Home' Trinidad and Tobago Guardian : January 26th 2017 Contents FirstCaribbean International Bank
(Trinidad and Tobago) Limited
For the year ended October 31, 2016 (Expressed in TT Dollars)
NOTES TO THE FINANCIAL STATEMENTS (continued)
2. Basis of preparation and summary of significant accounting policies (continued)
2.4 Summary of significant accounting policies
The principal accounting policies applied in the preparation of these financial statements are set out below.
1. Foreign currency translation
Functional and presentation currency
The financial statements are presented in Trinidad and Tobago dollars, which is the Bank's functional and
Transactions and balances
Foreign currency transactions are translated into the reporting currency at the exchange rates prevailing
at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such
transactions and from the translation of monetary assets and liabilities denominated in foreign
currencies, are recognised in the statement of income.
2. Derivative financial instruments and hedge accounting
Initial recognition and subsequent measurement
The Bank uses derivative financial instruments such as forward currency contracts and interest rate swaps
to hedge its foreign currency risks and interest rate risks, respectively. Such derivative financial
instruments are initially recognised at fair value on the date on which a derivative contract is entered into
and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair
value is positive and as financial liabilities when the fair value is negative.
Any gains or losses arising from changes in fair value on derivatives are taken directly to the statement of
income, except for the effective portion of cash flow hedges, which is recognised in other comprehensive
For the purpose of hedge accounting, hedges are classified as:
liability or an unrecognised firm commitment (except for foreign currency risk)
particular risk associated with a recognised asset or liability or a highly probable forecast transaction
or the foreign currency risk in an unrecognised firm commitment.
At the inception of a hedge relationship, the Bank formally designates and documents the hedge
relationship to which the Bank wishes to apply hedge accounting and the risk management objective
and strategy for undertaking the hedge.
The documentation includes identification of the hedging instrument, the hedged item or transaction, the
nature of the risk being hedged and how the entity will assess the effectiveness of changes in the
hedging instrument's fair value in offsetting the exposure to changes in the hedged item's fair value or
cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving
offsetting changes in fair value or cash flows and are assessed at inception and on an ongoing basis to
determine that they actually have been highly effective throughout the financial reporting periods for
which they were designated.
Hedges which meet the Bank's strict criteria for hedge accounting are accounted for as follows:
(a) Fair value hedge
For hedging relationships which are designated and qualify as fair value hedges and that prove to
be highly effective in relation to hedged risk, changes in the fair value of the derivatives are
recorded in the statement of income, along with the corresponding change in fair value of the
hedged asset or liability that is attributable to that specific hedged risk.
If the hedge no longer meets the criteria for hedge accounting, an adjustment to the carrying
amount of a hedged interest-bearing financial instrument is amortised to net statement of income
over the period to maturity.
(b) Cash flow hedge
The effective portion of changes in the fair value of derivatives that are designated and qualify as
cash flow hedges are recognised in other comprehensive income. The gain or loss relating to the
ineffective portion is recognised immediately in the statement of income.
Amounts accumulated in other comprehensive income are recycled to the statement of income in
the periods in which the hedged item will affect profit or loss (for example, when the forecast sale
that is hedged takes place).
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for
hedge accounting, any cumulative gain or loss existing in other comprehensive income at that time
remains in other comprehensive income and is recognised when the forecast transaction is
ultimately recognised in the statement of income. When a forecast transaction is no longer
expected to occur, the cumulative gain or loss that was reported in other comprehensive income is
immediately transferred to the statement of income.
Certain derivative instruments do not qualify for hedge accounting or are not so designated, and
changes in the fair value of these derivatives, are included in operating income or losses in the
statement of income.
3. Interest income and expense
Interest income and expense are recognised in the statement of income for all interest bearing
instruments on an accrual basis using the effective interest yield method based on the actual purchase
price or estimated recoverable amount. Interest income includes coupons earned on fixed income
investment and trading securities and accrued discounts and premiums on treasury bills and other
Once a financial asset or a group of similar financial assets has been written down as a result of an
impairment loss, interest income is recognised using the original effective interest rate for the purpose
of measuring impairment loss.
4. Fee and commission income
Fees and commissions are generally recognised on an accrual basis when the service has been provided.
Loan origination fees which have a high probability of being drawn down, are deferred (together with
related direct costs) and recognised as an adjustment to the effective interest yield on the loan.
Commission and fees arising from negotiating, or participating in the negotiation of a transaction for a
third party, such as the acquisition of loans, shares or other securities or the purchase or sale of
businesses, are recognised on completion of the underlying transaction. Portfolio and other
management advisory and service fees are recognised based on the applicable service contracts. Asset
management fees related to investment funds are recognised proportionately over the period the
service is provided. The same principle is applied for wealth management, financial planning and
custody services that are continuously provided over an extended period of time.
5. Financial instruments
The Bank classifies its financial assets into the following categories:
(i) Financial assets at fair value through statement of income;
(ii) Loans and receivables; or
(iii) Available-for-sale financial assets.
Management determines the classification of its investments at initial recognition.
Financial liabilities, other than derivatives and financial liabilities at fair value through the statement of
income, are measured at amortized cost. Derivatives and financial liabilities at fair value through the
statement of income are measured at fair value. Interest expense is recognized on an accrual basis using
the effective interest method.
(i) Financial assets and liabilities at fair value through statement of income
This category comprises financial assets or liabilities held for trading. A financial asset or liability is
classified in this category if acquired principally for the purpose of selling in the short term or if so
designated by management.
Management may designate a financial asset or liability at fair value through statement of income
upon initial recognition when the following criteria are met, and designation is determined on an
instrument by instrument basis:
otherwise arise from measuring the assets or liabilities or recognising gains or losses on them on
a different basis, or
are managed and their performance evaluated on a fair value basis, in accordance with a
documented risk management or investment strategy; or
the cash flows that otherwise would be required by the contract.
(ii) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that
are not quoted in an active market.
(iii) Available-for-sale financial assets
Available-for-sale investments are those intended to be held for an indefinite period of time, which
may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity
All purchases and sales of available-for-sale financial assets that require delivery within the time
frame established by regulation or market convention ("regular way" purchases and sales) are
recognised at settlement date, which is the date that an asset is delivered to or by the Bank.
Otherwise such transactions are treated as derivatives until settlement occurs. Loans and
receivables are recognised when cash is advanced to borrowers.
Financial assets, not carried at fair value through statement of income, are initially recognised at fair
value plus transaction costs. Financial assets are derecognised when the rights to receive the cash
flows from the financial assets have expired or where the Bank has transferred substantially all
risks and rewards of ownership.
Available-for-sale financial assets and financial assets at fair value through statement of income
are subsequently re-measured at fair value based on quoted bid prices or amounts derived from
cash flow models. Loans and receivables are carried at amortised cost using the effective interest
yield method, less any provision for impairment. Unrealised gains and losses arising from changes
in the fair value of securities classified as available-for-sale are recognised in other comprehensive
income. When the securities are disposed of or impaired, the related accumulated fair value
adjustments are included in the statement of income as gains and losses from investment
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