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3. Critical accounting
3.
estimates and
3.
judgements in applying
3.
accounting policies
(continued)
the fair value below its cost. This
determination of what is significant
or prolonged requires judgement. In
making this judgement, the Group
evaluates among other factors, the
normal volatility in share price.
In addition, impairment may be
appropriate when there is evidence
of a deterioration in the financial
health of the investee, industry and
sector performance, changes in
technology, and operational and
financing cash flows.
On occasion the Group may hold
investments whose fair value cannot
be reliably measured. In those
instances, full disclosure with a
description of the investment, the
carrying value and an explanation
of why fair value cannot be
measured reliably are included in
the notes to the financial statements.
Fair value of investment
properties
The Group may from time to
time hold investment properties
which are carried at fair value,
representing open market value
determined annually by reference
either to external valuers or to other
independent valuation sources.
Special purpose entities
The Group sponsors the formation
of special purpose entities (SPE’s)
primarily for the purpose of allowing
clients to hold investments. The
Group does not consolidate SPE’s
that it does not control. As it can
sometimes be difficult to determine
whether the Group controls an SPE,
it makes judgements about its
exposure to the risks and rewards,
as well as about its ability to govern
operational and financial decisions
for the SPE in question. In many
instances, elements are present
that considered in isolation indicate
control or lack of control over an
SPE, but when considered together
make it difficult to reach a clear
conclusion. In such cases, the SPE
is consolidated.
Income taxes
The Group is subject to income taxes
in some jurisdictions. Estimates are
required in determining the provision
for income taxes. There are some
transactions and calculations for
which the ultimate tax determination
is uncertain. Where the final tax
outcome of these matters is different
from the amounts that were initially
recorded, such differences impact
the income tax and deferred tax
provisions in the period in which
such determination is made.
Impairment of associated
companies
The Group assesses at each
statement of financial position date
whether there is objective evidence
that its investments in associated
companies are impaired. In general,
an investment in an associated
company is impaired and an
impairment loss incurred when the
carrying amount of the investment
exceeds its recoverable amount. The
recoverable amount is defined as
the higher of its fair value less costs
to sell and its value in use.
On assessing its investments for
impairment at the year end, the
Group has relied upon cash flow
projections as approved by the
board of the underlying associates
that are based upon judgements
and estimates related to future
events which ultimately could have
a significant impact on the
recoverable amounts of these
investments in the consolidated
financial statements.
On the basis that the Group used a
discounted cash flow model to
arrive at a value in use which
ultimately was higher than both the
carrying amount and the fair value
less cost to sell (based on the
underlying quoted market price),
no impairment charge was recorded
in the consolidated financial
statements. Had the assumptions
utilised in the discounted cash flow
model for future cash flows
decreased by 10% this would
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
29
Dar Al-Maal Al-Islami Trust
Annual Report 2011