit or loss. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in other comprehensive income without subsequent recycling to profit or loss. There is now a new expected credit losses model that replaces the incurred loss impairment model used in MFRS 139. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. MFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the ‘hedged ratio’ to be the same as the one management actually use for risk management purposes. Contemporaneous documentation is still required but is different to that currently prepared under MFRS 139. MFRS 9 replaces the incurred loss model in MFRS 139 with a forward-looking expected credit loss (“ECL”) model. The new impairment model will apply to contract assets and financial assets measured at amortised cost or fair value through other comprehensive income, except for investment in equity instruments. Under MFRS 9, loss allowances will be measured on either: - 12 months ECLs: ECLs that result from possible default events within 12 months after the reporting date; and - Lifetime ECLs: ECLs that arise from all possible default events over the expected life of a financial instrument. Lifetime ECL measurement is applied it at the reporting date, the credit risk of a financial asset has increased significantly since initial recognition while 12 month ECL measurement is applied if it has not. Any entity may determine that a financial asset’s credit risk has not increased significantly if the asset has low credit risk at the reporting date. However, lifetime ECL measurement always applies for trade receivables and contract assets without a significant financing component and the Group has chosen to apply this policy. MFRS 9 largely retains the existing requirements in MFRS 139 for the classification of financial liabilities. MFRS 9 is effective for annual periods beginning on or after 1 January 2018. 95 DESTINI BERHAD Annual Report 2017