2.22 Accounts receivable Receivables are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment if any. A provision for impairment of accounts receivables is made when there is objective evidence that the Group will not be able to collect all amounts due according to original terms of receivables. The amount of such provision is the difference between accounts receivable’s carrying amount and the present value of estimated future cash inflows, discounted at the effective interest rate. The carrying amount of the accounts receivable is reduced through a loss being recognized in the income statement. If an accounts receivable becomes uncollectible, it is written off through the income statement. Subsequent recoveries of amounts previously written off are credited to the income statement.
2.23 Taxation Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates used to compute the amount are those that are enacted or substantively enacted, at the reporting date in the countries where the Group operates and generates taxable income. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. Deferred tax is provided using the liability method and temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. The Norwegian subsidiaries are taxed in compliance with the tonnage tax regime for shipping companies in Norway. This scheme entails no tax on profits or tax on dividends from companies within the scheme. Tonnage tax paid under the tonnage tax regime is classified as an operational expense. Net finance income for companies taxed under the tonnage tax regime is adjusted in accordance with the regime regulations and taxed at a rate of 28%.
3. Financial risk management 3.1 Financial risk factors The Group is exposed to but not limited to a variety of financial market risks, operational risks and construction risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance.
3.1.1 Financial market risk Access to financial funding The Group may require additional capital in the future due to unforeseen liabilities or in order for it to take advantage of opportunities for acquisitions, joint ventures, exercise of options or other business opportunities that may be presented to it. Any negative development in sales, gross margins or sales processes may lead to a strained liquidity position and the potential need for additional funding through equity financing, debt financing or other means. Any additional equity financing may be dilutive to existing shareholders.
Future contract awards As is customary in the industry, contracts for Polarcus’ services are occasionally modified by mutual consent and in certain instances they may be cancelled by the customer at short notice without penalty. Consequently, Polarcus’ backlog as of any particular date may not be indicative of actual operating results for any succeeding period.
Financial leverage and breach of covenants The financial leverage of the Group or any breach of covenants (or other circumstances which entail loans falling due prior to their final maturity date) may have several adverse consequences, including the need to refinance, restructure, or dispose of certain parts of the Group’s businesses in order to fulfill the Group’s financial obligations.
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