"Central Securities Depository" JSC Financial Statements. For 2013

Transcription

1 "Central Securities Depository" JSC Financial Statements For 2013

2 TABLE OF CONTENTS Statement of responsibility of management of Central Securities Depository JSC for the preparation and approval of the financial statements for the year ended 31 December Independent auditors report... 5 Statement of financial position as at 31 December Statement of comprehensive income for the year ended 31 December Statement of cash flows for the year ended 31 December Statement of changes in equity for the year ended 31 December Notes to the financial statements for the year ended 31 December 2013: Note 1. Background...14 Note 2. Basis of presentation of financial statements...16 Note 3. Significant accounting policies...22 Note 4. Critical accounting judgments and estimates Note 5. Cash and cash equivalents...31 Note 6. Cash on saving accounts...32 Note 7. Accounts receivable from buyers and customers...33 Note 8. Advances paid...35 Note 9. Financial instruments held to maturity Note 10. Other assets...38 Note 11. Investments in associates...39 Note 12. Property and equipment...40 Note 13. Intangible assets...41 Note 14. Accounts payable to suppliers and contractors...42 Note 15. Taxes payable, other than corporate income tax Note 16. Provisions...44 Note 17. Share capital...45 Note 18. Fair value of financial instruments Note 19. Income from rendering services Note 20. Other income and expenses, net Note 21. Staff costs and management compensation Note 22. Financial services expenses...53 Note 23. Rent, utilities and building maintenance expenses...54 Note 24. Depreciation and amortization expenses Note 25. Tax expenses, other than corporate income tax Note 26. Audit and consulting services expenses Note 27. Telecommunication expenses...59 Note 28. Other operating expenses...60 Note 29. Corporate income tax expenses Note 30. Transactions with related parties

3 Note 31. Commitments and contingencies Note 32. Risk management...68 Note 33. Subsequent events...71 Note 34. Depositors assets

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7 STATEMENT of Financial Position as at 31 December KZT thousands Item ASSETS Note As at As at Cash and cash equivalents 5, , ,878 Cash on saving accounts 6, ,939 Financial instruments, held to maturity 9, 18 1,798,996 1,200,707 Investments in associates , ,771 Property, plant and equipment 12 47,878 63,847 Accounts receivable from buyers and customers 7, 18 87,855 80,579 Intangible assets 13 32,453 28,711 Advances paid 8 12,183 28,599 Advances on corporate income tax 3,883 24,151 Deferred tax assets 29 5,242 1,830 Other assets 10 5,629 4,303 TOTAL ASSETS 2,276,842 1,899,315 (continued on the next page) 1 Hereinafter in the financial statements of Central Securities Depository and the notes to the financial statements 31 December of any year shall mean Almaty time on 31 December of the given year. 7

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9 STATEMENT of comprehensive income for the year ended 31 December 2013 KZT thousands Item Note Income from rendering services 19 1,063, ,410 Interest income 55,737 36,652 Other income and expense, net Total income 1,119, ,456 Staff cost and compensation of management Financial services expenses 22 Rent, utilities and building maintenance expenses 23 Depreciation and amortization expenses 24 Tax expenses, other than corporate income tax 25 Audit and consulting services expenses 26 Telecommunication expenses 27 Other operating expenses (341,993) (322,888) (75,523) (87,296) (85,349) (82,084) (19,510) (20,187) (5,892) (14,022) (30,995) (13,185) (18,765) (16,184) (60,295) (57,266) Share in loss of associate companies 11 (12,498) (12,506) Total expenses (650,820) (625,618) Profit before income tax 468, ,838 (continued on the next page) 9

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11 STATEMENT of cash flows for the year ended 31 December 2013 Cash flows from operating activities Item KZT thousands Profit before income tax 468, ,838 Changes in operating assets and liabilities (24,083) (48,956) Including non-monetary adjustment: (22,620) (4,005) Accrued interest income (55,737) (36,652) Depreciation and amortization 19,510 20,187 Changes in provisions 1,109 (1,113) Share in loss of associate 12,498 12,506 Loss on disposal of property, plant and equipment 1,067 Interest income received 65,333 28,709 Decrease in tax liabilities, except for corporate income tax Increase in accounts receivable from buyers and customers (864) (168) (7,276) (5,839) Decrease/(increase) in advances paid 16,416 (6,601) Increase in other assets (1,326) (311) (Decrease)/increase in accounts payable to suppliers and contractors (4,746) 759 Income tax paid (69,000) (61,500) Net cash inflow from operating activities 444, ,882 (continued on the next page) 11

