CONSOLIDATED FINANCIAL STATEMENTS >
EXPLANATORY NOTES
142
| 2013 ANNUAL REPORT | PRYSMIAN GROUP
For debt securities, the related yields are recognised
using the amortised cost method and are recorded in the
income statement as “Finance income”, together with any
exchange rate effects, while exchange rate effects relating to
investments classified as available-for-sale financial assets
are recognised in the specific equity reserve.
B.10 DERIVATIVES
At the date of signing the contract, derivatives are accounted
for at fair value and, if they are not accounted for as hedging
instruments, any changes in the fair value following initial
recognition are recorded as finance income or costs for the
period, except for fair value changes in metal derivatives.
If derivatives satisfy the requirements for classification as
hedging instruments, the subsequent changes in fair value
are accounted for using the specific criteria set out below.
The Group designates some derivatives as hedging
instruments for particular risks associated with highly
probable transactions (“cash flow hedges”). For each
derivative which qualifies for hedge accounting, there
is documentation on its relationship to the item being
hedged, including the risk management objectives, the
hedging strategy and the methods for checking the hedge’s
effectiveness. The effectiveness of each hedge is reviewed
both at the derivative’s inception and during its life cycle. In
general, a cash flow hedge is considered highly “effective” if,
both at its inception and during its life cycle, the changes in
the cash flows expected in the future from the hedged item
are largely offset by changes in the fair value of the hedge.
The fair values of the various derivatives used as hedges are
disclosed in Note 8. Derivatives. Movements in the “Cash flow
hedge reserve” forming part of equity are reported in Note 11.
Share capital and reserves.
The fair value of a hedging derivative is classified as a non-
current asset or liability if the hedged item has a maturity
of more than twelve months; if the maturity of the hedged
item is less than twelve months, the fair value of the hedge is
classified as a current asset or liability.
Derivatives not designated as hedges are classified as
current or non-current assets or liabilities according to their
contractual due dates.
Cash flow hedges
In the case of hedges intended to neutralise the risk of
changes in cash flows arising from the future execution of
contractual obligations existing at the reporting date (“cash
flow hedges”), changes in the fair value of the derivative
following initial recognition are recorded in equity “Reserves”,
but only to the extent that they relate to the effective
portion of the hedge. When the effects of the hedged item
are reported in profit or loss, the reserve is transferred to the
income statement and classified in the same line items that
report the effects of the hedged item. If a hedge is not fully
effective, the change in fair value of its ineffective portion is
immediately recognised in the income statement as “Finance
income” or “Finance costs”. If, during the life of a derivative,
the hedged forecast cash flows are no longer considered to
be highly probable, the portion of the “Reserves” relating to
the derivative is taken to the period’s income statement and
treated as “Finance income” or “Finance costs”. Conversely,
if the derivative is disposed of or no longer qualifies as an
effective hedge, the portion of “Reserves” representing the
changes in the instrument’s fair value recorded up to then
remains in equity until the original hedged transaction occurs,
at which point it is then taken to the income statement, where
it is classified on the basis described above.
At 31 December 2013, the Group had designated derivatives to
hedge the following risks:
•
exchange rate risk on construction contracts or orders:
these hedges aim to reduce the volatility of cash flows
due to changes in exchange rates on future transactions.
In particular, the hedged item is the amount of the cash
flow expressed in another currency that is expected to
be received/paid in relation to a contract or an order for
amounts above the minimum limits identified by the
Group Finance Committee: all cash flows thus identified
are therefore designated as hedged items in the hedging
relationship. The reserve originating from changes in the fair
value of derivatives is transferred to the income statement
according to the stage of completion of the contract itself,
where it is classified as contract revenue/costs;
