Good Bank (International) Limited

Transcription

1 Good Bank (International) Limited International GAAP Illustrative financial statements for the year ended 31 December 2011 Based on International Financial Reporting Standards in issue at 30 September 2011

2 Contents Abbreviations and key... iii Introduction... 1 Basis of preparation and presentation... 6 General information Independent auditor s report to the shareholders of Good Bank (International) Limited Consolidated income statement Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements Corporate information Accounting policies Basis of preparation Significant accounting judgements, estimates and assumptions Changes in accounting policy and disclosures Summary of significant accounting policies Standards issued but not yet effective Segment information Interest and similar income Interest and similar expense Net fees and commission income Net trading income Net gain or (loss) on financial instruments designated at fair value through profit or loss Other operating income Credit loss expense Impairment losses on financial investments Personnel expenses Other operating expenses Income tax Discontinued operations Earnings per share Income tax effects relating to comprehensive income Dividends paid and proposed Cash and balances with central banks Due from banks Transferred financial assets Derivative financial instruments Other financial assets and financial liabilities at fair value through profit or loss Non-current assets and disposal groups held for sale Loans and advances to customers Financial investments Other assets Property and equipment Goodwill and other intangible assets Due to banks Due to customers Debt issued and other borrowed funds Other liabilities Provisions Retirement benefit plan Good Bank (International) Limited i

3 36. Issued capital and reserves Fair value of financial instruments A Determination of fair value and fair value hierarchy B Reclassification of financial assets Securitisation and asset management activities Risk management Introduction Credit risk Liquidity risk and funding management Market risk Country risk Operational risk Share based payment Additional cash flow information Maturity analysis of assets and liabilities Contingent liabilities, commitments and leasing arrangements Related party disclosures Events after the reporting date Capital ii

4 Abbreviations and key The following styles of abbreviation are used in these International GAAP Illustrative Financial Statements: IAS International Accounting Standard No. 33, paragraph 41 IAS 1.BC13 International Accounting Standard No. 1, Basis for Conclusions, paragraph 13 IFRS 2.44 International Financial Reporting Standard No. 2, paragraph 44 SIC 29.6 Standing Interpretations Committee Interpretation No. 29, paragraph 6 IFRIC 4.6 IFRS Interpretations Committee (formerly IFRIC) Interpretation No. 4, paragraph 6 IAS 39.IG.G2 IAS 39 Financial Instruments: Recognition and Measurement Guidance on Implementing IAS 39 Section G: Other, paragraph G2 IAS 39.AG71 IAS 39 Financial Instruments: Recognition and Measurement Appendix A Application Guidance, paragraph AG71 IFRS 7.IG21 IFRS 7 Financial Instruments: Disclosures Guidance on Implementing, paragraph 21 IFRS 7.BC54 IFRS 7 Financial Instruments: Disclosures Basis for Conclusions, paragraph 54 IFRS 7.B11 IFRS 7 Financial Instruments: Disclosures Appendix B Application Guidance, paragraph B11 IAS 18.Appx14 Appendix to International Accounting Standard No. 18, paragraph 14 GAAP IASB EAP report ED IFRS 7 Interpretations Committee Generally Accepted Accounting Principles/Practice International Accounting Standards Board (the Board) The IASB Expert Advisory Panel report: Measuring and Disclosing the Fair Value of Financial Instruments in Markets that are no longer active Exposure Draft: Improving Disclosures about Financial Instruments, Proposed amendments to IFRS 7 IFRS Interpretations Committee (formerly the International Financial Reporting Interpretations Committee, IFRIC) Good Bank (International) Limited iii

