FAIR VALUE OF FINANCIAL INSTRUMENTS |
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Disclosure of detailed information about financial instruments [abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disclosure of fair value measurement of equity [text block] | FAIR VALUE OF FINANCIAL INSTRUMENTS a) Financial Instruments Classification The following tables list the company’s financial instruments by their respective classification as at December 31, 2021 and 2020:
1.Financial assets include $10.1 billion of assets pledged as collateral. 2.Includes derivative instruments which are elected for hedge accounting, totaling $1.1 billion included in accounts receivable and other and $1.5 billion included in accounts payable and other, for which changes in fair value are recorded in other comprehensive income.
1.Financial assets include $9.7 billion of assets pledged as collateral. 2.Includes a shareholder loan of $500 million receivable from our U.S. gas pipeline. 3.Includes derivative instruments which are elected for hedge accounting, totaling $888 million included in accounts receivable and other and $2.4 billion included in accounts payable and other, for which changes in fair value are recorded in other comprehensive income. Gains or losses arising from changes in fair value through profit or loss (“FVTPL”) financial assets are presented in the Consolidated Statements of Operations in the period in which they arise. Dividends from FVTPL and fair value through other comprehensive income (“FVTOCI”) financial assets are recognized in the Consolidated Statements of Operations when the company’s right to receive payment is established. Interest on FVTOCI financial assets is calculated using the effective interest method and reported in the Consolidated Statements of Operations. FVTOCI debt and equity securities are recorded on the balance sheet at fair value with changes in FVTOCI. As at December 31, 2021, the unrealized gains and losses relating to the fair value of FVTOCI securities amounted to $996 million (2020 – $916 million) and $213 million (2020 – $322 million), respectively. During the year ended December 31, 2021, net deferred income of $1 million (2020 – losses of $7 million) previously recognized in accumulated other comprehensive income were reclassified to net income as a result of the disposition or impairment of certain of our FVTOCI financial assets that are not equity instruments. Included in cash and cash equivalents is cash of $10.8 billion (2020 – $8.2 billion) and short-term deposits of $1.9 billion (2020 – $1.8 billion) as at December 31, 2021. b) Carrying and Fair Value The following table lists the company’s financial instruments by their respective classification as at December 31, 2021 and 2020:
The current and non-current balances of other financial assets are as follows:
c) Fair Value Hierarchy Levels The following table categorizes financial assets and liabilities, which are carried at fair value, based upon the fair value hierarchy levels:
During the year ended December 31, 2021 and 2020, there were no transfers between Level 1, 2 or 3. Fair values of financial instruments are determined by reference to quoted bid or ask prices, as appropriate. If bid and ask prices are unavailable, the closing price of the most recent transaction of that instrument is used. In the absence of an active market, fair values are determined based on prevailing market rates for instruments with similar characteristics and risk profiles or internal or external valuation models, such as option pricing models and discounted cash flow analysis, using observable market inputs. The following table summarizes the valuation techniques and key inputs used in the fair value measurement of Level 2 financial instruments:
Fair values determined using valuation models requiring the use of unobservable inputs (Level 3 financial assets and liabilities) include assumptions concerning the amount and timing of estimated future cash flows and discount rates. In determining those unobservable inputs, the company uses observable external market inputs such as interest rate yield curves, currency rates and price and rate volatilities, as applicable, to develop assumptions regarding those unobservable inputs. The following table summarizes the valuation techniques and significant unobservable inputs used in the fair value measurement of Level 3 financial instruments:
The following table presents the changes in the balance of financial assets and liabilities classified as Level 3 for the years ended December 31, 2021 and 2020:
1.Includes foreign currency translation. The following table categorizes liabilities measured at amortized cost, but for which fair values are disclosed based upon the fair value hierarchy levels:
Fair values of Level 2 and Level 3 liabilities measured at amortized cost but for which fair values are disclosed are determined using valuation techniques such as adjusted public pricing and discounted cash flows. d) Hedging Activities The company uses derivatives and non-derivative financial instruments to manage or maintain exposures to interest, currency, credit and other market risks. Derivative financial instruments are recorded at fair value. For certain derivatives which are used to manage exposures, the company determines whether hedge accounting can be applied. Hedge accounting is applied when the derivative is designated as a hedge of a specific exposure and there is assurance that it will continue to be highly effective as a hedge based on an expectation of offsetting cash flows or fair value. Hedge accounting is discontinued prospectively when the derivative no longer qualifies as a hedge or the hedging relationship is terminated. Once discontinued, the cumulative change in fair value of a derivative that was previously recorded in other comprehensive income by the application of hedge accounting is recognized in profit or loss over the remaining term of the original hedging relationship as amounts related to the hedged item are recognized in profit or loss. The assets or liabilities relating to unrealized mark-to-market gains and losses on derivative financial instruments are recorded in financial assets and liabilities, respectively. i. Cash Flow Hedges The company uses the following cash flow hedges: energy derivative contracts to hedge the sale of power; interest rate swaps to hedge the variability in cash flows or future cash flows related to a variable rate asset or liability; and equity derivatives to hedge long-term compensation arrangements. For the year ended December 31, 2021, pre-tax net unrealized gains of $582 million (2020 – net unrealized losses of $479 million) were recorded in other comprehensive income for the effective portion of the cash flow hedges. As at December 31, 2021, there was an unrealized derivative liability balance of $232 million relating to derivative contracts designated as cash flow hedges (2020 – liability of $689 million). ii. Net Investment Hedges The company uses foreign exchange contracts and foreign currency denominated debt instruments to manage its foreign currency exposures arising from net investments in foreign operations. For the year ended December 31, 2021, unrealized pre-tax net gains of $407 million (2020 – losses of $182 million) were recorded in other comprehensive income for the effective portion of hedges of net investments in foreign operations. As at December 31, 2021, there was an unrealized derivative liability balance of $163 million relating to derivative contracts designated as net investment hedges (2020 – liability of $868 million). e) Netting of Financial Instruments Financial assets and liabilities are offset with the net amount reported in the Consolidated Balance Sheets, where the company currently has a legally enforceable right to offset and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously. The company enters into derivative transactions under International Swaps and Derivatives Association (“ISDA”) master netting agreements. In general, under such agreements the amounts owed by each counterparty on a single day are aggregated into a single net amount that is payable by one party to the other. The agreements provide the company with the legal and enforceable right to offset these amounts and accordingly the following balances are presented net in the consolidated financial statements:
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