Page 200 - Pakistan Oilfields Limited - Annual Report 2021

NOTES TO AND FORMING

PART OF THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED JUNE 30, 2021

Significant increase in credit risk

The Group considers the probability of default upon initial recognition of asset and whether
there has been a significant increase in credit risk on an ongoing basis throughout each
reporting period. To assess whether there is a significant increase in credit risk, the Group
compares the risk of a default occurring on the instrument as at the reporting date with
the risk of default as at the date of initial recognition. It considers available reasonable and
supportable forward-looking information.

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
- 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 Group, in full (without taking into account any
collaterals held by the Group).
Irrespective of the above analysis, in case of trade debts, the Group considers that default has
occurred when a the debt is more than 365 days past due, unless the Group 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 borrower’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
reorganisation; or
- the disappearance of an active market for that financial asset because of financial difficulties.

198 PAKISTAN OILFIELDS LIMITED