AUDITED FINANCIAL STATEMENTS 2022 61 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2022 4 FINANCIAL RISK MANAGEMENT (CONTINUED) (a) Financial risk management policies (continued) Credit risk (continued) (i) Impairment of financial assets (continued) a) Trade receivables, trade amounts due from intercompany and contract assets using simplified approach (continued) The expected loss rates are based on the payment profiles of sales over a period of 24 months before reporting date and the corresponding historical credit losses experienced within the current financial year. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the receivables. During the current financial year, as a result of COVID-19 pandemic and the current economic condition, the Group and the Company have considered the relevant factors in assessing the expected credit loss. Trade amounts due from intercompany and trade receivables that are credit impaired are assessed for ECL on individual basis. The trade amounts due from intercompany and trade receivables are categorised into the following categories for ECL purposes: Category Group’s definition of category Credit-impaired Default amounts that meets the unlikeliness to pay criteria (Note 3(h)(iii)) Non-credit impaired Amounts that are not credit-impaired, including amounts assessed based on collective assessments. b) Other receivables, loans due from intercompany and non-trade amounts due from intercompany using general 3-stage approach The Group uses three categories for other receivables which reflect their credit risk and how the loss allowance is determined for each of those categories (3 stage approach). These financial assets are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the group, and a failure to make contractual payments for a period of greater than 365 days past due. A summary of the assumptions underpinning the Group’s ECL model is as follows: Category Group’s definition of category Basis for recognising ECL Performing Debtors have a low risk of default and a strong capacity to meet contractual cash flows 12 month ECL Underperforming Debtors for which there is a significant increase in credit risk or significant increase in credit risk is presumed if interest and/or principal repayments are 30 days past due Lifetime ECL Non-performing Interest and/or principal repayments where there is evidence indicating the asset is credit-impaired Lifetime ECL (creditimpaired) Write-off There is evidence indicating that there is no reasonable expectation of recovery based on unavailability of debtor’s sources of income or assets to generate sufficient future cash flows to repay the amount Asset is written off
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