Page 49 - SIGA Annual Report 2013

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Saskatchewan Indian Gaming Authority Inc.
Notes to the Financial Statements
year ended March 31, 2013
49
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCIAL INSTRUMENTS (CONTINUED)
Derecognition
SIGA derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive
the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the
financial asset are transferred. Any interest in transferred financial assets that is created or retained by SIGA is recognized as a separate
asset or liability. SIGA derecognizes a financial liability when its contractual obligations are discharged, cancelled or expire.
Derivative financial instruments
SIGA uses interest rate swap derivatives to manage its exposure to interest rate risk. Derivatives are initially recognized at fair value at the
date that the derivative contract is entered into and subsequently measured at fair value with changes in fair value recognized through
comprehensive income immediately.
Embedded derivatives
Derivatives may be embedded in other host instruments and are treated as separate derivatives when their economic characteristics and
risks are not clearly and closely related to those of the host instrument, when the embedded derivative has the same terms as those of a
stand-alone derivative, and the combined contract is not held-for-trading or designated at fair value. These embedded derivatives are
measured at fair value with subsequent changes recognized in the statement of comprehensive income.
As at March 31, 2013, SIGA had no contracts (March 31, 2012 – none) with embedded derivatives that are required to be valued separately.
Fair value of financial instruments
Fair values approximate amounts at which financial instruments could be exchanged between willing parties based on current markets for
instruments with similar characteristics such as risk and remaining maturities. Fair values are determined, where possible, by reference to
quoted bid or asking prices in an active market. In the absence of an active market, SIGA determines fair value based on internal or external
valuation models, such as discounted cash flow analysis or using observable market based inputs (bid and ask price) for instruments with
similar characteristics and risk profiles. SIGA’s own credit risk and the credit risk of the counterparty have been taken into account in
determining the fair value of financial assets and liabilities, including derivative instruments. Fair value measurements are subjective
in nature, and represent point-in-time estimates which may not reflect fair value in the future.
SIGA classifies fair value measurements recognized in the statement of financial position using a three-tier fair value hierarchy, which
prioritizes the inputs used in measuring fair value as follows:
Level 1 – valuation based on quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 – valuation techniques based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability,
either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3 – valuation techniques using inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Fair value measurements are classified in the fair value hierarchy based on the lowest level input that is significant to that fair value
measurement. This assessment requires judgment, considering factors specific to an asset or a liability and may affect placement within
the fair value hierarchy. See Note 20 for further discussion on the classification and fair value of financial instruments.