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14 NOTES to the financial statements for the year ended 31 December 2013 Note 1. BACKGROUND Central Securities Depository Joint-stock Company ( Central Securities Depository ) was established by the decision of the meeting of founders dated 16 May 1997 and registered on 18 July 1997 as a closed joint stock company (state registration certificate dated 18 July 1997 No AO issued by the Department of Justice of Almaty). Central Securities Depository was established under the Civil Code of the Republic of Kazakhstan, the laws of the Republic of Kazakhstan On Securities Market, On registration of securities transactions in the Republic of Kazakhstan, the decree of the President of the Republic of Kazakhstan effective as law On Banks and Banking Activity in the Republic of Kazakhstan, Regulation of Central Securities Depository of the Republic of Kazakhstan, approved by the Government of the Republic of Kazakhstan dated 29 July 1996 No. 944, Regulation on the non-bank financial institutions approved by the Board of the National Bank of the Republic of Kazakhstan of 23 May 1997 No. 221, and other regulations of the Republic of Kazakhstan. Currently, Central Securities Depository operates on the basis of certificate of state re-registration of legal entity dated 2 February 2005 No АО, issued by the Department of Justice of Almaty. Central Securities Depository is a nonprofit organization. During 2013 Central Securities Depository conducted following types of activities, in accordance with the laws of the Republic of Kazakhstan: depository activity; certain types of banking operations; activities of a payment agent related to payout of proceeds on maturity of securities; activities related to allocation of international identifiers to securities and other financial instruments; maintenance of the system of registers of public securities holders and the system of registers of JSC Integrated Securities Registrar s shares holders. In accordance with the subparagraph 73 of Article 1 of the Law of the Republic of Kazakhstan On securities market, Central Securities Depository is the only specialized noncommercial organization in the territory of the Republic of Kazakhstan carrying out Depository activities, and in accordance with paragraph 1 and 2 of Article 45 of this law the Depository activity, being one of the types of professional activity in the securities market, is not subject to licensing. (continued on the next page) 14

15 Note 1 Background (continued) Certain types of banking transactions, including those of a payment agent, are carried out by Central Securities Depository under license from the Agency for Regulation and Supervision of Financial Market and Financial Organizations of the Republic of Kazakhstan of 20 January 2006 No. 2 for the following banking operations in national and foreign currencies: opening and maintaining bank accounts of legal entities, opening and maintaining of correspondent accounts of banks and institutions performing certain types of banking operations; transfer operations; carrying out requests for legal entities on payments and money transfers. Allocation of international securities identifiers to other financial instruments is not a separate type of professional activity on the securities market, is not subject to licensing and is conducted by Central Securities Depository (as the National Numbering Agency) from 06 November Until 9 December 2011 Central Securities Depository conducted allocation of international securities identifiers to other financial instruments as a partner of the Association of National Numbering Agencies (further ANNA ) (partnership agreement with Central Securities Depository dated 6 November 2009 # 5), and from 9 December 2011, this activity is carried out by Central Securities Depository as a full ANNA member (the decision of the Extraordinary general Meeting of ANNA members of 9 December 2011). Maintaining the system of registers of government securities holders and the system of registers of the JSC Integrated Securities Registrar s share holders is not a separate type of professional activity on the securities market and is conducted without a license issued by a state authority as per paragraph 3-1 of Article 80 of the Law of the Republic of Kazakhstan On Securities Market. The legal and actual address of Central Securities Depository is , Almaty, Samal-1 micro-district, 28. As at 31 December 2013 and 2012, the number of employees of Central Securities Depository was 62 and 57, respectively. 15

16 Note 2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS Statement of compliance The financial statements of Central Securities Depository have been prepared in accordance with International Financial Reporting Standards (further IFRS 2 ) and in accordance with the legislation of the Republic of Kazakhstan applicable to Central Securities Depository 3. The financial statements of Central Securities Depository have been presented as at 31 December The financial statements of Central Securities Depository have been prepared on the going concern basis, which involves the ability of Central Securities Depository to realize its assets and to discharge its obligations in the normal course of business. This ability, as well as the activities of Central Securities Depository may be significantly affected in the future by the current and future economic environment in the Republic of Kazakhstan. The assumptions used in preparing the financial statements of Central Securities Depository and underlying estimates are continually evaluated to identify any required changes. Changes in estimates are recognized in the period when these estimates were revised and in any future periods affected by these changes. Amendments to IFRSs At the date of authorization of these financial statements, the following changes in IFRS have been made: 1) Amendments to IFRS that are effective: to IFRS 10 Consolidated Financial Statements ; to IFRS 11 Joint arrangements ; to IFRS 12 Disclosure of Interest in Other Entities ; to IFRS 13 Fair Value Measurement ; to IAS 19 Employee Benefits ; to IAS 27 Separate Financial Statement ; to IAS 28 Investments in Associate and Joint Venture (continued on the next page) 2 3 International Accounting Standards (IAS; standards adopted before 2001) include International Financial Reporting Standards (IFRS; standards adopted after 2001), interpretations to the standards and amendments to them (including amendments to the interpretations to these standards, adopted by the Standing Interpretations Committee (SIC; before 2001) and the International Financial Reporting Interpretations Committee (IFRIC; after 2001), and other documents. These norms include those in the Law On Accounting and Financial Reporting, the Tax Code, normative legal acts of the Ministry of Finance of the Republic of Kazakhstan, National Bank of Republic of Kazakhstan and the Committee for Control and Supervision of Financial Market and Financial Organizations of the National Bank of the Republic of Kazakhstan (previously known as Agency for Regulation and Supervision of Financial Market and Financial Organizations of the Republic of Kazakhstan). 16

