Contents | Page(s) | |
Directors' report | 1 - 7 | |
Financial statements: | ||
Balance sheet | 8 | |
Income statement | 9 | |
Statement of comprehensive income | 9 | |
Statement of changes in equity | 10 | |
Statement of cash flows | 11 | |
Notes to the financial statements | 12 - 35 | |
Other information: | ||
Profit appropriation according to the Articles of Association | 36 | |
J.C.P. van Uffelen | (Appointed 6 March 2007) |
S. E. Cheah | (Appointed 13 December 2018) |
S.E.J. Ruigrok | (Appointed 14 July 2021) |
D.M.A. Spreeuwers | (Resigned 26 January 2024) |
P.M. Schraal | (Appointed 26 January 2024) |
S.E. Cheah | P.M. Schraal | |
J.C.P. van Uffelen | S.E.J. Ruigrok | |
As at 31 December | 2023 | 2022 | |
Note | $'000 | $'000 | |
Assets | |||
Non-current assets | |||
Trade and other receivables | 8 | 1,000,000 | 3,500,000 |
Current assets | |||
Financial assets held at fair value through profit and loss | 7 | 24,734,402 | 25,432,597 |
Trade and other receivables | 8 | 79,350 | 92,231 |
Current tax asset | 4,560 | 1,903 | |
Cash and cash equivalents | 9 | 1,394,957 | 2,949,704 |
Total assets | 27,213,269 | 31,976,435 | |
Liabilities | |||
Current liabilities | |||
Financial liabilities designated at fair value through profit or loss | 10 | 18,285,456 | 18,703,642 |
Financial liabilities held at fair value through profit and loss | 11 | 6,448,946 | 6,728,955 |
Trade and other payables | 14 | 1,847,103 | 5,924,898 |
Bank overdraft | 9 | 641 | 12,075 |
Total liabilities | 26,582,146 | 31,369,570 | |
Equity | |||
Capital and reserves attributable to equity shareholders of the Company | |||
Share capital | 15 | 26 | 26 |
Share premium reserve | 499,997 | 499,997 | |
Legal reserve | 2 | 2 | |
Retained earnings | 106,840 | 92,758 | |
Net results | 24,258 | 14,082 | |
Total equity | 631,123 | 606,865 | |
Total liabilities and equity | 27,213,269 | 31,976,435 | |
Year ended 31 December | 2023 | 2022 | |
Note | $'000 | $'000 | |
Fee and commission income | 16 | 21,400 | 30,137 |
Administrative expenses | (19,904) | (29,074) | |
Net foreign exchange (loss)/gain | (45) | 55 | |
Operating profit | 16 | 1,451 | 1,118 |
Interest income | 18 | 200,916 | 128,352 |
Interest expense | 18 | (169,500) | (110,577) |
Net interest income | 31,416 | 17,775 | |
Profit before income tax | 32,867 | 18,893 | |
Income tax expense | 19 | (8,609) | (4,811) |
Profit for the year attributable to equity shareholders of the Company | 24,258 | 14,082 |
Share capital | Share premium reserve | Legal reserve | Retained earnings | Net results | Total | |
$’000 | $’000 | $’000 | $’000 | $’000 | $’000 | |
Balance as at 1 January 2023 | 26 | 499,997 | 2 | 92,758 | 14,082 | 606,865 |
Transfer to retained earnings | — | — | — | 14,082 | (14,082) | — |
Profit for the financial year | — | — | — | — | 24,258 | 24,258 |
Balance as at 31 December 2023 | 26 | 499,997 | 2 | 106,840 | 24,258 | 631,123 |
Balance as at 1 January 2022 | 26 | 499,997 | 2 | 85,135 | 7,623 | 592,783 |
Transfer to retained earnings | — | — | — | 7,623 | (7,623) | — |
Profit for the financial year | — | — | — | — | 14,082 | 14,082 |
Balance as at 31 December 2022 | 26 | 499,997 | 2 | 92,758 | 14,082 | 606,865 |
Year ended 31 December | 2023 | 2022 Restated | |
Note | $'000 | $'000 | |
Cash flow from operating activities | |||
Profit before income tax | 32,867 | 18,893 | |
Income tax | (11,266) | (1,934) | |
Interest received | 18 | (200,916) | (128,352) |
Interest paid | 18 | (169,500) | (110,577) |
Interest expense | 18 | 169,500 | 110,577 |
Net foreign exchange loss/(gain) | 45 | (55) | |
(179,270) | (111,448) | ||
Changes in working capital | |||
Decrease in financial assets held at fair value through profit or loss | 698,195 | 3,269,098 | |
