BIMB Integrated Annual Report 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.1 Basis of preparation (continued) (a) Statement of compliance (continued) MFRS 16, Leases MFRS 16 replaces the guidance in MFRS 117, Leases , IC Interpretation 4, Determining whether an Arrangement contains a Lease , IC Interpretation 115, Operating Leases – Incentives and IC Interpretation 127, Evaluating the Substance of Transactions Involving the Legal Form of a Lease . MFRS 16 introduces a single accounting model for a lessee and eliminates the distinction between finance lease and operating lease. Lessee is now required to recognise assets and liabilities for all leases. However, a lessee may elect not to apply the requirements for short-term leases which are for the term 12 months or less and leases for which the underlying asset is of low value. For such leases, lessees may elect to expense off the lease payments on a straight line basis over the lease term or using other systematic method. Upon adoption of MFRS 16, the Group is required to account for major part of their operating leases in the balance sheet by recognising the ‘right-of-use’ asset and the lease liability, thus increasing the assets and liabilities of the Group. The recognition of the ‘right-of-use’ asset and the lease liability are expected to increase Bank Islam’s total assets and liabilities by less than 1%. Takaful Malaysia is currently assessing the financial impact that may arise from the adoption of MFRS 16. (b) Basis of measurement The financial statements have been prepared on the historical cost basis except for derivative financial instruments, financial assets held-for-trading and financial assets available-for-sale, which have been measured at fair value. (c) Functional and presentation currency The financial statements are presented in Ringgit Malaysia (“RM”), which is the Group’s and the Company’s functional currency. All financial information is presented in RM and have been rounded to the nearest thousand (RM’000), unless otherwise stated. (d) Use of estimates and judgements The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the financial statements in the period in which the estimates are revised and in any future periods affected. Significant areas of estimation, uncertainty and critical judgements used in applying accounting policies that have significant effect in determining the amount recognised in the financial statements are described in the following notes: • Note 2.5 and Note 47 – Financial instruments/Fair value of financial instruments • Note 2.11 – Impairment • Note 2.14 and Note 2.15 – Computation of expense reserves – Provision for outstanding claims including IBNR claims and actuarial liabilities • Note 2.22 and Note 13 – Income Tax/Deferred tax assets NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 174 BIMB HOLDINGS BERHAD Integrated Annual Report 2017