17 Note 2 Basis of presentation of financial statements (continued) 2) changes to IFRS that are effective: in IAS 1 Presentation of Financial Statements ; in IAS 12 Income Taxes ; in IFRS 1 First-time adoption of International Financial Reporting Standards ; in IFRS 7 Financial Instruments: Disclosures ; 3) New IFRSs that are not yet effective: IFRS 9 Financial Instruments ; 4) Amendments to IFRS that are not yet effective: to IAS 32 Financial Instruments: Presentation ; to IFRS 10 Consolidated Financial Statements. Amendment to IFRS that are effective 1. New IFRS 10 Consolidated Financial Statements replaces previous guidance on the control and consolidation given in IAS 27 Consolidated and Separate Financial Statements and SIC 12 Consolidation Special Purpose Entities. IFRS 10 changes the definition of control such that an investor has control over an investee when: 1) it has power over the investee; 2) it is exposed, or has rights, to variable returns from its involvement with the investee, and 3) has the ability to use its power to affect its returns This standard was first time adopted by Central Securities Depository in preparation of the financial statements for Additional guidance has been included in IFRS 10 to explain when an investor has control over an investee. Central Securities Depository has a 50 % share in RTRS LLP, however, none of the abovementioned conditions, required for recognition of Central Securities Depository control over RTRS LLP, have been met. Accordingly, Central Securities Depository did not consolidate RTRS LLP and Central Securities Depository s investments in RTRS LLP is accounted for on equity method. (continued on the next page) 17

18 Note 2 Basis of presentation of financial statements (continued) 2. New IFRS 11 Joint arrangements 11 replaces IAS 31 Interests in Joint Ventures and sets new requirements for joint arrangement agreements accounting and classification. Specifically, IFRS 11 excludes the option to classify such agreements as jointly controlled assets and sets the requirement to classify them as joint operations or joint ventures. Central Securities Depository did not apply IFRS 11 in preparation of its financial statements, as it has not been a party in a joint arrangement and does not have intention to enter in such arrangement. 3. New IFRS 12 Disclosure of Interest in Other Entities substitutes disclosure requirements for information on investments in associates, currently included in IAS 28 Investments in Associates and Joint Ventures and sets the requirement for more detailed disclosure of information in consolidated financial statements. This standard was not adopted by Central Securities Depository in preparation of the financial statements for 2013, as these financial statements are not consolidated financial statements. 4. New IFRS 13 Fair Value Measurement establishes a single source of guidance for fair value measurements of financial assets and liabilities that are measure at fair value, and for disclosures of the information on classification of such assets and liabilities. The scope of IFRS 13 is broad; the fair value measurement requirements of IFRS 13 apply to both financial instrument items and non-financial instrument items for which other IFRSs require or permit fair value measurements and disclosures about fair value measurements, except for: share-based payment transactions that are within the scope of IFRS 2 Share-based Payment ; leasing transactions that are within the scope of IAS 17 Leases. IFRS 13 is not applicable to measurements that have some similarities to fair value but are not fair value (e.g. net realizable value for the purposes of measuring inventories or value in use for impairment assessment purposes). IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions. Fair value under IFRS 13 is an exit price regardless of whether that price is directly observable or estimated using another valuation technique. Also, IFRS 13 includes more extensive disclosure requirements. IFRS 13 requires prospective application from 1 January In addition, specific transitional provisions were given to entities such that they need not apply the disclosure requirements set out in the standard in comparative information provided for periods before the initial application of the standard. (continued on the next page) 18