5 Introduction The purpose of this publication is to provide a practical working model of consolidated financial statements, prepared in accordance with IFRS, for a fictitious banking entity, Good Bank (International) Limited (Good Bank) and its subsidiaries (the bank), incorporated and listed in Goodland, with a reporting date of 31 December Goodland is a fictitious country, whose currency is the Goodland dollar ($), which is also the bank s functional and presentation currency. IFRS references are shown on each page of the financial statements, indicating the specific IFRS paragraph that outlines the accounting treatment or disclosure for that particular line item or block of narrative. These financial statements should not be relied upon as a substitute for detailed advice concerning individual situations or for reference to the relevant IFRS. These illustrative financial statements are not intended to satisfy country or stock market regulations in any given jurisdiction and may have to be significantly altered to meet such requirements. In case of doubt as to the requirements, it is essential to refer to the relevant IFRS guidance and, where necessary, seek appropriate professional advice. These model financial statements will need to be tailored to reflect the individual circumstances of an actual bank. The narrative given here will, in practice, also need to be extended to provide more detail in order to meet the various disclosure requirements. A supplement on the early adoption of the first phase of IFRS 9 Financial Instruments: Classification and Measurement by Good Bank will be released in due course. These illustrative financial statements do not attempt to include every disclosure that banks may need to provide. For instance, it is assumed that the bank does not engage in a portfolio fair value hedge of interest rate risk (in accordance with IAS 39) and so the required disclosures are not given. This edition of Good Bank (International) Limited reflects professional pronouncements issued as at 30 September International Financial Reporting Standards (IFRS) The abbreviation IFRS is defined in paragraph 5 of the preface to IFRS to include the standards and interpretations approved by the International Accounting Standards Board (IASB), and International Accounting Standards (IAS) and Standing Interpretations Committee (SIC) interpretations issued under previous constitutions. Thus, when financial statements are described as complying with IFRS, this means that they comply with the entire hierarchy of pronouncements sanctioned by the IASB, including International Accounting Standards, International Financial Reporting Standards and interpretations originated by the IFRS Interpretations Committee (formerly the International Financial Reporting Interpretations Committee, IFRIC) or the former Standing Interpretations Committee. For the purposes of this publication, the abbreviation IFRS is used for both reference to IFRS and to the other standards and interpretations approved by the IASB. International Accounting Standards Boards (IASB) The IASB is the independent standard-setting body of the IFRS Foundation (an independent not-for-profit private sector organisation working in the public interest). The IASB members (currently 15 full-time members) are responsible for the development and publication of IFRSs, including the IFRS for SMEs and for approving Interpretations of IFRSs as developed by the IFRS Interpretations Committee. In fulfilling its standard-setting duties, the IASB follows a due process of which the publication of consultative documents, such as discussion papers and exposure drafts, for public comment is an important component. The IFRS Interpretations Committee The IFRS Interpretations Committee (Interpretations Committee) is a committee appointed by the IASC Foundation Trustees that assists the IASB in establishing and improving standards of financial accounting and reporting for the benefit of users, preparers and auditors of financial statements. The Interpretations Committee addresses issues of reasonably widespread importance, rather than issues of concern to only a small set of entities. Its interpretations cover both: Newly identified financial reporting issues not specifically addressed in IFRS Issues where unsatisfactory or conflicting interpretations have developed, or seem likely to develop, in the absence of authoritative guidance, with a view to reaching a consensus on the appropriate treatment Issues to be considered in the annual improvements to IFRS Good Bank (International) Limited 1

6 Commentary The consolidated financial statements of Good Bank have been prepared in accordance with IFRS as issued by the IASB. Certain entities within the European Union (EU) are required to adopt IFRS as adopted by the EU. The same may be applicable in other jurisdictions. There may be differences between IFRS as issued by the IASB and such jurisdictional endorsed IFRS if at any time new or amended IFRS have not been adopted by the jurisdiction. This publication does not illustrate any of these differences. Financial review by management Many entities present a financial review by management that is outside the financial statements. IFRS does not require the presentation of such information, although paragraph 13 of IAS 1 gives a brief outline of what might be included in an annual report. The IASB has issued an IFRS Practice Statement Management Commentary in December 2010, which provides a broad, non-binding framework for the presentation of a management commentary that relates to the financial statements that have been prepared in accordance with IFRS. If a company decides to follow the guidance in the Practice Statement, management is encouraged to explain the extent to which the Practice Statement has been followed. A statement of compliance with the Practice Statement is only permitted if it is followed in its entirety. The content of a financial review by management is often determined by local market requirements or issues specific to a particular jurisdiction. Therefore, no financial review by management has been included for Good Bank (International) Limited. 2 Good Bank (International) Limited

