2012 Annual Report - Financial Statements (English) - Khaleeji ...

KHALEEJI COMMERCIAL BANK BSCNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 20122 SIGNIFICANT ACCOUNTING POLICIES (continued)(c)Basis of consolidation (continued)(i)Subsidiaries (continued)if, based on an evaluation of the substance of its relationship with the Group and the risks and rewards transferred by the SPE,the Group concludes that it controls the SPE. The assessment of whether the Group has control over an SPE is carried out atinception and normally no further reassessment of control is carried out in the absence of changes in the structure or terms of theSPE, or additional transactions between the Group and the SPE. Where the Group’s voluntary actions, such as lending amountsin excess of existing liquidity facilities or extending terms beyond those established originally, change the relationship betweenthe Group and an SPE, the Group performs a reassessment of control over the SPE. The Group in its fiduciary capacity managesand administers assets held in trust and other investment vehicles on behalf of investors.The financial statements of these entities are not included in these consolidated financial statements except when the Groupcontrols the entity. Information about the Group’s fiduciary assets under management is set out in note 22.(ii)AssociatesAssociates are those enterprises in which the Group holds, directly or indirectly, more than 20% of the voting power and exercisessignificant influence, but not control, over the financial and operating policies.Investments in associates are initially recognised at cost and the carrying amount is increased or decreased to recognise theinvestor’s share of the profit or loss of the investee after the date of acquisition. Distributions received from an investee reducethe carrying amount of the investment. Adjustments to the carrying amount may also be necessary for changes in the investor’sproportionate interest in the investee arising from changes in the investee’s equity. When the Group’s share of losses exceeds itsinterest in an associate, the Group’s carrying amount is reduced to nil and recognition of further losses is discontinued, except tothe extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.(iii) Transactions eliminated on consolidationIntra-group balances and transactions, and any unrealised gains arising from intra-group transactions, are eliminated in preparingthe consolidated financial statements. Intra-group gains on transactions between the Group and its equity accounted associatesare eliminated to the extent of the Group’s interest in the investees. Unrealised losses are also eliminated in the same way asunrealised gains, but only to the extent that there is no evidence of impairment. Accounting policies of the subsidiaries andassociates have been changed where necessary to ensure consistency with the policies adopted by the Group.(d)Foreign currency transactionsItems included in the consolidated financial statements of the Group are measured using the currency of the primary economicenvironment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in BahrainiDinars, which is the Bank’s functional and presentation currency.Foreign currency transactions are translated using the exchange rates prevailing at the dates of the transactions. Foreign exchangegains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetaryassets and liabilities denominated in foreign currencies are recognised in the income statement. Translation differences on nonmonetaryitems carried at their fair value, such as certain equity securities measured at fair value through equity, are included ininvestments fair value reserve.The other Group companies functional currencies are either denominated in Bahraini dinars or US dollars which is effectively peggedto the Bahraini dinar. Hence, the translation of financial statements of the group entities that have a functional currency different fromthe presentation currency do not result in exchange differences.(e)Investment securitiesInvestment securities comprise equity investments and investments in sukuk (Islamic bonds). Investment securities exclude investmentsin subsidiaries and equity accounted associate companies (refer note 2(c)).(i)ClassificationThe Group segregates its investment securities into debt-type instruments and equity-type instruments. Debt-type instrumentsare investments that have terms that provide fixed or determinable payments of profits and capital. Equity-type instruments areinvestments that do not exhibit features of debt-type instruments and include instruments that evidence a residual interest in theassets of an entity after deducting all its liabilities.debt-type Instruments:Investments in debt-type instruments are classified in the following categories: 1) at amortised cost or 2) at fair value throughincome statement (FVTIS).Consolidated Financial Statements25