Page 49 - SIGA Annual Report 2014

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MARCH 31, 2014
Financial Instruments (continued)
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, 2014, SIGA had no contracts (March 31, 2013 – 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.
Impairment of financial assets (including receivables)
A financial asset not carried at FVTPL is assessed at each reporting date to determine whether there is objective evidence that it is
impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the
asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying
amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate.
Losses are recognized in profit or loss in the statement of comprehensive income and reflected in an allowance account against
receivables. Interest on the impaired asset continues to be recognized through the unwinding of the discount. When a subsequent
event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss in the
statement of comprehensive income. An impairment loss is reversed only to the extent that the asset’s carrying amount does not
exceed the carrying amount that would have been determined if no impairment loss had been recognized.
Finance Costs
Finance costs comprise interest expense on borrowings not subject to capitalization, amortization of costs related to borrowings,
interest on finance leases, and impairment losses recognized on financial assets.