For the purpose of this paper and in accordance with IAS 39 an exposure is considered to be impaired when "there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a 'loss' event) and the loss event (or events) has an impact on the
estimated future cash flows [Per paragraph 59 of IAS 39.]." Impairment occurs if the estimated recoverable amount of an exposure is lower than its relevant carrying amount. All exposures should be assessed for impairment by the credit
institution either individually or collectively as discussed in section 5. If there is objective evidence of impairment either individually or collectively, the exposure or group of exposures should be measured for an impairment provision. If a credit institution determines that no objective evidence of impairment exists for an
individually assessed exposure, that exposure should be included in a group of exposures with similar credit risk characterist
… Page 39 - Annual Report 2017 P. 39  December 31, 2017
(expressed in United States Dollars)
2 Summary of significant accounting polides ... continued
Impairment of financial assets
(a) Financial assets carr;ed at amortised cost
The Company assesses at each balance sheet date whether there is objective evidence that a financial asset or group of financial
assets is impaired. A financÎal asset or a group of financÎal assets is impaired and impairment losses are incurred if, and only if,
there is objective evidence that impairment as a result of one or more events that occurred after the initial recognition of the
asset (a 'Ioss event') and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or
group of financial assets that can be reliably estimated. Objective evidence that a financial asset or group of assets is impaired
includes observable data that comes to the attention of the Company about the following loss events:
i. significant financial difficulty of the issuer or obligor;
ii. a breach of contract, su ch as a default or delinquency in principal payments;
Iii. the company granting to the borrower, for economic or legal reasons relating to the borrower's financial difficulty, a
concession that the lender would not otherwise consider;
IV. it becoming probable that the borrower will enter bankruptcy or other financial reorganisation;
v. the disappearance of an active market for that financial asset because of fi nancial difficulties; or
vi. observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial
assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual
financial assets in the group, including:
adverse changes in the payment status of borrowers in the group; or
national or local economic conditions that correlate with defaults on the assets in the group.
The Company first assesses whether objective evidence of impairment exists individually for financial assets that are
individually signifi"nt, and individually or collectively for financial assets that are not individually signifi"nt If the Company
determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or
not, it includes the asset in a group of financia l assets with similar credit risk characteristics and collectively assesses them for
impairment.
Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not
included in a collective assessment of impairment.
If there is objective evidence that an impairment loss has been incurred on receivables or loans and receivables' investment
securities carried at amortised cost, the amount of the loss is measured as the difference between the asset's carrying amount
and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at
the financial asset's original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance
account and the amount of the loss is recognised in the statement of comprehensive income.
For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit
characteristics. Those characteristics are relevant to the estimation of futu re cash flows for groups of such assets by being
indicative of the debtors' ability to pay ail amounts due according to the contractual terms of the asset being evaluated.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event
occurring after the impairment was recognised (such as an improvement in the debtor's credit rating), the previously recognised
impairment loss is reversed by adjusting the allowance account. The am ou nt of the reversai is recognised in the statement of
comprehensive income.
(b) Financial assets carr;ed at fair value
The Company assesses at each balance sheet date whether there is objective evidence that an available·for-sale financial asset
is impaired, including in the case of equity investments classified as available-for-sale, a significant or prolonged decline in the
fair value of the security below its cost. If any such evidence exists for available-for-sale financial assets, the cumulative loss -
measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial
asset previously recognised in profit and loss - is removed from equity and recognised in the statement of comprehensive
income.lmpairment losses recognised in the statement of comprehensive income on equity instruments are not subsequently
reversed. The impairment loss is reversed through the statement of comprehensive income, if in a subsequent period the fair
value of a debt instrument classified as available·for-sale increases and the increase can be objectively related to an event
occurring after the impairment loss was recognised in profit or loss.
What are the objective evidence of impairment of a financial asset?
Objective evidence of impairment is in turn defined as one or more events that have occurred and have an impact on the expected future cash flows of the financial instruments.
What is not an objective evidence?
Objective Versus Subjective Evidence
“Subjective” evidence, on the other hand, is evidence that is in the form of an opinion or self-report that cannot be independently examined, evaluated, or verified, but must be either accepted on faith, or rejected.
Which of the following is not an indication of possible asset impairment?
External competitive factors are not a likely indicator of possible asset impairment.
Which of the following financial assets are assessed for impairment?
Financial assets subject to impairment
lease receivables. contract assets. irrevocable loan commitments, and.
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