McConnell Dowell Group Annual Review 2021 49 nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. Impairment of financial assets AASB 9 replaced the ‘incurred loss’ model in IAS 39 with a forward-looking ‘expected credit loss’ (“ECL”) model. The new impairment model applies to financial assets measured at amortised cost, contract assets and debt instruments at Fair Value through Other Comprehensive Earnings, but not to investments in equity instruments. Under AASB 9, credit losses are recognised earlier than IAS 39. Under AASB 9, ECLs are recognised in either of the following stages: • 12 Month ECLs: those are ECLs that result from possible default events within the 12 months after the reporting date; and • Lifetime ECLs: those are ECLs that result from all possible default events over the expected life of the instrument. The Group has elected to measure the loss allowances for trade receivables and contract assets at an amount equal to lifetime ECLs. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs subsequent to initial recognition, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and an analysis, based on the Group’s historical experience and information, including credit assessment and forwardlooking information. Measurement of ECLs ECL are a probability-weighted estimate of credit losses. Credit losses are measured at the present value of all cash shortfalls (i.e. the difference between the contractual cash flows due to the entity in accordance with the contract and all the cash flows that the Group expects to receive, discounted at the effective interest rate of the financial asset). Credit-impaired financial assets At each reporting date, the Group has assessed whether financial assets within the scope of AASB 9 impairment requirements are credit-impaired. Financial assets not carried at fair value through profit or loss are assessed at each reporting date to determine whether there is objective evidence of credit-impairment. A financial asset is credit-impaired when one or more event that have a detrimental impact on the estimated future cash flows of the financial assets have occurred. Accordingly, this accounting policy relates to Amounts due from contract customers, Trade and other receivables and Cash and bank balances. Objective evidence that financial assets are impaired includes, but is not limited to: • default or delinquency by a debtor in interest or principal payments; • restructuring of an amount due to the Group on terms that the Group would not consider otherwise; • indications that a debtor or issuer will enter bankruptcy or other financial reorganisation; • adverse changes in the payment status of borrowers or issuers; • the disappearance of an active market for a security; or • observable data indicating that there is measurable decrease in expected cash flows from a group of financial assets such as changes in arrears or economic conditions that correlate with defaults. Financial liabilities Initial recognition and measurement The Group initially recognises financial liabilities when the Group becomes a party to the contractual provisions of the instrument. Financial liabilities are classified as measured at amortised cost or fair value, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial liabilities at initial recognition. All financial liabilities are recognised initially at fair value and in the case of loans and borrowings and other liabilities, less directly attributable transaction costs. The Group’s financial liabilities include trade and other payables, borrowings and other liabilities, bank overdrafts, employee-related payables, amounts due to contract customers and derivatives that are liabilities. The Group has not designated any financial liabilities upon initial recognition as at fair value through profit or loss, except those financial liabilities that contain embedded derivatives that significantly modify cash flows that would otherwise be required under the contract. Amounts due to contract customers Where progress billings exceed the aggregate of costs
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