Notes to Financial Statements - BDO

Notes to Financial StatementsDECEMBER 31, 2008, 2007 AND 2006(Amounts in Millions Except Per Share Data)(e)Compensated AbsencesCompensated absences are recognized for the number of paid leave days (including holiday entitlement) remaining at the statement ofcondition date. These are included in Other Liabilities account at the undiscounted amount that the Group expects to pay as a result ofthe unused entitlement.2.24 Income TaxesCurrent tax assets or liabilities comprise those claims from, or obligations to, fiscal authorities relating to the current or prior reporting period,that are uncollected or unpaid at the statement of condition date. They are calculated according to the tax rates and tax laws applicable tothe fiscal periods to which they relate, based on the taxable profit for the period. All changes to current tax assets or liabilities are recognizedas a component of tax expense in the income statement.Deferred tax is provided, using the balance sheet liability method, on temporary differences at the statement of condition date between the taxbase of assets and liabilities and their carrying amounts for financial reporting purposes.Under the balance sheet liability method, with certain exceptions, deferred tax liabilities are recognized for all taxable temporary differencesand deferred tax assets are recognized for all deductible temporary differences and the carryforward of unused tax losses and unused taxcredits to the extent that it is probable that taxable profit will be available against which the deferred tax asset can be utilized.The carrying amount of deferred tax assets is reviewed at each statement of condition date and reduced to the extent that it is probable thatsufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized.Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or theliability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the statement of condition date.Most changes in deferred tax assets or liabilities are recognized as a component of tax expense in the income statement. Only changes indeferred tax assets or liabilities that relate to a change in value of resources or liabilities that is charged directly to equity are charged orcredited directly to equity.2.25 Earnings Per Share (EPS)Basic earnings per common share is determined by dividing net income by the weighted average number of common shares subscribed andissued during the period, after retroactive adjustment for any stock dividend declared in the current period.Diluted earnings per common share is also computed by dividing net income by the weighted average number of common shares subscribedand issued during the period. However, net income attributable to common shares and the weighted average number of common sharesoutstanding are adjusted to reflect the effects of potentially dilutive convertible preferred shares, convertible loan and stock option plangranted by the Group to the qualified officers. Convertible preferred shares are deemed to have been converted to common shares at theissuance of preferred shares. Convertible loan is deemed to have been converted into common shares at the start of the conversion period.The stock option plan is deemed to have been converted into common stock in the year the stock option plan is granted.2.26 Trust ActivitiesThe Group commonly acts as trustee and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals,trusts, retirement benefit plans and other institutions. These assets and income arising thereon are excluded from these financial statements,as these are not assets or income of the Group.2.27 Subsequent EventsAny post-year-end event that provides additional information about the Group’s position at the statement of condition date (adjusting event)is reflected in the financial statements. Post-year-end events that are not adjusting events, if any, are disclosed when material to the financialstatements.3. SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATESThe Group’s financial statements prepared in accordance with FRSP for banks require management to make judgments and estimates thataffect amounts reported in the financial statements and related notes. Judgments and estimates are continually evaluated and are basedon historical experience and other factors, including expectations of future events that are believed to be reasonable under circumstances.Actual results may likely differ from these estimates and the differences could be significant.3.1 Critical Judgments in Applying Accounting PoliciesIn the process of applying the Group’s accounting policies, management has made the following judgments, apart from those involvingestimation, which have the most significant effect on the amounts recognized in the financial statements:(a)HTM InvestmentsThe Group follows the guidance of PAS 39, Financial Instruments: Recognition and Measurement, in classifying non-derivative financialassets with fixed or determinable payments and fixed maturity as HTM. This classification requires significant judgment. In making thisjudgment, the Group considers its intention and ability to hold such investments to maturity.22Thinking Ahead To Get You Ahead • Annual Report 2008