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 (items that may be reclassified), changes in fair value subsequent to the ending of the hedging relationship are recorded in other comprehensive income in their entirety. 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. - Hedges of net investment in a foreign operation: The amounts accumulated in other comprehensive income in respect of the effective portion of the hedging remain in other comprehensive income as long as the net investment is held. The income is recorded if the net investment in a foreign operation is excluded from the scope of consolidation. 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 debt is valued at fair value through profit or loss (by nature or designated), fair value takes account of the issuer’s own credit risk. Fair value hierarchy The standard classifies fair value according to three levels based on the observability of inputs used in valuation. Level 1: fair values corresponding to (unadjusted) prices in active markets Level 1 financial instruments are those directly quoted on active markets for identical assets and liabilities to which CFM Indosuez Wealth has access at the valuation date. These include equities and bonds listed on an active market, units in investment funds listed on an active market and derivatives contracted on an organised market, in particular futures. A market is deemed active if quoted prices are readily and regularly available from an exchange, broker, CFM Indosuez Wealth Management 76
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