Credit Union Annual Report 2022 - Flipbook - Page 50
THE CAYMAN ISLANDS CIVIL SERVICE ASSOCIATION (CICSA)
CO-OPERATIVE CREDIT UNION LIMITED
NOTES TO FINANCIAL STATEMENTS (continued)
July 31, 2022
2.4 Summary of accounting policies (continued)
The expected frequency, value and timing of sales are also important aspects of the Credit Union’s assessment. The
business model assessment is based on reasonably expected scenarios without taking 'worst case' or 'stress case’ scenarios
into account. If cash flows after initial recognition are realised in a way that is different from the Credit Union's original
expectations, the Credit Union does not change the classification of the remaining financial assets held in that business
model but incorporates such information when assessing newly originated or newly purchased financial assets going
forward.
The Solely Payments of Principal and Interest test (SPPI test)
As a second step of its classification process the Credit Union assesses the contractual terms of the financial asset to
identify whether they meet the SPPI test. ‘Principal’ for the purpose of this test is defined as the fair value of the financ ial
asset at initial recognition and may change over the life of the financial asset (for example, if th ere are repayments of
principal or amortisation of the premium/discount). The most significant elements of interest within a lending arrangement
are typically the consideration for the time value of money and credit risk. To make the SPPI assessment, the Credit Union
applies judgement and considers relevant factors such as the currency in which the financial asset is denominated, and the
period for which the interest rate is set. In contrast, contractual terms that introduce a more than de minimis exposure to
risks or volatility in the contractual cash flows that are unrelated to a basic lending arrangement do not give rise to
contractual cash flows that are solely payments of principal and interest on the amount outstanding. In such cases, the
financial asset is required to be measured at FVPL.
Based on these factors, the Credit Union classifies and measures its debt instruments at amortized cost, as they are held
for collection of contractual cash flows where those cash flows represent solely payments of principal and interest. The
carrying amount of these assets is adjusted by any expected credit loss allowance recognized and measured.
Equity instruments are those that do not contain contractual obligations to pay the instrument holder and tha t evidence
residual interests in the issuer’s net assets. The Credit Union measures all equity investments at fair value through profit
or loss. Impairment losses are not reported separately from other changes in fair value. Dividends, when representing a
return on such investments, continue to be recognized in profit or loss as other income when the Credit Union ’s right to
receive payments is established.
All loans are originated by the Credit Union and are initially recognised at fair value, which is the cash consideration to
originate the loan, and then subsequently measured at amortised cost using the effective interest rate method less, where
applicable, a provision for loan losses.
iv. Reclassification of financial assets and liabilities
The Credit Union does not reclassify its financial assets subsequent to their initial recognition, apart from the exceptional
circumstances in which the Credit Union acquires, disposes of, or terminates a business line. Financial liabilities are never
reclassified.
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