Consolidated Financial Statements 2022 · Page 44

Public Investment Fund and its subsidiaries 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 
(All amounts in million SAR unless otherwise stated) 
Classification: External Confidential 
41 
 
4. 
SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS (continued) 
 
4.22 Fair value measurement of financial instruments (continued) 
 
For assets and liabilities that are recognized in the consolidated financial statements on a recurring basis, the Group determines whether 
transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to 
the fair value measurement as a whole) at the end of each reporting period. 
For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of their nature, characteristics 
and risks of the asset or liability and the level of the fair value hierarchy. 
 
4.23 Provision for expected credit losses on trade receivables 
 
The Group uses a provision matrix to calculate ECLs for trade receivable. The provision rates are based on days past due for groupings of 
various customer segments that have similar loss patterns (i.e., by customer type). The provision matrix is initially based on the Group's 
historical observed default rates. The Group will calibrate the matrix to adjust the historical credit loss experience with forward-looking 
information. For instance, if forecast economic conditions are expected to deteriorate over the next year which can lead to an increased 
number of defaults, the historical default rates are adjusted. At every reporting date, the historical observed default rates are updated and 
changes in the forward-looking estimates are analyzed. 
 
The assessment of the correlation between historical observed default rates, expected loss rates, forecast economic conditions and ECLs is a 
significant estimate. The Group uses judgement in making these assumptions and selecting the inputs of the impairment calculation, based 
on the past history, existing market and conditions as well as forward looking estimates at the end of each reporting period.  The amount of 
ECLs is sensitive to changes in circumstances and of forecast economic conditions. The Group's historical credit loss experience and forecast 
of economic conditions may also not be representative of customer's actual default in the future. 
 
4.24 Impairment on other financial assets 
 
In determining impairment of financial assets, judgement is required in the estimation of the amount and timing of future cash flows as well 
as an assessment of whether the credit risk on the financial asset has increased significantly since initial recognition and incorporation of 
forward-looking information in the measurement of ECL.  
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12-month ECL (stage 1) is the portion of ECL that results from probable default events on a financial instrument within 12 months 
after the reporting date. 
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Lifetime ECL (stage 2) is a probability-weighted estimate of credit losses and is determined based on the difference between the 
present value of all cash shortfalls. The cash shortfall is the difference between all contractual cash flows that are due to the Group 
and the present value of the recoverable amount, for financial assets that are not credit-impaired at the reporting date. 
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For stage 3 financial instruments, the provisions for credit-impairment are determined based on the difference between the ne