Tullett Prebon plc Annual Report 2010
Available-for-sale The Group’s investment in equity securities and certain debt securities are classiﬁed as available-for-sale ﬁnancial assets. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses and foreign exchange gains and losses on available-for-sale monetary items, are recognised directly in other comprehensive income. For equity ﬁnancial assets, where the fair value cannot be reliably measured, the assets are held at cost less any provision for impairment. These assets are generally expected to be held for the long term and are included in non-current assets. Assets such as holdings in exchanges, cash related instruments and long term equity investments that do not qualify as associates or joint ventures are classiﬁed as availablefor-sale. When an investment is derecognised, the cumulative gain or loss in other comprehensive income is transferred to proﬁt or loss. Loans and receivables Loans and receivables are non-derivative ﬁnancial instruments that have ﬁxed or determinable payments that are not listed in an active market. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised using the effective interest rate, except for short term receivables when the recognition of interest would be immaterial. Settlement balances, trade receivables, loans and other receivables are classiﬁed as ‘loans and receivables’. Fair value through the income statement Financial assets and liabilities can be designated at fair value through the income statement where they meet speciﬁc criteria set out in IAS 39 ‘Financial Instruments: Recognition and Measurement’ or where assets or liabilities are held for trading. Subsequent changes in fair value are recognised directly in the income statement. Other ﬁnancial liabilities Other ﬁnancial liabilities, including borrowings, are initially measured at fair value, net of transaction costs, and are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. Financial assets, other than those at fair value through the income statement, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the ﬁnancial asset, the estimated future cash ﬂows of the investment have been impacted. Impairment is recognised in the income statement. (k) Derivative ﬁnancial instruments From time to time, the Group uses derivative ﬁnancial instruments such as foreign currency contracts and interest rate swaps to manage its risks associated with interest rate and foreign currency ﬂuctuations. The Group does not use derivative ﬁnancial instruments for speculative purposes.
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each balance sheet date. The resulting gain or loss is recognised immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in proﬁt or loss depends on the nature of the hedge relationship. The Group designates certain derivatives as either hedges of the fair value of recognised assets or liabilities or ﬁrm commitments (fair value hedges) or hedges of net investments in foreign operations. The Group has not designated any derivatives as hedges of probable forecast transactions or hedges of foreign currency risk of ﬁrm commitments (cash ﬂow hedges). The fair value of forward exchange contracts and interest rate swaps is calculated on a discounted cash ﬂow basis using relevant market data on foreign exchange and interest rates.
(l) Hedge accounting The Group designates certain derivatives as either ‘fair value hedges’ or ‘hedges of net investments in foreign operations’. Fair value hedges Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in proﬁt or loss immediately, together with any changes in the fair value of the hedged item that is attributable to the hedged risk. The changes in the fair value of the hedging instrument and the changes in the hedged item attributable to the hedged risk are recognised in the line of the income statement relating to the hedged item. Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated, or exercised, or no longer qualiﬁes for hedge accounting. The adjustment to the carrying amount of the hedged item arising from the hedged risk is amortised to proﬁt or loss from that date. Net investment hedges The effective portion of changes in the fair value of derivatives that are designated and qualify as net investment hedges is recognised in the hedging and translation reserve in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in proﬁt or loss, and is included in ﬁnancial income or ﬁnancial expense respectively. Gains and losses deferred in the hedging and translation reserve are recognised in proﬁt or loss on disposal of the foreign operation.
A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or current liabilities.
CHAIRMAN’S STATEMENT & BUSINESS REVIEW