COMPASS GROUP PLC DISCLOSUREOther Disclosures

Market Risk

20 Financial risk management Significant accounting policy Derivative financial instruments and hedge accounting The Group uses derivative financial instruments, such as forward currency contracts and interest rate swaps, to hedge the risks associated with changes in foreign exchange rates and interest rates. Such derivative financial instruments are initially measured at fa ir value on the contract date and are remeasured to fair value at subsequent reporting dates. The use of financial derivatives is governed by the Group’s policies approved by the Board that provide written principles on the use of financial derivatives consistent with the Group’s risk management strategy. The Group does not use derivative financial instruments for speculative purposes. The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. The fair value of interest rate swaps is determined by reference to market values for similar instrument s. For the purpose of hedge accounting, hedges are classified as either fair value hedges when they hedge the exposure to change s in the fair value of a recognised asset or liability or an unrecognised firm commitment, or net investment hedges where they hedg e the exposure to foreign currency arising from a net investment in foreign operations. On adoption of IFRS 9 Financial Instruments, the Group elected to continue to apply hedge accounting guidance in IAS 39 Finan cial Instruments: Recognition and Measurement. Fair value hedges In relation to fair value hedges which meet the conditions for hedge accounting, any gain or loss from remeasuring the hedging instrument at fair value is recognised immediately in the consolidated income statement. Any gain or loss on the hedged item attr ibutable to the hedged risk is adjusted against the carrying amount of the hedged item and recognised in the consolidated income statement. Where the adjustment is to an unrecognised firm commitment, an asset or liability is recognised on the balance sheet . When the hedged transaction occurs, that asset or liability is recognised in the initial measurement of the acquisition cost and carrying amount of the asset or liability. Where the adjustment is to the carrying amount of a hedged interest -bearing financial instrument, the adjustment is amortised to the net profit and