Bahamas - FirstCaribbean International Bank

Notes to the Consolidated Financial Statements
October 31, 2007
(expressed in thousands of Bahamian dollars)
2. Summary of significant accounting policies (continued)
2.2 Significant accounting judgments and estimates
In the process of applying the Bank’s accounting policies, management
has used its judgments and made estimates in determining the amounts
recognised in the financial statements. The most significant use of judgments
and estimates are as follows:
Impairment losses on loans and advances
The Bank reviews its loan portfolios to assess impairment at least on a quarterly
basis. In determining whether an impairment loss should be recorded in
the consolidated statement of income, the Bank makes judgements as to
whether there is any objective evidence indicating that there is a measurable
decrease in the estimated future cash flows from a portfolio of loans before
the decrease can be identified with an individual loan in that portfolio. This
evidence may include observable data indicating that there has been an
adverse change in the payment status of borrowers in a group, or national
or local economic conditions that correlate with defaults on assets in the
group. Management uses estimates based on historical loss experience for
assets with credit risk characteristics and objective evidence of impairment
similar to those in the portfolio when scheduling its future cash flows. The
methodology and assumptions used for estimating both the amount and
timing of future cash flows are reviewed regularly to reduce any differences
between loss estimates and actual loss experience.
Retirement benefit obligations
Accounting for some retirement benefit obligations requires the use of
actuarial techniques to make a reliable estimate of the amount of benefit
that employees have earned in return for their service in the current and
prior periods. These actuarial assumptions are based on managements’ best
estimates of the variables that will determine the ultimate cost of providing
post-employment benefits and comprise both demographic and financial
assumptions. Variations in the financial assumptions can cause material
adjustments in the next financial year if it is determined that the actual
experience differed from the estimate.
Loan fee recognition estimate
The Bank’s current processes and information technology systems do not
support the proper accounting treatment for loan fee income and the related
direct costs associated with a particular lending arrangement, adjustments to
the effective interest rate and the deferred fee income. As a consequence,
management has to estimate the effect of this treatment.
2.3 Change in accounting policies
The accounting policies adopted are consistent with those used in the
previous financial year except as follows:
During the year, a review of the Bank’s hedge accounting revealed that
existing hedge documentation was not appropriate. Consequently, all
hedges existing as of that date were disqualified from having met the criteria
for hedge accounting. The effect of this was that upon disqualification, the
hedges are treated as if the disqualification existed from inception of the
hedges. On disallowance of the use of hedge accounting, the fair values of
the loans and the bonds were reversed and the bonds that were available for
sale were marked to market through equity.
This change has been applied retrospectively in accordance with IAS 39
Financial Instruments: Recognition and Measurement and consequently the
October 31, 2006 comparative financials have been restated to reflect this
change. The impact on the financial statements as at October 31, 2006 was
to reduce net income attributable to the equity holders of the Bank by $9,972
and total assets by $8,668. Reserves were increased by $474, and opening
retained earnings increased by $830 (see Note 29 (i)).
As of November 1, 2006, the bank changed its accounting policy on the
recognition of all purchases and sales of financial assets at fair value through
profit or loss and available for sale that require delivery within the time frame
established by regulation or market convention (‘regular way’ purchases and
sales) from trade date (which is the date that the Bank commits to purchase or
sell an asset) to settlement date (which is the date that an asset is delivered to
or by the Bank). This change has been applied retrospectively in accordance
with IAS-8 Accounting Policies, Changes in Accounting Estimates and Errors
and consequently the October 31, 2006 comparative financials have been
restated to reflect this policy change (see Note 29 (ii)).
See Auditors’ Report Page 56.
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