Note Summary of significant accounting policies
Group’s risk management objectives and strategy. The Group
also documents its assessment, both when it enters into
hedging contracts and on an ongoing basis, as to whether the
derivative instruments used in hedging transactions are effective
in terms of counteracting changes in fair value or cash
flow that are attributable to the hedged items. The Company’s
derivative instruments consist of OTC or ”over-the-counter”
derivatives concluded with financial counterparties, listed
standardized derivatives and sales and purchase contracts
which are not deemed to be for own use (and consequently
should be recognized as derivatives). According to IFRS 9,
only contracts not designated for physical delivery may be
accounted for as derivatives. AAK’s business model permits
(enables) the net settlement of purchase and sales contracts
entered into. The full fair value of a hedging derivative is
classified as a non-current asset or liability when remaining
maturity of the hedged item is more than 12 months. It is
classified as a current asset or liability when the remaining
maturity of the hedged item is less than 12 months.
Hedging of fair value
Changes in fair value of a derivative that has been formally
identified for hedging of fair value and meets the conditions
for hedge accounting are recognized on the same line item in
the income statement as any change in fair value attributable
to the hedged risk for the hedged asset or liability. The Group
applies hedging of fair value for raw materials in inventory.
Changes in fair value of raw material in inventory are
accounted for as a part of Current assets and liabilities in the
balance sheet. The gain or loss attributable to the ineffective
portion is recognized with immediate effect in “Raw materials
and consumables and changes in inventory”.
When forward contracts are used to hedge fair value the
group generally designates only the change in fair value of
the forward contract related to the spot component as the
hedging instrument. The change in the forward element of the
contract that relates to the hedged item is recognized within
Operating profit.
Sales- and purchase contracts
AAK applies the fair value option to binding commitments
(sales- and purchase contracts) for own use since this offset
the change in fair value of derivatives not designated for
hedge accounting (reducing accounting mismatch) and AAK:s
business model enables the net settlement of purchase
and sales contracts entered into for physical delivery (the
contracts are readily convertible to cash). Assets in this
category are classified as current assets as they are expected
to be settled within 12 months.
Determining fair value
The fair value of instruments that do not have listed prices is
determined using valuation techniques such as discounted
cash flow models, in which all assessed and determined cash
flows are discounted using a zero-coupon yield curve. The fair
value of derivatives is determined using valuation techniques.
The valuation is based on models that discount cash flows
using forward curves for underlying variables such as raw
materials and exchange rates. The assessed and determined
cash flows are discounted by a zero-coupon interest rate
curve. The Group’s credit risk is taken into consideration in
the valuation at fair value.
Accounts receivable
Accounts receivable are recognized initially at fair value
and thereafter at amortized cost using the effective interest
method, less provisions for impairment, see above about
impairment. Provisions are recognized in the income statement
as “Other external expenses”.
Equity
Ordinary shares are classified as share capital. Transaction
expenses that are directly attributable to new share issues or
options are recognized, net of tax, in equity as a deduction
from the proceeds.
Premium received for share warrants issued at market
price has been recognized as an increase in funds brought
forward in equity as the options will be redeemed with equity
instruments. Information on outstanding subscription warrants
is available in Note 8.
Liabilities to banks and credit institutions
Borrowings are initially recognized at fair value, net of
transaction costs. Borrowings are subsequently stated at
amortized cost and any difference between proceeds (net of
transaction costs) and redemption value is recognized in the
income statement, allocated over the period of the borrowing
using the effective interest method.
Accounts payables
Accounts payables are initially recognized at fair value and
subsequently at amortized cost using the effective interest
method.
Provisions
Provisions are recognized in the balance sheet when the
Group has a present legal or constructive obligation as a
result of past events, and it is more likely than not that an
outflow of resources will be required to settle the obligations
and the amount can be estimated reliably. No provisions are
made for future operating losses. If the effect of when in time
payment is made is significant, provisions are calculated
through discounting the expected future cash flow at an
interest rate before tax that reflects current market assessments
of the time value of money and, if applicable, the risks
associated with the debt.
A provision for restructuring is recognized when the Group
has adopted a comprehensive and formal restructuring plan,
and the restructuring has either been started or published.
Income tax
Tax expenses for the period comprise both current tax due
and deferred income tax. Tax is recognized in the income
statement, apart from when tax is attributable to items recognized
in other comprehensive income or directly in equity. In
such cases, tax is also recognized in other comprehensive
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