73 carried out abroad in a currency other than the euro, which is CFM Indosuez Wealth’s reporting currency. In the event of a hedging intention, the following conditions must also be met to apply hedge accounting: - Both the hedging instrument and the hedged instrument must be eligible; - Documentation must be formalised from the outset, including in particular the individual designation and characteristics of the hedged item, the hedging instrument, the nature of the hedging relationship and the nature of the hedged risk; - The effectiveness of the hedge must be demonstrated from inception and retrospectively, through tests performed at each balance sheet date. For interest rate hedges for a portfolio of financial assets or financial liabilities, the Crédit Agricole group favours documentation of fair value hedging in accordance with the carve-out version of IAS 39 as adopted by the European Union. Notamment: - The Group documents these hedging relationships on the basis of a gross position of derivatives and hedged items; - The effectiveness of these hedging relationships is justified using schedules. Assessment Revaluations of derivatives at fair value are recorded as follows: - fair value hedges: the revaluation of the derivative and of the hedged item up to the hedged risk are recorded in the same manner in the income statement. Only the ineffective portion of the hedge, if any, is recorded for its net amount in income; - cash flow hedges: the revaluation of the derivative, excluding interest accrued and due, is recognised in the balance sheet with a corresponding entry in a specific account for gains and losses recognised directly in equity for the effective portion, and the ineffective portion of the hedge is recognised in the income statement. Gains or losses on the derivative accumulated in equity are then recycled to income when the hedged flows are realised. - hedges of net investment in a foreign operation: the change in value of the derivative is recognised in the balance sheet in Translation adjustment - Other comprehensive income (items that may be reclassified) and any ineffective portion of the hedge is recognised in the Income Statement. When the conditions for hedge accounting are no longer met, the following accounting treatment shall be applied on a forward-looking basis, unless the hedged item disappears: - fair value hedge: only the derivative instrument continues to be remeasured through profit or loss. The hedged item is wholly accounted for in accordance with its classification. For debt instruments at fair value through other comprehensive income recyclable to income, changes in fair value after the termination of the hedging relationship are fully recorded in equity. For hedged items measured at amortised cost, which were hedged against interest rate risk, the revaluation difference is amortised over the remaining life of the hedged items; - cash flow hedges: the hedging instrument is valued at fair value through profit or loss. Amounts accumulated in equity in respect of the effective portion of the hedge remain in equity until the hedged flows of the hedged item affect profit or loss. For interest rate hedged items, the Income Statement is affected gradually, in line with the payment of interest. In practice, the revaluation surplus is amortised over the remaining life of the hedged items. Embedded derivatives An embedded derivative is a component of a hybrid contract that meets the definition of a derivative product. This definition applies only to financial liabilities and non-financial contracts. Embedded derivatives must be accounted for separately from the host contract if the following three conditions are met: - the hybrid contract is not measured at fair value through profit or loss; - when considered separately from the host contract, the embedded item has the characteristics of a derivative; - the characteristics of the derivative are not closely related to those of the host contract. DETERMINATION OF THE FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of financial instruments is determined by making maximum use of observable inputs. It is shown according to the hierarchy defined in IFRS 13. IFRS 13 defines fair value as the price that would be received on the sale of an asset or paid to transfer a liability in an ordinary transaction between market participants, on the main or most advantageous market at the valuation date. Fair value applies to each financial asset or financial liability individually. As an exception, it can be estimated by portfolio if the risk management and monitoring strategy permits and is appropriately documented. Thus, certain fair value parameters are calculated on a net basis when a group of financial assets and financial liabilities is managed on the basis of its net exposure to market or credit risks. CFM Indosuez Wealth considers that the best indication of fair value is reference to quoted prices published on an active market. In the absence of such quoted prices, fair value is determined using valuation techniques that maximise use of relevant observable data and minimise use of unobservable data. When a liability is measured at fair value through
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