Via ODiSy March 22, 2012 PHILIPPINE STOCK EXCHANGE ... - BDO

- 34 -3.01 Critical Management Judgments in Applying Accounting PoliciesIn the process of applying BDO Unibank Group’s accounting policies, management hasmade the following judgments, apart from those involving estimation, which have themost significant effect on the amounts recognized in the financial statements:(a) HTM InvestmentsBDO Unibank Group follows the guidance of PAS 39 in classifying non-derivativefinancial assets with fixed or determinable payments and fixed maturity as HTM.This classification requires significant judgment. In making this judgment, BDOUnibank Group considers its intention and ability to hold such investments tomaturity. Management has confirmed its intention and determined its ability to holdthe investments up to maturity.If BDO Unibank Group fails to keep these investments at maturity (other than forthe allowed specific circumstances, e.g., selling more than an insignificant amountclose to maturity), it will be required to reclassify the entire class to AFS securities.The investments would therefore be measured at fair value and not at amortizedcost.However, the tainting provision will not apply if the sales or reclassifications ofHTM investments: (i) are so close to maturity or the financial asset’s call date thatchanges in the market rate of interest would not have a significant effect on thefinancial asset’s fair value; (ii) occur after BDO Unibank Group has collectedsubstantially all of the financial asset’s original principal through scheduledpayments or prepayments; or, (iii) are attributable to an isolated event that is beyondthe control of BDO Unibank Group, is nonrecurring and could not have beenreasonably anticipated by BDO Unibank Group.(b) Impairment of AFS SecuritiesBDO Unibank Group follows the guidance of PAS 39 in determining when aninvestment is permanently impaired. This determination requires significantjudgment. In making this judgment, BDO Unibank Group evaluates, among otherfactors, the duration and extent to which the fair value of an investment is less thanits cost; and the financial health of and near-term business outlook for the investee,including factors such as industry and sector performance, changes in technologyand operational and financing cash flow. For investments issued by counterpartyunder bankruptcy, BDO Unibank Group determines permanent impairment basedon the price of the most recent transaction and on latest indications obtained fromreputable counterparties (which regularly quote prices for distressed securities) sincecurrent bid prices are no longer available.(c) Distinction Between Investment Properties and Owner-occupied PropertiesBDO Unibank Group determines whether a property qualifies as investmentproperty. In making its judgment, BDO Unibank Group considers whether theproperty generates cash flows largely independent of the other assets held by BDOUnibank Group. Owner-occupied properties generate cash flows that areattributable not only to other assets used in the production or supply process.