19 Note 2 Basis of presentation of financial statements (continued) This standard was adopted by Central Securities Depository in preparation of the financial statements for 2013, however, such adoption did not have significant impact on the information in the financial statements, as Central Security Depository did not report any financial or other assets and liabilities that would otherwise be measured at fair value or which fair value measurement disclosure would be required under other IFRS. 5. Amendments to IAS 19 Employee benefits change the accounting for defined benefit schemes and termination benefits and also change the requirements for disclosure of information on all types of employee benefits. These amendments were adopted by Central Securities Depository in preparation of the financial statements for Recognition and measurement of pension plan expense have not been made as Central Securities Depository does not have such pension plan. The requirements for disclosure of information on all types of employee benefits were followed in preparation of Note 21 to these financial statements. 6. Amendments to IAS 27 Separate Financial Statements changed the name of the standard and also excluded the paragraphs dealing with consolidated financial statements leaving the paragraphs dealing with separate financial statements unchanged. These amendments were adopted by Central Securities Depository in preparation of the financial statements for Amendments to IAS 28 Investments in Associates and Joint Ventures changed the name of standard, included the guidance for investments in associates and joint ventures accounting that are required to be accounted for on equity method, and also included guidance for parties in agreements on joint ventures with no joint control execution. These amendments were adopted by Central Securities Depository in preparation of the financial statements for 2013 and did not have significant impact on the financial statements of Central Securities Depository. 8. Amendments to IAS 1 Financial Statements Presentation were to analyze items within the statement of comprehensive income between items that will not be reclassified subsequently to profit or loss and items that will be reclassified subsequently to profit or loss. If the entity decides to stratify the information in this manner the tax amounts should also be classified within these two categories. Central Securities Depository did not have other comprehensive income in 2013 that could be reclassified to profit or loss and that would subsequently be reclassified to profit or loss. Items of income and expenses are fully presented in the financial statements of Central Securities Depository. 9. Amendments to IAS 12 Income Taxes provide a practical approach for measuring deferred tax liabilities and deferred tax assets when investment property is measured using the fair value model in IAS 40 Investment Property. (continued on the next page) 19

20 Note 2 Basis of presentation of financial statements (continued) These amendments were not adopted by Central Securities Depository in preparation of the financial statements for 2013 as Central Securities Depository does not carry any investment property. 10. Amendments to IFRS 7 Financial Instruments: Disclosures increase the disclosure requirements for transactions involving the transfer of rights to offset and according agreements (for example, rights to claim collateral) in relation to financial instruments under onerous agreements to offset or similar contracts. Central Securities Depository did not transfer assets in 2013, which would were not derecognized or which were subject to offset, as such the new disclosure requirements are not applicable to the financial statements for Changes in IFRSs that are not yet effective 1. New IFRS 9 Financial Instruments introduced new requirements for the classification, measurement and derecognition of financial assets and financial liabilities. All recognized financial assets that are within the scope of IAS 39 Financial Instruments: Recognition and Measurement are required to be subsequently measured at amortized cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortized cost at the end of subsequent accounting periods. All other debt investments and equity investments are measured at their fair value at the end of subsequent accounting periods. In addition, under IFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognized in comprehensive income. With regard to the measurement of financial liabilities designated as at fair value through profit or loss, IFRS 9 requires that the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is presented in other comprehensive income, unless the recognition of the effects of changes in the liability's credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability's credit risk are not subsequently reclassified to comprehensive income. Under IAS 39, the entire amount of the change in the fair value of the financial liability designated as fair value through profit or loss is presented in comprehensive income. (continued on the next page) 20

21 Note 2 Basis of presentation of financial statements (continued) New IFRS 9 is required for adoption from 1 January The adoption of the standard will not have significant impact on the financial statements as Central Securities Depository does not carry financial assets measured at fair value. 2. Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities clarify the requirements relating to the offset of financial assets and financial liabilities. Specifically, the amendments clarify the meaning of currently has a legally enforceable right of set-off and simultaneous realization and settlement. The amendments to IAS 32 are required to be adopted for the annual periods beginning 1 January There will be insignificant impact on the Central Securities Depository's financial statements as the Central Securities Depository does not have any financial assets and financial liabilities that qualify for offset. 3. Amendments to IFRS 10 Consolidated Financial Statements define an investment entity and require a reporting entity that meets the definition of an investment entity not to consolidate its subsidiaries but instead to measure its subsidiaries at fair value through profit or loss in its consolidated and separate financial statements. Central Securities Depository does not plan on adoption of the amendments that define an investment entity as it does not and will not meet the definition of the investment entity. 21

22 Note 3. SIGNIFICANT ACCOUNTING POLICIES Basis of presentation The financial statements of Central Securities Depository are prepared according to IFRS. Functional and presentation currency The functional and presentation currency of Central Securities Depository is the Kazakhstan tenge (KZT). Transactions of Central Securities Depository in foreign currencies are translated into the functional currency at the market exchange rate 4 determined in the manner prescribed by the decree No.15 of the Board National Bank of the Republic of Kazakhstan On establishment of the procedure for determination and application of currency market exchange rate dated 25 January 2013 and resolution of Minister of Finance of the Republic of Kazakhstan No. 99 dated 22 February Official KZT rates against foreign currencies used for the preparation of these financial statements are presented below. KZT Currency US dollar (USD) Euro (EUR) Pound Sterling (GBP) Russian ruble (RUB) Gains and losses resulting from the settlement by Central Securities Depository of the transactions in foreign currency and the translation into KZT of monetary assets and liabilities denominated in foreign currencies are recognized in the statement of comprehensive income of Central Securities Depository. (continued on the next page) 4 According to subpoint 10) of point 1 of article 12 of the Tax Code, the market currency exchange rate is the KZT weighted average market rate against a foreign currency at a session of a stock exchange operating in Kazakhstan, and determined in accordance with the procedure established by the National Bank of the Republic of Kazakhstan together with the authorised state body responsible for regulating accounting and financial statements, and also the KZT exchange rate against a foreign currency not quoted by a stock exchange operating in Kazakhstan using cross rates in accordance with the procedure established by the National Bank of the Republic of Kazakhstan together with the authorised state body responsible for regulating accounting and financial statements. 22

