Page 110 - HRC_Annual_Report_2023

108 About HRC Value Creation Management Discussion Leadership
& Analysis

NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2023

2 SUMMARY OF MATERIAL ACCOUNTING POLICY INFORMATION (continued)
2.8 FINANCIAL ASSETS (continued)

(d) Impairment of financial assets (continued)
Impairment for debt instruments (continued)
For trade receivables, the Company applies the simplified approach permitted by MFRS 9, which requires expected
lifetime losses to be recognised from initial recognition of the receivables. Therefore, the Company does not track
changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date.
For other receivables, the Company measures ECL through loss allowance at an amount equal to 12-month ECL if
credit risk on a financial instrument or a group of financial instruments has not increased significantly since initial
recognition. For those credit exposures for which there has been a significant increase in credit risk since initial
recognition, a loss allowance is required for credit losses expected over the remaining useful life of the exposure,
irrespective of the timing of default (a lifetime ECL).
Significant increase in credit risk
The Company considers the probability of default upon initial recognition of asset and whether there has been a
significant increase in credit risk on an ongoing basis throughout each reporting period. To assess whether there
is a significant increase in credit risk, the Company compares the risk of a default occurring on the asset as at the
reporting date with the risk of default as at the date of initial recognition. It considers available reasonable and
supportable forward-looking information.

The following indicators are incorporated:
• actual or expected significant adverse changes in business, financial or economic conditions that are expected to
cause a significant change to the debtor’s ability to meet its obligations;
• actual or expected significant changes in the operating results of the debtor; or
• significant changes in the expected performance and behaviour of the debtor, including changes in the payment
status of debtor in the Company and changes in the operating results of the debtor.
Definition of default and credit-impaired financial assets
The Company defines a financial instrument as default, which is fully aligned with the definition of credit-impaired,
when it meets one or more of the following criteria:
Quantitative criteria:
The Company defines a financial instrument as default, when the counterparty fails to make contractual payment
within 90 days of when they fall due.

Qualitative criteria:
The debtor meets unlikeliness to pay criteria, which indicates the debtor is in significant financial liability.
The Company 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; or
• the debtor is insolvent.