2011 Annual Report - BDO

NOTES TOFINANCIAL STATEMENTS(c) Operating LeasesThe Bank has entered into various lease agreements as a lessee. Critical judgment wasexercised by management to distinguish each lease agreement as either an operatingor finance lease by looking at the transfer or retention of significant risk and rewardsof ownership of the properties covered by the agreements. Failure to make the rightjudgement will result in either overstatement or understatement of assets and liabilities.(d ) Provisions and ContingenciesJudgment is exercised by management to distinguish between provisions and contingencies.Policies on recognition and disclosure of provisions and contingencies are discussed inNote 2.05 and relevant disclosures are presented in Note 25.3.02 Key Sources of Estimation UncertaintyThe following are the key assumptions concerning the future, and other key sources ofestimation uncertainty at the end of reporting period, that have a significant risk of causinga material adjustment to the carrying amounts of resources and liabilities within the nextfinancial year:(a) Impairment Losses on Financial Assets (Loans and Receivables, Held-to-maturity Investments andAvailable-for-sale Securities)The Bank reviews its loan and held-to-maturity investments portfolios to assessimpairment at least on a quarterly basis. In determining whether an impairment lossshould be recorded in profit or loss, the Bank makes judgments as to whether there is anyobservable data indicating that there is a measurable decrease in the estimated future cashflows from the portfolio before the decrease can be identified with an individual item inthat portfolio. This evidence may include observable data indicating that there has beenan adverse change in the payment status of borrowers or issuers in a group, or national orlocal economic conditions that correlate with defaults on assets in the group. Managementuses estimates based on historical loss experience for assets with credit risk characteristicsand objective evidence of impairment similar to those in the portfolio when schedulingits future cash flows. The methodology and assumptions used for estimating both theamount and timing of future cash flows are reviewed regularly to reduce any differencesbetween loss estimates and actual loss experience.The Bank carries certain financial assets at fair value, which requires the extensive use ofaccounting estimates and judgment. Significant components of fair value measurementwere determined using verifiable objective evidence such as foreign exchange rates, interestrates and volatility rates. However, the amount of changes in fair value would differ if theBank utilized different valuation methods and assumptions. Any change in fair value ofthese financial resources and liabilities would affect profit or loss and equity.