11 JULY 2011 NEW ZEALAND GAZETTE, No. 101 2911

Otago Community Trust

Notes to the financial statements

Significant accounting policies (continued)

(k) New standards adopted and interpretations not yet adopted

Certain new accounting standards have been published that are not mandatory for the current reporting period. It is not expected that these standards will have any material impact on the financial statements. See Note 26 for details of the impact of a change to the manner in which deferred tax is accounted for on investment properties carried at fair value.

4. Determination of fair values

A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. Where applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

(a) Investment property

An external, independent valuation company, having appropriate recognised professional qualifications and recent experience in the location and category of property being valued, values the Group’s investment property on an annual basis. The fair values are based on market values, being the estimated amount for which a property could be exchanged on the date of the valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. The discounted cashflow technique is also applied as a cross-check of the valuation.

(b) Investments in equity and debt securities

For investments that are actively traded in organised financial markets, fair value is determined by reference to exchange quoted market bid prices at the close of business on the Statement of Financial Position date. Investments in pooled funds are valued at the unit exit price determined by the Fund Manager at the close of business on the Statement of Position date.

(c) Trade and other receivables

The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date.

(d) Derivatives

The fair value of forward exchange contracts is based on their listed market price, if available. If a listed market price is not available, then fair value is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate (based on government bonds).

The fair value of interest rate swaps is based on broker quotes. Those quotes are tested for reasonableness by discounting estimated future cash flows based on the terms and maturity of each contract and using market interest rates for a similar instrument at the measurement date.

(e) Fair Value Hierarchy

For those instruments recognised at fair value in the balance sheet, fair values are determined according to the following hierarchy:

• Quoted market price (level 1) – Financial instruments with quoted prices for identical instruments in active markets.
• Valuation technique using observable inputs (level 2) – Financial instruments with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models where all significant inputs are observable.
• Valuation technique with significant non-observable inputs (level 3) – Financial instruments valued using models where one or more significant inputs are not observable.

The Trust’s managed investments are classified as level 2. There were no transfers between different levels and no financial instruments fall under levels 1. Changing the value assumption to a reasonable possible alternative would not significantly change fair value.