23 Note 3 Significant accounting policies (continued) Cash and Cash Equivalents Cash and cash equivalents include cash on hand, unrestricted balance in bank accounts that were opened to account for Central Securities Depository s own funds, and its investments in government securities. Investments of Central Securities Depository are classified as a cash equivalent only if they have a maturity of three months or less, from the date of recognition. Cash on savings accounts Central Securities Depository invests its own assets in time deposits in second-tier banks of the Republic of Kazakhstan according to the Own Assets Investment Policy approved by the Board of Directors of Central Securities Depository (minutes of the meeting # 4 dated 11 June 2010). Deposits are initially recognized by Central Securities Depository at their fair value and subsequently measured at amortized cost. Central Securities Depository determines amortized cost using the effective interest method. Financial assets and liabilities Central Securities Depository records a financial instrument in the statement of its financial position when it becomes a party to the contract in respect of this financial instrument. Central Securities Depository classifies its investments in government securities as investments held to maturity, which Central Securities Depository intends and has the ability to hold to maturity. Central Securities Depository classifies investments in accordance with its accounting policy and investment policy, approved by the Board of Directors of Central Securities Depository. Financial instruments are initially recognized by Central Securities Depository at their fair value and subsequently measured at amortized cost. The amortized cost of financial instruments is calculated by Central Securities Depository by using the effective interest rate. Central Securities Depository derecognizes financial assets when it loses control over contractual rights to the asset. This situation occurs when these rights are realized, transferred or expire. A financial liability is derecognized by Central Securities Depository when the financial liability is fulfilled, cancelled or expires. (continued on the next page) 23

24 Note 3 Significant accounting policies (continued) Accounts receivable from buyers and customers Accounts receivable are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Receivables are recognized initially by Central Securities Depository at fair value, and subsequently at amortized cost using the effective interest method less impairment. The amortized cost of receivables is calculated using the effective interest method. Accounts receivable reflected in the statement of financial position are recoverable. The provision for impairment of receivables is recognized by Central Securities Depository when there is objective evidence of the fact that it would not be able to obtain certain amount until the maturity specified by the agreement. The classification of receivables, creation of related provisions, and their accounting treatment by Central Securities Depository do not change the terms of agreements between Central Securities Depository and debtors, and also do not affect Central Securities Depository s entitlement to receive in full any principal, fines and late payment interest for debtors breach of contractual terms. If the accounts receivable can not be recovered, they are written off against the provision for impairment. The write-off of accounts receivable occurs after the management of Central Securities Depository undertakes measures to collect amounts owed to Central Securities Depository. Subsequent recovery of amounts previously written off amount is recorded as a decrease in losses on impaired assets in the statement of comprehensive income in the period of recovery. Classification of accounts receivable, provisioning and its adjustment is made once a year at the end of the last day of the reporting period. Impairment losses on receivables are recognized in the statement of comprehensive income. Accounts payable and other liabilities Accounts payable and other liabilities are stated by Central Securities Depository at fair value and on the moment of recognition. A financial liability is derecognized in the statement of financial position, if it is fulfilled (repaid), canceled or expired. (continued on the next page) 24

25 Note 3 Significant accounting policies (continued) Investments in associates In accordance with IAS 28 Investments in Associates and Joint Ventures an associate is an entity over which Central Securities Depository has significant influence and that is neither a subsidiary nor an interest in a joint venture (as concept of joint venture specified in IAS 31 Participation in joint venture ), but over financial and operational policies of which Central Securities Depository has a significant influence. In the financial statements of Central Securities Depository, investments in an associate are recognized using the equity method. Any impairment loss from investments of Central Securities Depository in its associate recognized in accordance with IAS 36 Impairment of assets. Inventories Inventories are recognized by Central Securities Depository at the lower of cost or net realizable value. Inventories are written off using the weighted average method. Central Securities Depository accounts for inventory in quantity and total value. Inventories consumed in the operations of Central Securities Depository are written off directly to the expenses of the reporting period. Property and equipment Material resources not intended for sale and being used in providing services or for administrative purposes and intended for such use in the economic activities of Central Securities Depository for more than one year are recognized by Central Securities Depository as property and equipment. Property and equipment are recorded by Central Securities Depository at actual (historical) cost less accumulated depreciation. The initial cost of property and equipment includes all of the costs actually incurred for the construction or acquisition of an asset. Central Securities Depository recognizes subsequent costs attributed to property and equipment that have already been recognized and evaluated accordingly as capitalized cost and used to increase historical cost if Central Securities Depository relatively sure of receiving future economic benefits (extended useful life, capacity increase or reduced costs during the operation of property and equipment). (continued on the next page) 25

