Notes to the Consolidated Financial Statements - Seylan Bank

North Bound > Seylan Bank Annual Report 2011
291
3.5.17 New Accounting Standards Issued but not Effective as at Balance Sheet Date
The Institute of Chartered Accountants of Sri Lanka (ICASL) has issued a new volume of Sri Lanka
Accounting Standards - 2011, applicable for financial periods beginning on or after 1st January 2012. These
new Accounting Standards are prefixed both SLFRS and LKAS, which correspond to the relevant IFRS and
IAS. These new Standards will be applicable to the Bank from 1st January 2012. The Bank carried out a
detailed impact analysis based on the 31st December 2010 account balances. Using these same assumption
and methodology the Bank has quantified the potential impact from significant areas of the said Standards.
Disclosure requirements arising from SLAS 10.30 and 10.31 have been exempted by the ICASL, however,
the Bank has endeavoured to present the key impact areas, in order to inform the users of these financial
statements. The disclosures below are based on a preliminary assessment and internal thresholds
established to make the required judgments, as at date.
Financial Instruments
The new LKAS 39 requires all derivative financial instruments to be recorded at fair value on the Balance
Sheet. The fair value of derivative financial instruments recognised on the Balance Sheet on transition
as at 1st January 2012 will be a net liability of approximately Rs. 6.37 Mn. The additional net liability of
approximately Rs. 0.24 Mn. arising on transition resulted in a corresponding net decrease to equity.
As required by LKAS 39, 'Impairment of Financial Assets' are to be determined using the incurred loss
model based on objective evidence of impairment. Impairment loss is the difference between the carrying
amount and the estimated future cash flows discounted at original EIR. In quantifying this impact, individually
significant loans will be tested for impairment separately while loans that are not individually significant
are collectively assessed for impairment (Portfolio-based impairment) based on credit risk characteristics.
The net impact of this process will result in a charge of approximately Rs. 2,455.89 Mn. on transition as at
1st January 2012, net of one significant restricted advance, which is disclosed separately.
In addition-
• The Restructuring of advances to one significant customer required the preference shares and
debentures to be discounted using original effective interest rate since the obligor remains the same.
Impairment loss determined of approximately Rs. 225 Mn. will be adjusted with retained earnings.
• Equity securities not held for trading are to be classified as Available for Sale and are to be measured at
their fair value with the changes in fair value being taken to equity. However, equity securities that are not
quoted in an active market and whose fair value cannot be reliably measured can be measured at cost.
This would result in approximately Rs. 419.42 Mn. decrease in net assets and retained earnings.
• Staff deposits measured at contractual rates of interest, on initial recognition are to be accounted for at
their fair value and subsequently will be measured at amortised cost using effective interest rate method.
The difference between fair value and transaction price of approximately Rs. 4.73 Mn. at transition date
will be amortised over the term of the deposit.