Consolidated Financial Statements 2022 · Page 116

Public Investment Fund and its subsidiaries 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 
(All amounts in million SAR unless otherwise stated) 
Classification: External Confidential 
113 
 
14. DERIVATIVES (continued) 
 
 
 
Significant accounting policies that apply to derivative financial instruments and hedge accounting (continued) 
(b) 
Hedge accounting (continued) 
▪ 
Fair value hedges (continued) 
For hedged items measured at amortized cost, where the fair value hedge of an interest-bearing financial instrument ceases to meet the 
criteria for hedge accounting or is sold, exercised or terminated, the difference between the carrying value of the hedged item on 
termination and the face value is amortized over the remaining term of the original hedge using the effective interest rate method. If the 
hedged item is derecognized, the un-amortized fair value adjustment is recognized immediately in the consolidated statement of profit or 
loss. 
▪ 
Cash flow hedges 
In relation to cash flow hedges which meet the criteria for hedge accounting, the portion of the gain or loss on the hedging instrument that 
is determined to be an effective hedge is recognized initially in other reserves under equity and the ineffective portion, if any, is recognized 
in the consolidated statement of profit or loss. For cash flow hedges affecting future transactions, the gains or losses recognized in other 
reserves, are transferred to the consolidated statement of profit or loss in the same period in which the hedged transaction affects the 
consolidated statement of profit or loss. However, if the Group expects that all or a portion of a loss recognized in consolidated statement 
of other comprehensive income will not be recovered in one or more future periods, it shall reclassify into the consolidated statement of 
profit or loss as a reclassification adjustment the amount that is not to be recognized. 
Hedge accounting is discontinued when the hedging instrument is expired or sold, terminated or exercised, or no longer qualifies for hedge 
accounting, or the forecast transaction is no longer expected to occur or the Group revokes the designation then hedge accounting is 
discontinued prospectively. At that point of time, any cumulative gain or loss on the cash flow hedging instrument that was recognized in 
other reserves from the period when the hedge was effective is transferred from equity to the consolidated statement of profit or loss 
when the forecasted transaction occurs. Where the hedged forecasted transaction is no longer expected to occur and affect the 
consolidated statement of profit or loss, the net cumulative gain or loss recognized in other reserves is transferred immediately to the 
consolidated statement of profit or loss. 
(c) 
Embedded derivatives 
Derivatives may be embedded in another contractual arrangement (a host contract). The Group accounts for an embedded derivative 
separately from the host contract when: 
• 
the host contract is not an asset in the scope of IFRS 9; 
• 
hybrid contract is not measured at FVTPL 
• 
the terms of the embedded derivative would meet the definition of a derivative if they were contained in a separate contract; & 
• 
the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks 
of the host contract. 
Separated embedded derivatives are measured at fair values with all changes in fair value recognized in the consolida