Notes to the Consolidated Financial Statements
evidence may include observable
data indicating that there has been
an adverse change in the payment
status of a borrower, or national
or local economic conditions that
correlate with defaults on assets.
The methodology and assumptions
used for estimating both the amount
and timing of future cash flows are
reviewed regularly.
Fair value and impairment
of available-for-sale equity
investments
The Group may from time to time
hold investments in financial
instruments that are not quoted
in active markets. Fair values of
such instruments are determined
using valuation techniques. Where
valuation techniques are used
to determine fair values, they
are validated and periodically
reviewed by Group management.
The Group determines that available-
for-sale equity investments are
impaired when there has been a
significant or prolonged decline in
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
equate to the Group’s share of
the value in use in Faisal Islamic
Bank of Egypt of $258.9 million.
Had the assumptions utilised in
the discounted cash flow model for
the underlying discounting factor
increased by 10.0% this would
equate to the Group’s share of the
value in use in Faisal Islamic Bank
of Egypt of $258.8 million. The
carrying value in the consolidated
statement of financial position as at
31 December 2012 for Faisal Islamic
Bank of Egypt was $249.9 million,
which is lower than the “value in
use” amounts mentioned above.
Estimated impairment
of goodwill
The Group tests annually whether
goodwill has suffered any
impairment in accordance with the
accounting policy stated in note
2. The recoverable amounts of
cash-generating units have been
determined based on estimated future
cash flows and comparisons with
market multiples. These calculations
require the use of estimates, which
are subject to judgement. Changes
in the underlying assumptions may
impact the reported numbers.
During 2012 the Group used a
sum-of-the-parts approach to arrive
at a business value of the Ithmaar
Bank B.S.C. CGU. The valuation
methodology for the separately
identified parts at Ithmaar Bank
B.S.C. level based on the operational
activities is the following:
• Formerly Shamil Bank: value
in use based on discounted
cash flows
28
Dar Al-Maal Al-Islami Trust
Annual Report 2012
