71 FINANCIAL INSTRUMENTS (IFRS 9, IAS 32 AND 39) Definitions IAS 32 defines a financial instrument as any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity, meaning any contract representing contractual rights or obligations to receive or pay cash or other financial assets. Derivative instruments are financial assets or liabilitieswhose value changes according to that of an underlying asset, which requires a low or nil initial investment, and for which settlement occurs at a future date. Financial assets and liabilities are treated in the financial statements in accordance with IFRS 9 as adopted by the European Union. IFRS 9 defines the principles for classification and measurement of financial instruments, impairment/ provisioning of credit risk and hedge accounting, excluding macro-hedging transactions. However, it should be noted that CFM Indosuez Wealth has made use of the option not to apply the general hedge accounting model under IFRS 9. All hedging relationships consequently remain within the scope of IAS 39, pending future provisions in regard to macro-hedging. Conventions for valuing financial assets and liabilities • Initial valuation For their initial recognition, financial assets and liabilities are measured at fair value as defined by IFRS 13. Fair value, as defined by IFRS 13, corresponds to the price that would be received on the sale of an asset or paid to transfer a liability in an ordinary transaction betweenmarket participants, on the main or most advantageous market at the valuation date. • Subsequent valuation After initial recognition, financial assets and liabilities are measuredaccording to their classificationeither at amortised cost, using the effective interest ratemethod (EIR) for debt instruments, or at fair value as defined by IFRS 13. Derivatives are always valued at fair value. Amortised cost corresponds to the amount at which the financial asset or liability is valuedduring its initial recognition, including transaction costs directly attributable to its acquisition or issue, less repayments of principal, increased or reduced by cumulative amortisation calculated by the effective interest rate method (EIR) on any difference (discount or premium) between the initial amount and the amount atmaturity. The amountmay be adjusted if necessary for impairment in the case of a financial asset at amortised cost or fair value through recyclable equity. The effective interest rate (EIR) is the rate that exactly discounts the future cash payments or receipts estimated over the expected life of the financial instrument or, when appropriate, over a shorter period, to obtain the net carrying amount for the financial asset or financial liability. Financial assets • Classification and measurement of financial assets Non-derivative financial assets (debt or equity instruments) are classified on the balance sheet in accounting categories that determine their accounting treatment and their subsequent valuation method. The criteria for classifying and evaluating financial assets depends on the nature of the financial asset, whether it is qualified as: - debt instruments (i.e. loans and fixed or determinable income securities); or - an equity instrument (e.g. shares). These financial assets are classified in one of the following three categories: - financial assets at fair value through profit or loss; - financial assets at amortised cost (debt instruments only); - financial assets at fair value through equity (recyclable for debt instruments, non-recyclable for equity instruments). - Debt instruments The classification and valuationof a debt instrument depends on the combination of two criteria: the business model defined at portfolio level and the analysis of the contractual terms determined by debt instrument, unless the fair value option is used. - The three business models: The business model reflects the strategy applied by CFM Indosuez Wealth Group for the management of its financial assets in order to achieve its objectives. The businessmodel is specified for a portfolio of assets and does not constitute a case-by-case intention for an isolated financial asset.
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