BIMB Integrated Annual Report 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.5 Financial instruments (continued) (b) Financial instrument categories and subsequent measurement (continued) Derivative financial instruments The Group holds derivative financial instruments to hedge its foreign currency and profit rate exposures. However, the Group elect not to apply hedge accounting. Hence, foreign exchange trading positions, including spot and forward contracts, are revalued at prevailing market rates at statement of financial position date and the resultant gains and losses for the financial year are recognised in the profit or loss. An embedded derivative is recognised separately from the host contract and accounted for as a derivative if, and only if, it is not closely related to the economic characteristics and risks of the host contract and the host contract is not categorised at fair value through profit or loss. The host contract, in the event an embedded derivative is recognised separately, is accounted for in accordance with policy applicable to the nature of the host contract. Financial liabilities All financial liabilities are initially measured at fair value and subsequently measured at amortised cost other than those categorised as fair value through profit or loss. Fair value through profit or loss category comprises financial liabilities that are derivatives (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument) or financial liabilities that are specifically designated into this category upon initial recognition. Derivatives that are linked to and must be settled by delivery of equity instruments that do not have a quoted price in an active market for identical instruments whose fair value otherwise cannot be reliably measured are measured at cost. Other financial liabilities categorised as fair value through profit or loss are subsequently measured at their fair values with the gain or loss recognised in profit or loss. Investment accounts Investment accounts are either: (i) Unrestricted investment accounts An unrestricted investment account (“URIA”) refers to a type of investment account where the investment account holder (“IAH”) provides the Group with the mandate to make the ultimate decision without specifying any particular restrictions or conditions. The URIA is structured under Mudharabah and Wakalah contracts. Any impairment allowances required on the assets for investment accounts are charged to and borne by the investors. (ii) Restricted investment accounts Restricted investment account (“RIA”) refers to a type of investment account where the IAH provides a specific investment mandate to the Group such as purpose, asset class, economic sector and period of investment. RIA is accounted for as off-balance sheet as the Group has no risk and rewards in respect of the assets related to the RIA or to the residual cash flows from those assets except for the fee income generated by the Group for managing the RIA. The Group also has no ability to use power over the RIA to affect the amount of the Group’s return. The RIA is structured under Wakalah contract. Under Wakalah contract, IAH appoints the Group as the agent to invest the funds provided by IAH to finance customers with a view of earning profits and the Group will receive fees for the agency service provided. NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 179 Overview Value Creation Accountability Financial Statements Sustainability Performance Data Shareholders Information 21 st AGM Information Management Discussion & Analysis i a s