Page 135 - Pakistan Oilfields Limited - Annual Report 2021

NOTES TO AND FORMING

PART OF THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED JUNE 30, 2021

The following indicators are considered while assessing credit risk
- actual or expected significant adverse changes in business, financial or economic
conditions that are expected to cause a significant change to the debtor’s ability to
meet its obligations;
- actual or expected significant changes in the operating results of the debtor;
- significant increase in credit risk on other financial instruments of the same debtor;
and
- significant changes in the value of the collateral supporting the obligation or in the
quality of third-party guarantees, if applicable.

Definition of default

The Company considers the following as constituting an event of default for internal cred-
it risk management purposes as historical experience indicates that receivables that meet
either of the following criteria are generally not recoverable.

- when there is a breach of financial covenants by the counterparty; or
- information developed internally or obtained from external sources indicates that the
debtor is unlikely to pay its creditors, including the Company, in full (without taking
into account any collaterals held by the Company).

Irrespective of the above analysis, in case of trade debts, the Company considers that
default has occurred when the debt is more than 365 days past due, unless the Company
has reasonable and supportable information to demonstrate that a more lagging default
criterion is more appropriate.

Credit - impaired financial assets

A financial asset is credit-impaired when one or more events that have a detrimental
impact on the estimated future cash flows of that financial asset have occurred. Evidence
that a financial asset is credit-impaired includes observable data about the following
events:
- significant financial difficulty of the issuer or the borrower;
- a breach of contract, such as a default or past due event;
- the lender(s) of the borrower, for economic or contractual reasons relating to the bor-
rower’s financial difficulty, having granted to the borrower a concession(s) that the
lender(s) would not otherwise consider;
- it is becoming probable that the borrower will enter bankruptcy or other financial re-
organisation; or
- the disappearance of an active market for that financial asset because of financial diffi-
culties.

4.22 Financial Liabilities

Classification, initial recognition and subsequent measurement

Financial liabilities are classified in the following categories:
- fair value through profit or loss; and
- other financial liabilities.

ANNUAL REPORT 2021 133