170 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2022 Additional Information We Are Kenanga Message From Our Leaders Our Sustainability Approach How We Are Governed Financial Statements Shareholders’ Information 3. ACCOUNTING POLICIES (CONT’D.) 3.4 Summary of significant accounting policies (cont’d.) (k) Impairment of financial assets (cont’d.) (i) Overview of the ECL principles (cont’d.) General approach (cont’d.) For financial assets for which the Group and the Bank have no reasonable expectations of recovering either the entire outstanding amount, or a proportion thereof, the gross carrying amount of the financial asset is reduced. This is considered a (partial) derecognition of the financial asset. Simplified approach The simplified approach does not require tracking change in credit risk, but instead requires a loss allowance to be recognised based on LTECLs at each reporting date. The simplified approach is required for trade receivables or contract assets that do not contain a significant financing component. However, either the general approach or the simplified approach can be applied separately, as an accounting policy choice, for: • All trade receivables or contract assets that result from transactions within the scope of MFRS 15 Revenue from Contracts with Customers and that contain a significant financing component. • All lease receivables that result from transaction that are within the scope of MFRS 16 Leases. (ii) The calculation of ECLs The Group and the Bank calculate ECLs based on a three probability-weighted scenarios to measure the expected cash shortfalls, discounted at original EIR. A cash shortfall is the difference between the cash flows that are due to the Group and the Bank in accordance with the contract and the cash flows that the Group and the Bank expect to receive. The key elements of the ECL calculations are outlined as follows: • PD The Probability of Default (“PD”) is an estimate of the likelihood of default over a given time horizon. A default may only happen at a certain time over the assessed period, if the facility has not been previously derecognised and is still in the portfolio. The concept of PD is further explained in Note 50(a).
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