Decrease in trade and other receivables | 12,836 | 217,308 | |
(Decrease)/Increase in financial liabilities held at fair value through profit or loss | (280,009) | 2,289,958 | |
Decrease in financial liabilities designated at fair value through profit or loss | (418,186) | (5,559,055) | |
Decrease in trade and other payables* | (4,077,795) | (808,404) | |
(4,064,959) | (591,095) | ||
Net cash used in operating activities | (4,244,229) | (702,543) | |
Cash flow from investing activities | |||
Change in amounts owed by JPMorgan Chase undertakings | 2,500,000 | (1,000,000) | |
Interest received | 18 | 200,916 | 128,352 |
Net cash generated from/(used in) investing activities | 2,700,916 | (871,648) | |
Cash flow from financing activities | |||
Change in amounts owed to JPMorgan Chase undertakings* | — | — | |
Net cash used in financing activities | — | — | |
Net decrease in cash and cash equivalents | (1,543,313) | (1,574,191) | |
Net cash and cash equivalents at the beginning of the year | 2,937,629 | 4,511,820 | |
Net cash and cash equivalents at the end of the year | 9 | 1,394,316 | 2,937,629 |
EMEA | AMERICAS | APAC | Total | |||||
2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |
$'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | $'000 | |
Interest income | 200,870 | 128,351 | 46 | 1 | — | — | 200,916 | 128,352 |
Fees and commissions income | 21,400 | 30,137 | — | — | — | — | 21,400 | 30,137 |
Total assets | 14,714,560 | 17,765,154 | 5,542,966 | 4,907,664 | 6,955,743 | 9,303,617 | 27,213,269 | 31,976,435 |
2023 | 2022 | |
$'000 | $'000 | |
Debt and equity instruments | 18,265,533 | 16,042,357 |
Derivative receivables | 6,468,869 | 9,390,240 |
Financial assets held at fair value through profit and loss | 24,734,402 | 25,432,597 |
2023 | 2022 | |
$'000 | $'000 | |
Trade and other receivables: amounts falling due after one year | ||
Amounts owed by JPMorgan Chase undertakings | 1,000,000 | 3,500,000 |
1,000,000 | 3,500,000 | |
Trade and other receivables: amounts falling due within one year | ||
Trade and other receivables | 2,975 | 9,468 |
Amounts owed by JPMorgan Chase undertakings | 76,375 | 82,763 |
79,350 | 92,231 |
2023 | 2022 | |
$'000 | $'000 | |
Cash held with JPMorgan Chase undertakings | 1,349,193 | 2,888,897 |
Cash held with third parties | 45,764 | 60,807 |
1,394,957 | 2,949,704 | |
Bank overdraft | ||
Balances due to JPMorgan Chase undertakings | (462) | (11,149) |
Balances due to third parties | (179) | (926) |
(641) | (12,075) | |
Net cash and cash equivalents as reported in the cash flow statement | 1,394,316 | 2,937,629 |
2023 | 2022 | |
$'000 | $'000 | |
Structured notes | 18,285,456 | 18,703,642 |
2023 | 2022 | |
$'000 | $'000 | |
Derivative Payables | 6,448,946 | 6,728,955 |
Product / Instrument | Valuation methodology, inputs and assumptions | Classifications in the valuation hierarchy |
Structured notes | Valuations are based on discounted cash flow analysis that consider the embedded derivative and the terms and payment structure of the note. The embedded derivative features are considered using models such as the Black- Scholes option pricing model, simulation models, or a combination of models that use observable or unobservable valuation inputs, depending on the embedded derivative. The specific inputs used vary according to the nature of the embedded derivative features, as described in the discussion below regarding derivative valuation. Adjustments are then made to this base valuation to reflect the Firm’s own credit risk (DVA). | Level 2 or 3 |
Equity securities | Quoted market prices are used. | Level 1 |
