RWS Annual Report 2022 web - Flipbook - Page 114
Notes to the Consolidated Financial Statements (continued)
Derivative financial instruments and hedging
Cash and cash equivalents
The Group uses derivative financial instruments to
manage its exposure to foreign exchange volatility
arising from operational activities.
Cash and cash equivalents comprise cash in hand, deposits
held at call with banks and highly liquid investments with
original maturities of three months or less.
Derivative financial instruments are initially measured at
fair value (with direct transaction costs being included
in the statement of comprehensive income as an
expense) and are subsequently remeasured to fair value
at each reporting date. Changes in the carrying value
are also recognised in profit or loss in the statement
of comprehensive income unless part of a designated
hedging arrangement.
The Group designates certain derivatives as hedging
instruments to hedge the variability in cash flows
associated with highly probable forecast transactions
arising from changes in foreign exchange rates and
certain non-derivative liabilities as hedges of foreign
exchange risk on a net investment in a foreign operation.
At inception of designated hedging relationships, the
Group documents the risk management objective and
strategy for undertaking the hedge. The Group also
documents the economic relationship between the
hedged item and hedging instrument, including whether
the changes in cash flows of the hedged item and
hedging instrument are expected to offset each other.
When a derivative is designated as a cash flow hedging
instrument, the effective portion of changes in fair value
of the derivative is recognised in other comprehensive
income and accumulated in the hedge reserve. The
effective portion of changes in the fair value of the
derivative that is recognised in other comprehensive
income is limited to the cumulative change in fair value
of the hedged item, determined on a present value
basis, from inception of the hedge. Any ineffective
portion of changes in the fair value of the derivative is
recognised immediately in profit or loss in the statement
of comprehensive income.
The amount accumulated in the hedging reserve
is reclassified to profit or loss in the statement of
comprehensive income in the same period the hedged
expected future cash flows affect the Group’s profit or loss.
If the hedge no longer meets the criteria for hedge
accounting or the hedging instrument expires or is
sold, terminated or exercised, then hedge accounting
is discontinued prospectively. If the hedged future cash
flows are no longer expected to occur, then the amount
accumulated in the hedge reserve is reclassified to
profit or loss in the statement of comprehensive income
immediately.
The Group hedges the net investment in certain
foreign operations by borrowing in the currency of the
operations’ net assets. Any gain or loss on the hedging
instrument relating to the effective portion of the hedge
is recognised in other comprehensive income. Gains and
losses accumulated in equity are included as part of the
gain or loss on disposal in the consolidated statement of
comprehensive income on loss of control of the foreign
operation.
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RWS — Annual Report 2022
Trade and other payables
Trade and other payables are initially measured at fair
value and are subsequently measured at amortised cost
using the effective interest rate method.
2. CRITICAL JUDGEMENTS AND
ACCOUNTING ESTIMATES IN APPLYING
THE GROUP’S ACCOUNTING POLICIES
The preparation of the financial statements, in conformity
with generally accepted accounting principles, requires
management to make estimates and judgements that
affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported
amounts of revenues and expenses during the reported
period. Actual results could differ from these estimates.
These estimates and judgements are based on historical
experience and other factors, including expectations of
future events that are believed to be reasonable under the
circumstances. They are reviewed on an ongoing basis.
Revisions to estimates are recognised prospectively.
Judgements
In the process of applying the Group's accounting policies,
management has made the following judgements,
which have the most significant effect on the amounts
recognised in the consolidated financial statements:
Revenue - multi-element arrangements
To determine the appropriate revenue recognition
for contracts containing multi-elements that include
both products and services, we evaluate whether the
contract should be accounted for as a single, or multiple
performance obligations. Management is required to
exercise a degree of judgement in setting the criteria
used for determining when revenue which involves
several elements should be recognised and the standalone selling price of each element. The Group generally
determines the stand-alone selling prices of elements
based on prices which are not observable and are
therefore based on stand-alone list prices which are
then subject to discount. These prices are reviewed on
an annual basis and amended where appropriate. This is
performed in conjunction with a fair value assessment of
the stand-alone selling prices to assess reasonableness of
the transaction price allocation. Further detail regarding
the stand-alone selling prices for the purpose of allocating
the transaction price in multi-element arrangements is
provided in Note 3.
The judgement could materially affect the timing and
quantum of revenue and profit recognised in each period.
NOTES TO THE CONSOLIDATED STATEMENTS
