IBERSOL | Annual Report 2021

CONSOLIDATED FINANCIAL STATEMENTS Cash flow hedge In an operation to hedge the exposure to future cash-flows of an asset or liability (“cash-flow hedge”), the effective part of the fair value changes in the hedging de- rivative are recognizes in equity; the ineffective part of the hedging is recognized in the income statement when it occurs. Net investment hedge Currently, Ibersol does not consider the realization of currency hedging on net in- vestments in foreign operating units (subsidiaries), as it is not significantly exposed to foreign exchange gains and losses on monetary items that in substance can be considered as a net investment in foreign operations. The Group has well identified the nature of the involved risks, guarantees through its software that each hedge instrument is followed under the Group’s risk policy, re- cording thorough and formally the hedges relationships; the hedges goal and strat- egy; classification of the hedges relationship; description of the nature of the risk that’s being cover; identification of the hedge instrument and covered item; descrip- tion of initial measure and future effectiveness of the hedge; identification of the excluded, if any, part of the hedge instrument. The Group will consider discontinued an hedge instrument when it is sold, expires or is realised; the hedge ceases to fulfil the hedge accounting criteria; for the cash flow hedge the expected transaction in unlikely or unexpected; the Group cancels the hedge instruments for managing reasons.. 2.23 CONSOLIDATED STATEMENT OF CASH FLOWS The Cash Flow Statement is prepared using the direct method, through which cash receipts and payments in operating, investing and financing activities are disclosed. Operating activities include receipts from customers, payments to suppliers, pay- ments to personnel and others related to operating activity, namely income tax. Investment activities include, in particular, acquisitions and disposals of investments in subsidiaries, payments and receipts arising from the purchase and sale of assets and receipts of interest and dividends. Financing activities include payments and re- ceipts related to loans obtained, finance lease contracts, interest paid and dividend payments. Cash and cash equivalents Cash and cash equivalents include amounts recorded in the statement of financial position with a maturity of less than three months from the balance sheet date, which includes cash and cash equivalents at credit institutions. It also includes other short-term investments, of high liquidity, of insignificant risk of change in value and convertible into cash, as well as mandatory sight deposits with Banco de Portugal in order to satisfy the legal requirements of minimum cash reserves. 358