Derivatives and fully funded OTC financial instruments | Derivatives that are valued using models such as the Black-Scholes option pricing model, simulation models, or a combination of models, that use observable or unobservable valuation inputs as well as considering the contractual terms. The key valuation inputs used will depend on the type of derivative and the nature of the underlying instruments and may include equity prices, commodity prices, interest rate yield curves, foreign exchange rates, volatilities, correlations, credit default swaps (“CDS”) spreads and recovery rates. Additionally, the credit quality of the counterparty and of the Firm's as well as market funding levels may also be considered. In addition, specific inputs used for derivatives that are valued based on models with significant unobservable inputs are as follows: Equity option specific inputs include: • Forward equity price • Equity volatility • Equity correlation • Equity - FX correlation • Equity - IR correlation | Level 2 or 3 |
Level 1 | Level 2 | Level 3 | Total | |
$'000 | $'000 | $'000 | $'000 | |
At 31 December 2023 | ||||
Financial assets held at fair value through profit and loss: | ||||
Debt and equity instruments | 197,826 | 8,620,195 | 9,447,512 | 18,265,533 |
Derivative receivables | — | 5,418,286 | 1,050,583 | 6,468,869 |
Total financial assets | 197,826 | 14,038,481 | 10,498,095 | 24,734,402 |
Financial liabilities held at fair value through profit and loss: | ||||
Derivative payables | — | (5,499,766) | (949,180) | (6,448,946) |
Financial liabilities designated at fair value through profit or loss: | ||||
Structured notes | — | (8,661,822) | (9,623,634) | (18,285,456) |
Total financial liabilities | — | (14,161,588) | (10,572,814) | (24,734,402) |
Level 1 | Level 2 | Level 3 | Total | |
$'000 | $'000 | $'000 | $'000 | |
At 31 December 2022 | ||||
Financial assets held at fair value through profit and loss: | ||||
Debt and equity instruments | 133,173 | 8,258,594 | 7,650,590 | 16,042,357 |
Derivative receivables | — | 5,948,285 | 3,441,955 | 9,390,240 |
Total financial assets | 133,173 | 14,206,879 | 11,092,545 | 25,432,597 |
Financial liabilities held at fair value through profit and loss: | ||||
Derivative payables | — | (5,439,205) | (1,289,750) | (6,728,955) |
Financial liabilities designated at fair value through profit or loss: | ||||
Structured notes | — | (8,960,501) | (9,743,141) | (18,703,642) |
Total financial liabilities | — | (14,399,706) | (11,032,891) | (25,432,597) |
Product/instrument | Asset | Liability | Net fair value | Principal valuation technique | Unobservable input | Range of input values | Average (a) |
At 31 December 2023 | $'000 | $'000 | $'000 | ||||
Derivatives and fully funded OTC financial instruments | 10,498,095 | (949,180) | 9,548,915 | Equity correlation (1)% - 99% | 68% | ||
Equity - FX correlation (80)% - 50% | -25% | ||||||
Equity volatility | 7% - 119% | 28% | |||||
Interest rate spread volatility | 27bps - 95bps | 72bps | |||||
FX Derivatives - Interest Rate - FX correlation | 0% - 35% | 9% | |||||
Interest Rate - FX correlation | (20)% – 20% | 2% | |||||
Interest rate correlation | 1% - 60% | 30% | |||||
Structured notes | — | (9,623,634) | (9,623,634) | Option pricing | Equity correlation (1)% - 99% | 68% | |
Equity - FX correlation (80)% - 50% | -25% | ||||||
Equity volatility | 7% - 119% | 28% | |||||
Interest rate spread volatility | 27bps - 95bps | 72bps | |||||
FX Derivatives - Interest Rate - FX correlation | 0% - 35% | 9% | |||||
Interest Rate - FX correlation | (20)% – 20% | 2% | |||||
Interest rate correlation | 1% - 60% | 30% | |||||
Total | 10,498,095 | (10,572,814) | (74,719) |
