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AfrAsia Bank Limited and its Group Entities
Annual Report 2015
page 192
noteS to the finanCial StatementS
for the year ended 30 June 2015
2. ACCOUNTING POLICIES (CONTINUED)
2.2 Significant accounting judgements and estimates
In the process of applying the Group’s accounting policies, management has exercised its judgement and made estimates in determining the amounts recognised in
the financial statements. The most significant use of judgements and estimates are as follows:
(a) Judgements
In the process of applying the Group’s accounting policies, management has made the following judgements, which have the most significant effect on the amounts
recognised in the financial statements:
Going concern
The Group has made a loss for the year of MUR 176m which is mainly due to a loss reported by one of its subsidiaries, namely AfrAsia Holdings Limited (AHL) which is
in a net liability position. A potential non-performance risk on the settlement of its liabilities may exist as it does not have sufficient cash flows to settle its obligations.
Management has made an assessment of the Group’s ability to continue as a going concern and is satisfied that the Group has the resources to continue in business
for the foreseeable future. Furthermore, management is not aware of any material uncertainties that may cast significant doubt upon the Group’s ability to continue as
a going concern. On this basis, the financial statements continue to be prepared on the going concern basis.
(b) Estimates and assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Group based their assumptions and estimates on
parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments however, may change due to
market changes or circumstances arising beyond the control of the Group. Such changes are reflected in the assumptions when they occur.
Fair value of financial instruments
Where the fair values of financial assets and financial liabilities recorded on the statements of financial position cannot be derived from active markets, they are
determined using a variety of valuation techniques that include the use of mathematical models. The input to these models is taken from observable market data where
possible, but where observable data is not available, a degree of judgement is required in establishing fair values. The judgements include considerations of liquidity
and model inputs such as correlation and volatility for longer dated derivatives. Further details in respect of the fair valuation of financial instruments are included in
Note 33 to the financial statements.
Impairment losses on loans and advances
The Group reviews their individually significant loans and advances at each reporting date to assess whether an impairment loss should be recorded in the statements
of profit or loss and other comprehensive income. In particular, judgement by management is required in the estimation of the amount and timing of future cash flows
when determining the impairment loss. In estimating these cash flows, the Group make judgements about the borrower’s financial situation and the net realisable
value of collateral. These estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the allowance.
Loans and advances that have been assessed individually (and found not to be impaired) are assessed together with all individually insignificant loans and advances
in groups of assets with similar risk characteristics. This is to determine whether provision should be made due to incurred loss events for which there is objective
evidence, but the effects of which are not yet evident. The collective assessment takes account of data from the loan portfolio (such as levels of arrears, credit
utilisation, loan-to-collateral ratios, etc.), and judgements on the effect of concentrations of risks and economic data (including levels of unemployment, real estate
prices indices, country risk and the performance of different individual groups).
The impairment loss on loans and advances is disclosed in more detail in Note 16.