MISC Integrated Annual Report 2020

2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D. ) 2.2 Changes in accounting policies and effects arising from the adoption of new and revised MFRSs (cont’d.) The adoption of the above pronouncements did not have any significant financial impact to the Group and the Corporation other than as set out below: (i) Amendments to MFRS 7: Financial Instruments: Disclosures, Amendments to MFRS 9: Financial Instruments and Amendments to MFRS 139: Financial Instruments (Interest Rate Benchmark Reform) Interest rate benchmark reform is a market-wide reform of interest rate benchmarks, including the replacement of some interbank offered rates (IBORs) with alternative benchmark rates. The reform has led to uncertainty about the long-term viability of some interest rate benchmarks. The amendments, issued to address the pre-replacement issues and uncertainty arising from the interest rate benchmark reform, provides temporary relief from applying specific hedge accounting requirements to hedging relationships directly affected by the interest rate benchmark reform until the uncertainty arising from this reform is no longer present. The relief provided by the amendments requires the Group to assume that the interest rate on which the hedged cash flows are based is not altered because of the interest rate benchmark reform. The Group holds interest rate swaps for risk management purposes which are designated as cash flow hedging relationships and are indexed to USD London Interbank Offered Rate (“USD LIBOR”). As at 31 December 2020, the Group hedged items and hedging instruments continue to be indexed to USD LIBOR. However, the Group’s USD LIBOR cash flow hedging relationships extend beyond the anticipated cessation date for USD LIBOR. Following the uncertainty about when and how the replacement may occur with respect to the relevant hedged items and hedging instruments which may impact the hedging relationship, the Group applies the amendments to MFRS 9 which provides temporary relief from potential effects on this uncertainty caused by the interest rate benchmark reform. 2.3 Summary of significant accounting policies The accounting policies set out below have been applied consistently to the periods presented in these financial statements by the Group and the Corporation, unless otherwise stated. (a) Subsidiaries and basis of consolidation (i) Subsidiaries Subsidiaries are entities including structured entities controlled by the Corporation. The Corporation controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Potential voting rights are considered when assessing control only when such rights are substantive. The Corporation considers it has de facto power over an investee when, despite not having the majority of voting rights, it has the current ability to direct the activities of the investee that significantly affect the investee’s return. 2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D. ) 2.3 Summary of significant accounting policies (cont’d.) (a) Subsidiaries and basis of consolidation (cont’d.) (i) Subsidiaries (cont’d.) In the Corporation’s separate financial statements, investments in subsidiaries are measured at cost less impairment losses, unless the investment is classified as held for sale or distribution. On disposal of such investments, the difference between net disposal proceeds and their carrying amounts is included in the income statement. (ii) Basis of consolidation The consolidated financial statements comprise the financial statements of the Corporation and its subsidiaries as at the reporting date. The financial statements of the subsidiaries are prepared for the same reporting date as the Corporation. Subsidiaries are consolidated from the date of acquisition, being the date which the Corporation obtains control and continue to be consolidated until the date that such control ceases. All intercompany transactions are eliminated on consolidation and hence, revenue and profits relate to external transactions only. Unrealised losses resulting from intercompany transactions are also eliminated, except for instances where cost cannot be recovered. A business combination is a transaction or other event in which an acquirer obtains control of one or more businesses. Business combinations are accounted for using the acquisition method from the acquisition date, which is the date on which control is transferred to the Group and the Corporation. The identifiable assets acquired and liabilities assumed are measured at their fair values at the acquisition date. The cost of an acquisition is measured as the aggregate of the fair value of the consideration transferred and the amount of any non-controlling interests in the acquiree. Non-controlling interests are stated either at fair value or at the proportionate share of the acquiree’s identifiable net assets at the acquisition date. When a business combination is achieved in stages, the Group and the Corporation remeasure their previously held non-controlling equity interest in the acquiree at fair value at the acquisition date, with any resulting gain or loss recognised in the income statement. Increase in the Group’s and the Corporation’s ownership interest in an existing subsidiary is accounted for as equity transactions, with differences between the fair value of consideration paid and the Group’s and the Corporation’s proportionate share of net assets acquired, recognised directly in equity. Transaction costs, other than those associated with the issuance of debt or equity securities, that the Group and the Corporation incur in connection with a business combination are expensed as incurred. 31 December 2020 NOTES TO THE FINANCIAL STATEMENTS 31 December 2020 NOTES TO THE FINANCIAL STATEMENTS 10 332 10 333 /// Leadership / Governance / Financial Statements / Additional Information / Annual General Meeting ////// /// Leadership / Governance / Financial Statements / Additional Information / Annual General Meeting ////// Section Section MISC Berhad / Integrated Annual Report 2020 MISC Berhad / Integrated Annual Report 2020