Product/instrument | Asset | Liability | Net fair value | Principal valuation technique | Unobservable input | Range of input values | Average (a) |
At 31 December 2022 | $'000 | $'000 | $'000 | ||||
Derivatives and fully funded OTC financial instruments | 11,092,545 | (1,289,750) | 9,802,795 | Option pricing | Equity correlation 33% - 100% | 67% | |
Equity - FX correlation (86)% - 49% | -32% | ||||||
Equity - Interest rate (5)% - (5)% correlation | -5% | ||||||
Equity volatility | 13% - 107% | 38% | |||||
Interest rate spread volatility | 32bps - 149bps | 76bps | |||||
FX Derivatives - Interest Rate - FX correlation | 0% - 50% | 14% | |||||
Interest Rate - FX correlation | (20)% – 20% | 0% | |||||
Interest rate correlation | 1% - 60% | 25% | |||||
Structured notes | — | (9,743,141) | (9,743,141) | Option pricing | Equity correlation 33% - 100% | 67% | |
Equity - FX correlation (86)% - 49% | -32% | ||||||
Equity - Interest rate (5)% - (5)% correlation | -5% | ||||||
Equity volatility | 13% - 107% | 38% | |||||
Interest rate spread volatility | 32bps - 149bps | 76bps | |||||
FX Derivatives - Interest Rate - FX correlation | 0% - 50% | 14% | |||||
Interest Rate - FX correlation | (20)% – 20% | 0% | |||||
Interest rate correlation | 1% - 60% | 25% | |||||
Total | 11,092,545 | (11,032,891) | 59,654 |
Financial assets | Debt & Equity Instrument | Derivative receivables | Total financial assets |
$'000 | $'000 | $'000 | |
At 1 January | 7,650,590 | 3,441,955 | 11,092,545 |
Total loss recognised in income statement | (80,754) | (432,803) | (513,557) |
Purchases | 8,975,076 | 882,614 | 9,857,690 |
Settlements | (6,984,490) | (2,434,942) | (9,419,432) |
Transfers in to level 3 | 286,980 | 367,584 | 654,564 |
Transfers out of level 3 | (399,890) | (773,825) | (1,173,715) |
At 31 December | 9,447,512 | 1,050,583 | 10,498,095 |
Change in unrealised gain related to financial instruments held at 31 December | 136,942 | 211,457 | 348,399 |
Financial liabilities | Derivative payables | Financial liabilities designated at FVTPL | Total financial liabilities |
$'000 | $'000 | $'000 | |
At 1 January | 1,289,750 | 9,743,141 | 11,032,891 |
Total (gain)/loss recognised in income statement | (243,208) | 530,270 | 287,062 |
Purchases | 604,870 | — | 604,870 |
Issuances | (5) | 8,869,479 | 8,869,474 |
Settlements | (533,726) | (9,560,485) | (10,094,211) |
Transfers in to level 3 | 26,855 | 213,271 | 240,126 |
Transfers out of level 3 | (195,356) | (172,042) | (367,398) |
At 31 December | 949,180 | 9,623,634 | 10,572,814 |
Change in unrealised loss related to financial instruments held at 31 December | 219,266 | 151,243 | 370,509 |
Financial assets | Debt & Equity Instrument | Derivative receivables | Total financial assets |
$'000 | $'000 | $'000 | |
At 1 January | 10,111,063 | 2,256,652 | 12,367,715 |
Total loss recognised in income statement | (1,566,674) | (1,128,525) | (2,695,199) |
Purchases | 6,901,565 | 2,507,337 | 9,408,902 |
Settlements | (7,797,989) | (169,211) | (7,967,200) |
Transfers in to level 3 | 340,044 | 20,639 | 360,683 |
Transfers out of level 3 | (337,419) | (44,937) | (382,356) |
At 31 December | 7,650,590 | 3,441,955 | 11,092,545 |
Change in unrealised loss related to financial instruments held at 31 December | (143,929) | (187,762) | (331,691) |
Financial liabilities | Derivative payables | Financial liabilities designated at FVTPL | Total financial liabilities |
$'000 | $'000 | $'000 | |
At 1 January | 1,044,812 | 11,326,631 | 12,371,443 |
Total gain recognised in income statement | (592,423) | (1,423,067) | (2,015,490) |
Purchases | 1,468,892 | — | 1,468,892 |
Issuances | — | 8,224,947 | 8,224,947 |
Settlements | (573,662) | (8,470,124) | (9,043,786) |
Transfers in to level 3 | 1,100 | 325,908 | 327,008 |
