Page 118 - Annual Report 2020

/ 113
ii) Lease liabilities
At the commencement date of the lease, the QFC
Regulatory Authority recognises lease liabilities
measured at the present value of lease payments to
be made over the lease term. The lease payments
include fixed payments (including in-substance
fixed payments) less any lease incentives receivable,
variable lease payments that depend on an index
or a rate, and amounts expected to be paid under
residual value guarantees. Variable lease payments
that do not depend on an index or a rate are
recognised as expenses (unless they are incurred to
produce inventories) in the period in which the event
or condition that triggers the payment occurs.
In calculating the present value of lease payments,
the QFC Regulatory Authority uses its incremental
borrowing rate at the lease commencement date
because the interest rate implicit in the lease is not
readily determinable. After the commencement date,
the amount of lease liabilities is increased to reflect
the accretion of interest and reduced for the lease
payments made. In addition, the carrying amount of
lease liabilities is remeasured if there is a modification,
a change in the lease term, a change in the lease
payments (e.g., changes to future payments resulting
from a change in an index or rate used to determine
such lease payments) or a change in the assessment
of an option to purchase the underlying asset.
iii) Short-term leases and leases of low-value assets
The QFC Regulatory Authority applies the short-term
lease recognition exemption to its short-term leases of
the building (i.e., those leases that have a lease term of
12 months or less from the commencement date and
do not contain a purchase option). It also applies the
lease of low-value assets recognition exemption to the
lease of office equipment that is considered of low value
(i.e., below USD 5,000). Lease payment on short-term
leases and leases of low-value assets are recognised as
expense on a straight-line basis over the lease term.
Impairment of non-financial assets
The QFC Regulatory Authority assesses at each
reporting date whether there is an indication that
an asset may be impaired. If any indication exists,
or when annual impairment testing for an asset is
required, the QFC Regulatory Authority estimates the
asset’s recoverable amount. An asset’s recoverable
amount is the higher of an asset’s fair value less
costs to sell and its value in use and is determined
for an individual asset, unless the asset does not
generate cash inflows that are largely independent
of those from other assets or groups of assets.
Where the carrying amount of an asset exceeds its
recoverable amount, the asset is considered impaired
and is written down to its recoverable amount. In
assessing value in use, the estimated future cash
flows are discounted to their present value using a
discount rate that reflects current market assessments
of the time value of money and the risks specific
to the asset. In determining fair value less costs
to sell, an appropriate valuation model is used.
Financial assets
Classification
The QFC Regulatory Authority classifies its financial
assets in the following measurement category:
• those to be measured at amortised cost
The classification is based on two criteria:
• The QFC Regulatory Authority’s business
model for managing the assets; and
• Whether the instruments’ contractual cash
flows represent “solely payments of principal
and interest (profit) on the principal amount
outstanding (the ‘SPPI criterion’)”.
QF CR A ANNU AL REP OR T 2020
Business model: the business model reflects how
the QFC Regulatory Authority manages the assets in
order to generate cash flows, according to two possible
objectives. One objective is for the QFC Regulatory
Authority to collect the contractual cash flows from the
assets. A second possible objective is to collect both
the contractual cash flows and cash flows arising from
the sale of assets. If neither of these is applicable (e.g.
financial assets are held for trading purposes), then
the financial assets are classified as part of a business
model “other” and measured at fair value through
profit or loss (“FVTPL”). Factors considered by the QFC
Regulatory Authority in determining the business model
for a group of assets include past experience on how
the cash flows for these assets were collected, how
the asset’s performance is evaluated and reported to
key management personnel, how risks are assessed
and managed, and how managers are compensated.
SPPI: Where the business model is to hold
assets to collect contractual cash flows or to
collect contractual cash flows and sell, the QFC
Regulatory Authority assesses whether the financial
instruments’ cash flows represent solely payments
of principal and interest (profit) (the “SPPI test”).
T ABLE OF C ONTENT S