26 Note 3 Significant accounting policies (continued) Any components of property and equipment replaced are written off. Central Securities Depository recognizes costs incurred to repair and maintain property and equipment, which do not increase historical cost, as current expenses when incurred (that is in costs in the reporting period in which they are incurred). Central Securities Depository recognizes the residual value of property and equipment as being equal to zero. Central Securities Depository allocates profit or loss from writing off property and equipment to financial results, as it is written off. Central Securities Depository depreciates property and equipment using the straight-line method. The depreciation periods of property and equipment, which are roughly the same as its estimated useful life, are as follows. Group of property and equipment Machines and equipment Vehicles Other property and equipment Depreciation period 5 10 years 7 years 5 10 years An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss. Loss from other disposal of fixed assets is equal to their book value. Income or loss from disposal of fixed assets is included in income or loss respectively. Intangible assets Expenditures on the acquisition of intangible assets (software, patents and licenses) are capitalized and amortized using a straight-line line basis over ten years. If Central Securities Depository has no plans to sell intangible assets before the end of their useful life, the residual value of these assets is recognized as being equal to zero. Intangible assets are recorded by Central Securities Depository at cost less accumulated amortization. The depreciation periods of intangible assets, approximating their estimated useful life, are as follows. Licenses Software Group of intangible assets Amortization period 10 years 10 years The cost of software development by Central Securities Depository itself is not recognized as intangible assets, as the cost of such software can not be estimated reliably. (continued on the next page) 26

27 Note 3 Significant accounting policies (continued) An intangible asset is derecognized as the result of sale or when future economic benefits are not expected from its use or disposal. Profit or loss on derecognition of an intangible asset representing the difference between the net disposal proceeds and the carrying amount of an asset is included in profit or loss at the time of cancellation. Income Tax Income tax for the year comprises current and deferred taxes. Income tax expense is recognized in the statement of comprehensive income, except when it is recognized directly in equity. Current tax is the expected tax payable on taxable income for the year, using tax rates enacted at the balance sheet date and any adjustments to tax payable in the past years. Deferred income taxes are recognized for all temporary differences, except where the timing of the reversal of temporary differences can be controlled and it is probable that such differences will not decrease in the foreseeable future. Deferred tax assets and liabilities are calculated by Central Securities Depository in respect of all temporary differences using the balance sheet liability method. Deferred income taxes are determined by Central Securities Depository for all temporary differences between the tax bases of assets and liabilities and their carrying amount in financial statements. A deferred tax asset is recognized only if it is probable that taxable profit will be reduced by the amount of deductible temporary differences. Deferred tax assets and liabilities are calculated by Central Securities Depository at tax rates that are expected during the period the asset is realized or the liability is settled, based on effective or enacted (and substantially enacted) tax rates at the reporting date. The carrying value of deferred tax assets or liabilities is reviewed at the end of each reporting period. Share capital Equity of Central Depositary is defined as the total amount received from the issuance of its shares. Dividends In accordance with the law of the Republic of Kazakhstan On Securities Market Central Securities Depository is a nonprofit organization, and according to the law of the Republic of Kazakhstan On Joint Stock Companies it neither accrues nor pays dividends on its shares. (continued on the next page) 27

28 Note 3 Significant accounting policies (continued) Leases Leases are classified by Central Securities Depository as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Lease payments within operating leases are recognized by Central Securities Depository in the comprehensive income on a straight-line basis over the term of the lease. Foreign currency transactions Monetary assets and liabilities denominated in foreign currencies are translated by Central Securities Depository into KZT at the market exchange rate at the reporting date. Foreign currency transactions are accounted for by it at the rate on the transaction date. Gains or losses arising on the settlement of such transactions as well as at the reporting date from the translation of monetary assets and liabilities denominated in foreign currencies into KZT are recognized in the statement of comprehensive income of Central Securities Depository. Provisions Provisions are recognized by Central Securities Depository in its financial statements when it has a present obligation as a result of a past event, and it is probable that outflow of economical benefit will be required to settle the obligation. Central Securities Depository accrues the provision for vacation payments and related social tax. Employee benefits Salaries and other equivalent payments are accrued by Central Securities Depository once a month. The basis for the payroll accrual is timesheets, orders on hiring an employee, transfers and dismissal of employees of Central Securities Depository. The premiums, financial aid and other payments to employees of Central Securities Depository are accrued in accordance with internal regulations approved by the Board of Directors of Central Securities Depository. Central Securities Depository makes contributions for their employees to pension funds selected by employees in compliance with the law of the Republic of Kazakhstan. At retirement, all pension payments are made by pension funds selected by employees. Central Securities Depository has no other obligations related to pension benefits of its employees. (continued on the next page) 28

