Page 48 - SIGA Annual Report 2014

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MARCH 31, 2014
Financial Instruments (continued)
Classification and measurement (continued)
A financial asset other than a financial asset held-for-trading may be designated as FVTPL upon initial recognition if:
Such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or
The financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance
is evaluated on a fair value basis, in accordance with SIGA’s documented risk management or investment strategy, and
information about the grouping is provided internally on that basis; or
It forms part of a contract containing one or more embedded derivatives, and IAS 39, Financial Instruments: Recognition
and Measurement permits the entire combined contract (asset or liability) to be designated as at FVTPL.
Financial instruments classified as FVTPL are subsequently measured at fair value, with changes in fair value recognized in
comprehensive income. The net gain or loss recognized in comprehensive income incorporates any dividend or interest earned
on the financial asset. Fair value is determined in the manner described in Note 20.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market that SIGA does not intend to sell immediately or in the near term. Loans and receivables are subsequently measured at
amortized cost using the effective interest method, less any impairment. Interest income, calculated using the effective interest
rate method, is recognized in comprehensive income.
Other financial liabilities include financial liabilities that have not been classified as FVTPL. Other financial liabilities are subsequently
measured at amortized cost using the effective interest method. Finance costs, calculated using the effective interest rate method,
are recognized in comprehensive income.
Financial assets and liabilities are offset and the net amount reported on the statement of financial position when there is a legally
enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle
the liability simultaneously.
Transaction costs
Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or
financial liability. Transaction costs include fees and commissions paid to advisors, brokers and dealers. Transaction costs do not
include debt premiums or discounts or financing costs. Transaction costs are included in the initial carrying amount of financial
instruments except for financial instruments classified as FVTPL, in which case they are expensed as incurred. SIGA uses trade
date accounting for regular way contracts when recording financial asset transactions.
Effective interest method
The effective interest method is a method of calculating the amortized cost of a financial asset or financial liability and of allocating
interest income or interest expense over the relevant year. The effective interest rate is the rate that exactly discounts estimated
future cash receipts or payments (including all fees paid or received that form an integral part of the effective interest rate,
transaction costs and other premiums or discounts) through the expected life of the financial instrument, or when appropriate,
a shorter period to the net carrying amount of the financial asset or financial liability on initial recognition.
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.