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Rothschild & Co | Annual Report 2017
131
1. Overview
4. Financial statements
3.
Management report
2. Business review
7 Financial assets and liabilities
The Group initially recognises loans and advances and deposits on the date on which they have been originated. All other financial assets and liabilities
are recognised on trade date.
On initial recognition, IAS 39 requires that financial assets be classified into the following categories: at fair value through profit or loss, loans and
receivables, held-to-maturity investments or available for sale. The Group does not hold any assets that are classified as held-to-maturity investments.
FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
This category comprises financial assets held for trading (i.e. primarily acquired for the purpose of selling in the short term), assets that are designated
as fair value through profit or loss and derivatives that are not designated as hedges.
These financial assets are recognised at fair value, with transaction costs recorded immediately in the income statement, and they are subsequently
measured at fair value. Gains and losses arising from changes in fair value, or on derecognition, are recognised in the income statement as net gains
or losses on financial assets at fair value through profit or loss. Interest and dividend income from financial assets at fair value through profit or loss is
recognised in net gains or losses on financial assets at fair value through profit or loss.
LOANS AND RECEIVABLES
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans which
are intended to be sold in the short term are classified as held for trading and are recorded at fair value through profit or loss.
Loans and receivables are initially recorded at fair value, including any transaction costs, and are subsequently measured at amortised cost using the
effective interest rate method. Gains and losses on loans and receivables that are derecognised are booked as Income from other activities.
AVAILABLE-FOR-SALE FINANCIAL ASSETS
Available-for-sale investments comprise non-derivative financial assets that are either designated as available for sale on initial recognition or are not
classified into the categories described above. Available-for-sale investments include some loans and debt securities that do not meet the criteria for
classification as loans and receivables as they are quoted in an active market. They are initially recognised at fair value, including direct and incremental
transaction costs, and are subsequently measured at fair value.
Gains and losses arising from changes in the fair value of available-for-sale financial assets are recognised in equity until the financial asset is sold or
impaired, at which time the cumulative gain or loss is transferred to the income statement. Interest (determined using the effective interest rate method),
impairment losses and translation differences on monetary items are recognised in the income statement as they arise. Dividends on available-for-sale
equity instruments are recognised in the income statement when the Group’s right to receive payment is established.
FINANCIAL LIABILITIES
Financial liabilities are carried at amortised cost using the effective interest rate method, except for derivatives that are classified as fair value through
profit or loss on initial recognition (unless designated as cash flow hedges).
8 Derecognition
The Group derecognises a financial asset when:
• the contractual rights to cash flows arising from the financial assets have expired; or
• it transfers the financial asset including substantially all of the risks and rewards of the ownership of the asset; or
• it transfers the financial asset, neither retaining nor transferring substantially all the risks and rewards of the asset, but no longer retains control of
the asset.
When a sale is followed by an immediate buyback and the Group considers that it has substantially retained the risks and rewards of ownership, it would
not derecognise the asset.
9 Securitisation transactions
The Group may enter into funding arrangements with lenders in order to finance specific financial assets.
In general, the assets from these transactions are held on the Group’s balance sheet on origination. However, to the extent that substantially all the
risks and returns associated with the assets have been transferred to a third party, the assets and liabilities are derecognised in whole or in part.
Interests in securitised financial assets may be taken in the form of senior or subordinated tranches of debt securities, or other residual interests.
Such interests are primarily recorded as available-for-sale assets.