Transfers out of level 3 | (58,969) | (241,154) | (300,123) |
At 31 December | 1,289,750 | 9,743,141 | 11,032,891 |
Change in unrealised loss/(gain) related to financial instruments held at 31 December | 185,349 | (521,807) | (336,458) |
2023 | 2022 | |
$'000 | $'000 | |
Trade payables | 59,235 | 25,417 |
Amounts owed to JPMorgan Chase undertakings | 1,787,868 | 5,899,481 |
1,847,103 | 5,924,898 |
2023 | 2022 | |
€'000 | €'000 | |
Authorised share capital | ||
90,000 (2022: 90,000) Ordinary shares of €1.00 each | 90 | 90 |
2023 | 2022 | |
$'000 | $'000 | |
Issued and fully paid share capital | ||
20,000 (2022: 20,000) Ordinary shares of €1.00 each | 26 | 26 |
2023 | 2022 | |
$'000 | $'000 | |
Net (loss)/gain on financial liabilities designated at FVTPL | (1,034,182) | 1,743,181 |
Net gain/(loss) on financial assets and liabilities held at FVTPL | 1,034,182 | (1,743,181) |
— | — |
Description audit fee type | PwC Netherlands | Other PwC network firms | 2023 Total | PwC Netherlands | Other PwC network firms | 2022 Total |
$'000 | $'000 | $'000 | $'000 | $'000 | $'000 | |
Audit services (Excl VAT) | 70 | 220 | 290 | 63 | 208 | 271 |
Other Audit Services (Excl VAT) | 11 | — | 11 | 17 | — | 17 |
2023 | 2022 | |
Income tax expense: | $'000 | $'000 |
Current tax | 8,609 | 4,792 |
Adjustment in respect of previous years | — | 19 |
Tax on profit | 8,609 | 4,811 |
Profit for the year before tax | 32,867 | 18,893 |
Tax calculated at applicable tax rates | 8,465 | 4,792 |
Expenses not deductible | 144 | — |
Adjustments in respect of previous years | — | 19 |
Income tax expense | 8,609 | 4,811 |
Non-TCP | ||
Balance sheet categories | 2023 | 2022 |
$'000 | $'000 | |
Assets | ||
Trade and other receivables | 1,079,350 | 3,592,231 |
Cash and cash equivalents | 1,394,957 | 2,949,704 |
Gross balance sheet exposure (a) | Exposures captured by market risk | Risk mitigants | Net credit exposure | Net balance sheet exposure held with: | |||
Master netting agreements and other | JPMorgan Chase undertakings | External counter parties | |||||
$'000 | $'000 | $'000 | $'000 | $'000 | $'000 | ||
Financial assets at 31 December 2023 | |||||||
Cash and cash equivalents | 1,394,957 | — | — | 1,394,957 | 1,349,193 | 45,764 | |
Financial assets held at fair value through profit and loss | 24,734,402 | (18,265,533) | (5,871,617) | 597,252 | 597,252 | — | |
Trade and other receivables | 1,079,350 | — | — | 1,079,350 | 1,076,375 | 2,975 | |
Total | 27,208,709 | (18,265,533) | (5,871,617) | 3,071,559 | 3,022,820 | 48,739 |
Gross balance sheet exposure (a) | Exposures captured by market risk | Risk mitigants | Net credit exposure | Net balance sheet exposure held with: | |||
Master netting agreements and other | JPMorgan Chase undertakings | External counter parties | |||||
$'000 | $'000 | $'000 | $'000 | $'000 | $'000 | ||
Financial assets at 31 December 2022 | |||||||
Cash and cash equivalents | 2,949,704 | — | — | 2,949,704 | 2,888,897 | 60,807 | |
Financial assets held at fair value through profit and loss | 25,432,597 | (16,042,357) | (6,260,484) | 3,129,756 | 3,129,756 | — | |
Trade and other receivables | 3,592,231 | — | — | 3,592,231 | 3,582,763 | 9,468 | |
Total | 31,974,532 | (16,042,357) | (6,260,484) | 9,671,691 | 9,601,416 | 70,275 |
2023 | 2022 | |
Less than | Less than | |
1 year | 1 year | |
$'000 | $'000 | |
Financial liabilities designated at fair value through profit or loss | 18,285,456 | 18,703,642 |
Financial liabilities held at fair value through profit and loss | 6,448,946 | 6,728,955 |
Bank overdraft | 641 | 12,075 |
Trade and other payables | 1,847,103 | 5,924,898 |
26,582,146 | 31,369,570 |
JPMorgan Chase | JPMorgan Chase | |||
