Notes to the financial statements
Year ended 31 March 2016
3 Significant accounting policies (continued)
(g)
Financial instruments (continued)
(iii)
Derivative financial instruments and hedging activities
The Group holds derivative financial instruments to hedge its foreign currency and interest rate risk exposures.
On initial designation of the derivative as the hedging instrument, the Group formally documents the
relationship between the hedging instrument and the hedged item, including the risk management
objectives and strategy in undertaking the hedge transaction and the hedged risk, together with the
methods that will be used to assess the effectiveness of the hedging relationship. The Group makes an
assessment, both at the inception of the hedge relationship as well as on an ongoing basis, of whether
the hedging instruments are expected to be “highly effective” in offsetting the changes in the fair value
or cash flows of the respective hedged items attributable to the hedged risk, and whether the actual
results of each hedge are within a range of 80%-125%. For a cash flow hedge of a forecast transaction, the
transaction should be highly probable to occur and should present an exposure to variations in cash flows
that could ultimately affect total return.
Derivative financial instruments are recognised initially at fair value; any attributable transaction costs are
recognised in the Statement of Total Return when incurred. Subsequent to initial recognition, derivatives
are measured at fair value, and changes therein are accounted for as described below:
Cash flow hedges
When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows
attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast
transaction that could affect total return, the effective portion of changes in fair value of the derivative is
taken to the hedging reserve in Unitholders’ funds. Any ineffective portion of changes in fair value of the
derivative is recognised immediately in the Statement of Total Return.
When the hedged item is a non-financial asset, the amount accumulated in the Unitholders’ funds is
reclassified to the Statement of Total Return in the same period or periods during which the non-financial
item affects total return. In other cases, the amount accumulated in the Unitholders’ funds is reclassified
to the Statement of Total Return in the same period that the hedged item affects total return. If the
hedging instrument no longer meets the criteria for hedge accounting, expires, or is sold, terminated
or exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. If the
forecast transaction is no longer expected to occur, then the balance in Unitholders’ funds is reclassified
to the Statement of Total Return.
Other derivative financial instruments
When a derivative financial instrument is not designated in a hedge relationship that qualifies for hedge
accounting, all changes in its fair value are recognised in the Statement of Total Return.
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A-REIT ANNUAL REPORT
2015/2016