29 Note 3 Significant accounting policies (continued) Contingent liabilities and contingent assets Central Securities Depository recognizes contingent liabilities in its financial statements, if the possibility of an outflow of resources associated with obtaining economic benefits is remote. Central Securities Depository recognizes contingent assets in its financial statements in the event that there is a significant probability of an inflow of economic benefits. Recognition of income Central Securities Depository divides its income in the accounting system and financial statements into income from services rendered and other income. Central Securities Depository s income from services includes the income received in accordance with the internal documents of Central Securities Depository Provision on Tariffs and Fares. Central Securities Depository s income from rendering services (income generating activities) is recognized if the following conditions are met: 1) the amount of the income can be measured reliably; 2) it is probable that economic benefits will flow to Central Securities Depository; 3) the extent of completeness of this transaction can be reliably measured at the reporting date; 4) expenses incurred by Central Securities Depository in connection with the transaction and its costs required to complete the transaction can be precisely measured. Other income of Central Securities Depository is recognized as follows: 1) interest expenses and foreign exchange gain at the end of the reporting period; 2) income from sale of fixed assets in the reporting period in which income was received; 3) income from write-off of the accounts payable at the expiry of the period of limitation. Net income of Central Securities Depository for the reporting period is allocated according to the decision made by the general meeting of shareholders of Central Securities Depository. 29

30 Note 4. CRITICAL ACCOUNTING JUDGMENTS AND ESTIMATES Central Securities Depository uses subjective estimates and assumptions regarding future operations. These estimates and judgments are reviewed on an ongoing basis based on historical experience and other factors, including expectations of future events that are believed to be reasonable in the circumstances. In the future, actual results could differ from these estimates and assumptions. The estimates and assumptions that carry a significant risk of material adjustment to the carrying amount of assets and liabilities in the next financial year are listed below. Carrying value of property and equipment Central Securities Depository is monitoring its property and equipment for the presence of internal and external indicators of impairment. During 2013 and as at 31 December 2013, there were no indicators of impairment of property and equipment. Useful lives of property and equipment Property and equipment are depreciated or impaired by Central Securities Depository for the duration of their useful life. The useful life is based on estimates of Central Securities Depository in respect of the period, during which the assets will generate economic benefits, and is periodically reviewed to determine the further suitability of assets. Income tax Central Securities Depository pays income tax in the Republic of Kazakhstan, and significant professional judgment is required to determine the appropriate provision for this tax. As a result, Central Securities Depository acknowledges its tax liabilities based on estimates of whether any additional taxes and penalties for defaulting on them would arise. These tax liabilities are recognized when Central Securities Depository believes that certain items of its tax return may be challenged and will not be fully confirmed by inspections of tax authorities, in spite of the fact that it believes that these items are properly justified. Central Securities Depository believes that the assessed tax liabilities are correct for all years still open for audit and are based on an assessment of many factors, including past experience, interpretations of tax law, estimates and assumptions and may include a number of complex judgments about future events. To the extent that the final tax implications of these issues differ from the amounts provided, such differences will affect the tax expense in the period in which these tax liabilities were assessed. 30

31 Note 5. CASH AND CASH EQUIVALENTS KZT thousands Item Cash Cash on bank accounts in KZT 102, ,009 Cash on hand 2,539 1,412 Cash on bank accounts in foreign 2,195 3,097 currencies Cash on card accounts 1, Cash on other accounts 4 TOTAL 108, ,878 As at 31 December 2013 and 2012, the investment portfolio of Central Securities Depository did not include financial instruments that would be otherwise classified as cash equivalents. 31

32 Note 6. CASH ON SAVING ACCOUNTS KZT thousands Item JSC Bank CenterСredit 102,173 JSC Kazkommertsbank 71,766 TOTAL 173,939 Principal conditions of the contract with JSC Bank CenterCredit: contract amount KZT 100, thousand; interest rate 4.5 %; start date of the contract 8 June 2012; end date of the contract 8 June Principal conditions of the contract with JSC Kazkommertsbank: contract amount KZT 70, thousand; interest rate 4.2 %; start date of the contract 19 April 2012; end date of the contract 19 April Central Securities Depository invests its own assets in term deposits with second-tier banks of the Republic of Kazakhstan according to the internal document of Central Securities Depository, Owned Assets Investment Policy, approved by the Board of Directors of Central Securities Depository (minutes No. 4 of the meeting dated 11 June 2010). Upon the maturity of deposit contracts stated above, the Central Securities Depository s investment committee decided not to reinvest cash in second-tier banks term deposits. As at 31 December 2013 Central Securities Depository did not hold cash on saving accounts. 32