undertakings | undertakings | |||
31 December 2023 | 31 December 2022 | |||
$'000 | $'000 | |||
Financial assets held at fair value through profit or loss | 24,508,365 | 25,271,206 | ||
Trade and other receivables | 1,076,375 | 3,582,763 | ||
Cash and cash equivalents | 1,349,193 | 2,888,897 | ||
Financial liabilities held at fair value through profit or loss | (5,877,754) | (6,260,251) | ||
Financial liabilities designated at fair value through profit or loss | (2,256,415) | (2,378,553) | ||
Trade and other payables | (1,787,868) | (5,899,481) | ||
Bank overdraft | (462) | (11,149) |
JPMorgan Chase | JPMorgan Chase | |||
undertakings | undertakings | |||
31 December 2023 | 31 December 2022 | |||
$'000 | $'000 | |||
Net gains/(loss) | 380,430 | (2,272,332) | ||
Fees and commission income | 21,400 | 30,137 | ||
Administrative expenses | (832) | (1,042) | ||
Net interest income | 33,326 | 17,775 |
S.E. Cheah | P.M. Schraal | |
J.C.P. van Uffelen | S.E.J. Ruigrok | |
Overall materiality | USD 272.1 million (2022: USD 319.8 million). |
Basis for determining materiality | We used our professional judgement to determine overall materiality. As a basis for our judgement, we used 1% of total assets. |
Rationale for benchmark applied | We used total assets as the primary benchmark, a generally accepted auditing practice, based on our analysis of the common information needs of the users of the financial statements. We believe that profit before tax is not an appropriate bechmark as profitability is not the main indicator of the financial performance of the Company. The purpose of the Company is solely the issuance of structured products, hence total assets is considered the most relevant and suitable benchmark. |
Identified fraud risks | Our audit work and observations |
The risk of management override of control The directors are in a unique position to perpetrate fraud, because of the board of directors ability to manipulate accounting records and prepare fraudulent financial statements by overriding controls that otherwise appear to be operating effectively. That is why, in all our audits, we pay attention to the risk of management override of controls in: a. the appropriateness of journal entries and other adjustments made in the preparation of the financial statements; b. determining significant accounting estimates; and c. significant transactions, if any, outside the normal course of business for the entity. | We performed the following specific procedures: a. identification and testing of journal entries with specific risk characteristics, in particular any journal entries posted by the board of directors; and b. challenging assumptions and judgements made by the board of directors in their significant accounting estimates, in particularly in relation to the valuation of financial instruments. Our work did not lead to specific indications of fraud or suspicions of fraud regarding the risk of management override of control by the board of directors. |
Key audit matter | Our audit work and observations |
Valuation of the notes, warrants and derivatives, and hedging transactions with other group companies Refer to the accounting policies note 4.3.1.subsection ‘Financial assets and financial liabilities measured at fair value through profit or loss’, ‘Financial assets and financial liabilities designated at fair value through profit or loss’, note 4.4 ‘Fair value’, note 5 ‘Critical accounting estimates and judgements’, note 7 ‘Financial assets held at fair value through profit and loss’, note 10 ‘Financial liabilities designated at fair value through profit or loss’, note 11 ‘Financial liabilities held at fair value through profit and loss’ and note 12 ‘Assets