FGV Audited Financial Statements 2020

3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (h) Financial assets (continued) Impairment (continued) (ii) Significant increase in credit risk (continued) Macroeconomic information (such as market interest rates or growth rates) is incorporated as part of the internal rating model as applicable. Regardless of the analysis above, a significant increase in credit risk is presumed if a debtor is more than 30 days past due in making a contractual payment. (iii) Definition of default and credit-impaired financial assets The Group defines a financial instrument as default, which is fully aligned with the definition of credit-impaired, when the debtor meets unlikeliness to pay criteria, which indicates the debtor is in significant financial difficulty. The Group considers the following instances: • the debtor is in breach of financial covenants • concessions have been made by the lender relating to the debtor’s financial difficulty • it is becoming probable that the debtor will enter bankruptcy or other financial reorganisation • the debtor is insolvent Financial instruments that are credit-impaired are assessed on individual basis. (iv) Groupings of instruments for ECL measurement a) Collective assessment To measure ECL, trade receivables and contract assets arising from the Group have been grouped based on the days past due and shared credit risk characteristics as follows: (i) Geographical region of customers (ii) Customer division (iii) Related company and external customers (iv) Other shared credit risks 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. b) Individual assessment Trade receivables and contract assets which are in default or credit-impaired are assessed individually. Other receivables, loans and amounts due from intercompany and financial guarantee contracts are assessed on individual basis for ECL measurement, as credit risk information is obtained and monitored separately. 36 Notes to the Financial Statements For The Financial Year Ended 31 December 2020 FGV HOLDINGS BERHAD Audited Financial Statement 2020