Home' Trinidad and Tobago Guardian : December 31st 2013 Contents B46
Consolidated Financial Statements for the year ended September 2013
First Citizens Holdings Limited and its Subsidiaries
3 Financial Risk Management (continued)
3.7 Fair value of financial assets and liabilities (continued)
(b) Fair value hierarchy (continued)
As at 30 September 2012
Financial assets designated
at fair value
- Equity securities
Available-for-sale financial assets:
2,398,862 6,702,213 114,778 9,215,853
Total Financial Assets
2,401,552 6,702,213 114,778 9,218,543
There were no transfers between Level 1 and Level 2 during the year. Reconciliation of Level 3
items are as follows:
As at September 2013
As at September 2012
Securities Equity Fair Value Total Securities Equity
$'000 $'000 $'000
70,878 5,651 76,529
50,367 1,697 52,064
Total losses - OCI
107,427 7,351 114,778
3.8 Deferred day 1 profit/loss
The Group policy is not to recognize day 1 gains or losses in the consolidated financial statements.
4 Critical Accounting Estimates And Judgments
The Group makes estimates and assumptions about the future. The resulting accounting estimates
will, by definition, rarely equal the related actual results. The estimates and assumptions that have a
significant risk of causing a material adjustment to the carrying amount of assets and liabilities within
the next financial year are outlined below:
a) Fair value of available-for-sale financial instruments
The Group uses the discounted cash flow method to determine the fair value of available-for-sale
financial assets not traded in active markets. This method uses a risk free yield curve at the year
duration, call option, etc. as determined by management. The discounted cash flow method
discounts the cash-flows of the financial assets at an appropriate yield plus a credit spread where
applicable. The carrying amount of available-for-sale financial assets would decrease by $439.9
million if the discount rate used in the discounted cash flow analysis is increased by 100 basis
points from management's estimates (2012: $500.4 million).
b) Estimation of the impairment loss on the loan portfolio.
The Group estimates the impairment loss on its loan portfolio by comparing the present value
of the future cashflows to the carrying amounts in the consolidated financial statements. The
Group makes assumptions about the amount and timing of future cashflows as well as the loss
experience of the portfolio. The loss experience considers both the recovery rate on the portfolio
as well as the probability of default by the customer. Management considers both the market
and economic conditions at the year end and may modify the loss experience on the portfolio if
necessary, to reflect current conditions.
Future cashflows for the individually significant loans and loans in arrears are estimated based
on credit reviews performed by management and management's estimate of the value of the
If the Group's estimation of the loss experience on the portfolio of loans not considered individually
impaired were adjusted by 1% upwards, the impairment provision for loans and receivables would
increase by $1.6million (2012 - $0.9 million).
c) Held to maturity investments
The Group follows the IAS 39 guidance on classifying non-derivative financial assets with fixed or
determinable payments and fixed maturity as held to maturity. This classification requires significant
judgment. In making this judgment, the Group evaluates its intention and ability to hold such
investments to maturity. If the Group fails to keep these investments to maturity other than for the
required to reclassify the entire category of $1,693 million (2012: $1,633 million) as available for sale.
The investments would therefore be measured at fair value not amortised cost. If the entire held-
to-maturity investments are tainted, the fair value of investments would decrease by $30.7 million
(2012: $71.4 million), with a corresponding entry in the fair value reserve in shareholders' equity.
c) Income taxes
The Group is subject to income tax in various jurisdictions. Management judgment is required
in determining provisions for income taxes and there are many 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 will impact the current
and deferred income tax assets and liabilities in the period in which such determination is made.
When appropriate, particularly where the ultimate tax determination is uncertain, management
also obtains opinions or advice from leading tax advisors and regularly reassesses its strategy in
relation to such exposures.
e) Retirement benefits
The present value of the retirement benefit obligations depends on a number of factors that
are determined on an actuarial basis using a number of assumptions. Any changes in these
assumptions will impact the carrying amount of pension obligations.
The assumptions used in determining the net cost (income) for pensions include the discount rate,
salary and pension increases. The Group determines the appropriate discount rate at the end of
each year. This is the interest rate that should be used to determine the present value of estimated
future cash outflows expected to be required to settle the pension obligations. In determining the
appropriate discount rate, the Group considers the interest rates of high-quality corporate bonds
that are denominated in the currency in which the benefits will be paid and that have terms to
maturity approximating the terms of the related pension liability.
In determining the salary increases, the Bank considered long-term salary inflation, age, merit and
f) Fair valuation of properties
The best evidence of fair value is current prices in an active market for similar lease and other
contracts. In the absence of such information, the Bank determines the amount within a range of
reasonable fair value estimates. In making the judgment, the Bank considers information from a
variety of sources including:
i) Current prices in an active market for properties of different nature, condition or location (or
subject to different lease or other contracts), adjusted to reflect those differences;
ii) Recent prices of similar properties in less active market, with adjustments to reflect any
changes in economic conditions since the date of the transactions that occurred at those
iii) Discounted cash flow projections based on reliable estimates of future cash flows, derived
from the terms of any existing lease and other contracts and (where possible) from external
evidence such as current market rents for similar properties in the same location and
condition, and using discount rates that reflect current market assessments of the uncertainty
in the amount and timing of the cash flows.
The valuations are based on current market conditions and thus may change in the future.
g) Estimated impairment of goodwill
The Group tests annually whether goodwill has suffered any impairment in accordance with the
accounting policy stated in note 2.2(c). The recoverable amounts of cash-generating units have
been determined based on value-in-use calculations. If the discounted rate used in the value-
in-use calculation was increased by 100 basis points from management's estimates, the value-
in-use calculation will still exceed the fair value less cost to sell calculation, and there will be no
impairment of goodwill.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(expressed in Trinidad and Tobago dollars)
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