2011 Annual Report - BDO

NOTES TOFINANCIAL STATEMENTS(d) AFS SecuritiesThis category includes non-derivative financial assets that are either designated to thiscategory or do not qualify for inclusion in any of the other categories of financial assets.The Bank’s AFS securities include listed and unquoted equity securities, sovereign andcorporate bonds.All financial assets within this category are subsequently measured at fair value. Gainsand losses from changes in fair value are recognized in other comprehensive income andare reported as part of Unrealized Fair Value Gains (Losses) on AFS Securities accountin equity. When the financial asset is disposed of or is determined to be impaired,the cumulative fair value gains or losses recognized in other comprehensive income isreclassified from equity to profit or loss and is presented as reclassification adjustmentwithin other comprehensive income.Reversal of impairment losses are recognized in other comprehensive income, except forfinancial assets that are debt securities which are recognized in profit or loss only if thereversal can be objectively related to an event occurring after the impairment loss wasrecognized.For investments that are actively traded in organized financial markets, fair value isdetermined by reference to exchange-quoted market bid prices at the close of businesson the reporting period. For investments where there is no quoted market price, fairvalue is determined by reference to the current market value of another instrumentwhich is substantially the same or is calculated based on the expected cash flows of theunderlying net asset base of the investment.Non-compounding interest, dividend income and other cash flows resulting fromholding financial assets are recognized in profit or loss when earned, regardless of howthe related carrying amount of financial assets is measured.The financial assets are derecognized when the contractual rights to receive cash flowsfrom the financial instruments expire, or when the financial assets and all substantial risksand rewards of ownership have been transferred.2.03.02 Derivative Financial InstrumentsThe Bank is a party to various foreign currency forward contracts, cross-currency and interestrate swaps, and credit default swaps (CDS). These contracts are entered into as a service tocustomers and as a means of reducing or managing the Bank’s foreign exchange and interestrate exposure as well as for trading purposes.Derivatives are initially recognized at fair value on the date on which a derivative contract isentered into and are subsequently remeasured at their fair value except for CDS embeddedin CLNs linked to ROP bonds which the Bank reclassified to loans and receivables