and liabilities at fair value’. Financial liabilities designated at fair value through profit or loss and financial liabilities held at fair value through profit and loss, and the equivalent amount in financial assets held at fair value through profit or loss amount to USD 24,734 million as at 31 December 20 Financial liabilities designated at fair value through profit or loss consist of structured notes. Financial liabilities held at fair value through profit or loss consist of market participant warrants and derivative-linked products with financial institutions and high-net-worth individuals. These financial liabilities, specifically debt instruments, are issued with embedded derivatives for which the valuation is determined using valuation models and pricing inputs, which involve the board of directors judgement for level 2 and level 3 instruments. The market risk associated with movements in the fair value of the structured note liabilities is offset by the hedging transactions with other group companies. The fair value of these financial instruments are determined using valuation methods that involve varying degrees of judgement. In exercising judgement, the board of directors determines the most appropriate assumptions and valuation methodologies. The valuation of more complex and less liquid derivative financial instruments can have greater estimation uncertainty where a limited or no active market exists and therefore there is less observable evidence to support the valuations. We consider the valuation of the notes and hedging transactions to be a key audit matter, given the magnitude of the assets and liabilities held, the nature of these positions and the audit effort required. Refer to Note 4, Note 5 and Note 12 to the financial statements for further details of fair value measurement of financial instruments as a critical accounting estimate and judgement. | We understood and evaluated the design and tested the operating effectiveness of key controls over the valuation of financial instruments held at fair value. This included: a. Assessing the design and testing the operating effectiveness of the independent relevant price verification controls, including assessing the third party pricing sources used; b. Engaging our valuation experts to assess model validation and approval controls; and c. Evaluating and testing controls over data feeds and market information. We noted no significant exceptions in the design or operating effectiveness of these controls, and we determined we could rely on these controls for the purposes of our audit. In addition, we performed the substantive testing described below: a. We utilised our valuation experts to revalue a sample of instruments using our models and pricing information from independent sources where possible. For samples where we utilised the board of directors inputs to revalue the instruments, we assessed the reasonableness of the inputs used; b. We examined collateral disputes and other events which could provide evidence about the appropriateness of the valuations; c. We tested the completeness and accuracy of the economic hedging transactions; and d. We evaluated the adequacy of the disclosures relating to the valuation of financial assets held at fair value through profit and loss, financial liabilities designated at fair value through profit or loss and financial liabilities held at fair value through profit and loss for compliance with the disclosure requirements included in EU-IFRS. Based on the work performed, we found the board of directors estimates of the fair value of these financial instruments to be supported by the evidence obtained and appropriately disclosed. |