33 Note 7. ACCOUNTS RECEIVABLE FROM BUYERS AND CUSTOMERS KZT thousands Item Accounts receivable from buyers and 88,391 82,016 customers Provision for impairment of accounts (536) (1,437) receivable from buyers and customers TOTAL 87,855 80,579 As at 31 December 2013 the following changes in the provision for impairment of accounts receivable from buyers and customers occurred: 1) due to the expiration of the claim, receivables amounting to KZT 1,171 thousand were written off, including KZT 1,127 thousand on JSC Alan Securities, KZT 24 thousand on JSC Almaty Investment Management and KZT 20 thousand on JSC Valut-Transit Bank ; 2) provision for impairment losses on receivables amounting to KZT 123 thousand was created for JSC Alem Management Company and KZT 22 thousand on JSC Greenwich Capital Management ; 3) provision for impairment losses on receivables amounting to KZT 47 thousand was created for Individual Entrepreneur ( IE ) Ospanov, KZT 39 thousand for IE Aimukhametova, KZT 32 thousand for IE SIS TECH, and KZT 7 thousand for IE Abaibekova K.D.. As at 31 December 2013, the provision for impairment of trade receivables include provisions created for the buyers and customers of Central Securities Depository: JSC Alem Management Company KZT 378 thousand; IE Ospanov KZT 47 thousand; IE Aimukhametova KZT 39 thousand; IE SIS TECH KZT 32 thousand; JSC Greenwich Capital Management KZT 22 thousand; General Asset Management LLP KZT 7 thousand; IE Abaibekova K.D. KZT 7 thousand; JSC Vostok Capital KZT 4 thousand. (continued on the next page) 33

34 Note 7 Accounts Receivable of Buyers and Customers (Continued) As at 31 December 2012, the provision for impairment of trade receivables include provisions accrued in prior periods for former clients of Central Securities Depository, with which contact was lost or terminated: JSC Alan Securities KZT 1,127 thousand; JSC Almaty Investment Management KZT 24 thousand; JSC Alem Management Company KZT 255 thousand; JSC Valut-Transit Bank KZT 20 thousand; General Asset Management LLP KZT 7 thousand; JSC Vostok Capital KZT 4 thousand. 34

35 Note 8. ADVANCES PAID KZT thousands Item Advances paid against delivery of short-term assets 9,467 27,991 Other prepaid taxes 2, TOTAL 12,183 28,599 Advances paid by Central Securities Depository as at 31 December 2013 were as follows. KZT thousands Debtor Details of advance Amount IE Ospanov Kairat Security deposit for the rent of premises * 4,180 Bakytovich InfoTech&Service LLP Paragraph Information System 2,300 maintenance Deloitte LLP Advance payment for audit services 1,980 Other vendors Miscellaneous 1,007 TOTAL 9,467 Short-term advances issued by Central Securities Depository as at 31 December 2012 were as follows. KZT thousands Debtor Details of advance Amount Thomas Murray Ratings Gap-analysis and public rating assignment 6,471 Limited JSC Oil Insurance Voluntary insurance premium advances 6,255 Company Business Applications Oracle software administration and 5,369 Solutions LLP maintenance IE Ospanov Kairat Security deposit for the rent of premises* 3,800 Bakytovich Marsh (Risk Development and implementation of Central 2,980 Consulting) LLP Securities Depository uninterrupted operations management system Deloitte LLP Advance payment for audit services 1,882 Other vendors Miscellaneous 1,234 TOTAL 27,991 * Under the lease terms Central Securities Depository is obliged to provide the lessor with a recoverable guarantee fee of monthly rent payments. 35

36 Note 9. FINANCIAL INSTRUMENTS, HELD TO MATURITY KZT thousands Type of security Government long-term treasury bonds of the 1,264, ,160 Ministry of Finance of the Republic of Kazakhstan (MEUKAM) Government medium-term treasury bonds of 534, ,773 the Ministry of Finance of the Republic of Kazakhstan (MEOKAM) Government short-term treasury bonds of the 81,452 Ministry of Finance of the Republic of Kazakhstan (МЕККАМ) Notes of the National Bank of the Republic 248,322 of Kazakhstan TOTAL 1,798,996 1,200,707 As at 31 December 2013, the investment portfolio of Central Securities Depository contained the following government securities classified as held to maturity: MEUKAM amounting to KZT 247,163 thousand with a coupon interest rate of 5.0 % per annum and maturing on 23 May 2020; MEUKAM amounting to KZT 89,066 thousand with a coupon interest rate of 4.93 % per annum and maturing on 9 June 2022; MEUKAM amounting to KZT 111,869 thousand with a coupon interest rate of 4.48 % per annum and maturing on 13 June 2018; MEOKAM amounting to KZT 155,041 thousand with a coupon interest rate of 4.8 % per annum and maturing on 13 August 2015; MEOKAM amounting to KZT 102,702 thousand with a coupon interest rate of 5.5 % per annum and maturing on 23 October 2017; MEUKAM amounting to KZT 149,277 thousand with a coupon interest rate of 4.5 % per annum and maturing on 21 August 2018; MEUKAM amounting to KZT 125,527 thousand with a coupon interest rate of 6.0 % per annum and maturing on 7 October 2016; MEOKAM amounting to KZT 102,737 thousand with a coupon interest rate of 5.0 % per annum and maturing on 20 May (continued on the next page) 36