7 Changes in the 2011 edition of Good Bank (International) Limited Annual Financial Statements These illustrative financial statements have changed since the 2010 edition due to standards and interpretations issued or amended since 31 August We have also introduced certain additional disclosures which are listed below. Amendment to IAS 24 Related Party Disclosures The amendment to IAS 24 clarified the definition of a related party, but without changing the fundamental approach to related party disclosures. It emphasises a symmetrical view on related party relationships and clarifies how a person or key management personnel can impact an entity s related-party relationships. In addition, the amendment provides for an exemption to related party disclosures for government-related entities. The amendment is effective for financial years beginning on or after 1 January 2011 (Note 44). Improvements to IFRSs The updated IFRS 7.36(a) as part of the Improvements to IFRSs (issued May 2010) clarifies that further disclosure of the amount that represents the maximum exposure to credit risk is needed only for financial assets whose carrying amount does not already reflect the maximum exposure to credit risk. This would generally mean that financial instruments such as financial guarantees and letters of credit may be required to be disclosed, but other financial assets such as derivatives and loans and advances may not require disclosure. However, the updated IFRS 7.36(b) requires, for all financial assets, disclosure of the financial effect of collateral held as security and other credit enhancements (i.e., a quantification of the extent to which collateral mitigates credit risk). Good Bank has disclosed both in the same table to show the full effect of the financial asset s related collateral for each class of financial asset, including financial assets that have no collateral (Note 39.2). The bank should also describe its methodology for determining the fair value of collateral disclosed within the notes of the accounts. Good Bank discloses this information in note 2.4(7)(iv). Impairment disclosures in the 2011 edition In the current economic environment, the subject of impairment has become both topical and highly sensitive. Many analysts and regulators have been reviewing the methodologies banks use for assessing impairments and are increasingly asking for additional disclosures. The note disclosures covering impairments in the 2011 edition of Good Bank (International) Limited are summarised below: Significant accounting judgements, estimates and assumptions Note 2.2 Summary of significant accounting policies (financial assets) Note 2.4(7) Summary of significant accounting policies (non-financial assets) Note 2.4(16) Impairment losses on financial investments Note 11 Discontinued operations Note 15 Due from banks Note 20 Loans and advances to customers Note 25 Financial investments: available for sale investments Note 26 Property and equipment Note 28 Goodwill and intangible assets Note 29 Risk management (credit risk) Note 39.2 Additional disclosures introduced in this edition In the 2011 edition, the bank includes the following disclosures to reflect topical issues: Banking levy A number of governments have introduced a levy on banks designed to recover the cost of direct fiscal support that was provided during the financial crisis. The levy ensures that the banking sector makes a contribution, reflecting the risks they pose to the financial system and the wider economy and to address the cost of future financial failures. Whilst the exact mechanics of the levy vary between countries, the amount of the levy is generally based on the statement of financial position at a particular date with deductions for Tier 1 capital and longer term funding. The key accounting issue for the annual financial statements is where the levy be recorded. Good Bank considers that the levy is not a tax on income within the scope of IAS 12 and has accrued the cost within Other operating expenses (Note 13). Early adoption of derecognition requirements under IFRS 7 Financial Instruments: Disclosures The IASB issued an amendment to IFRS 7 on 7 October This amendment deleted paragraph 13 of IFRS 7 and replaced it with paragraphs 42A to 42H. The amendment provides enhanced disclosures regarding Transferred financial assets that are derecognised in their entirety and Transferred assets that are not derecognised in their entirety. The effective date is for annual periods beginning on or after 1 July 2011 but early adoption is allowed. Good Bank has decided to early adopt the amendment to IFRS 7 and has declared this fact within the notes to the financial statements. It should be noted that, Continuing involvement as defined for disclosure purposes (in the Amendments) is different from that Good Bank (International) Limited 3

8 applied for accounting purposes in IAS 39 Financial Instruments: Recognition and Measurement (now carried forward to IFRS 9 Financial Instruments). Good Bank discloses this information within the same note as required by IFRS 7.42A (Note 21). Disposal of the Asset Management division - Due to the significant financial crisis in 2008 and the subsequent support from sovereign governments and organisations such as the International Monetary Fund (IMF), many banks have been instructed, as part of the terms of their bailout, to restructure and focus on their core businesses. As such, it was determined that the Asset Management business was not part of Good Bank s core business and a decision was made to dispose of the business line (Notes 15 and 24). Issuance of write-down bonds - As a consequence of changes in regulatory capital requirements, many banks have raised additional funding by issuing subordinated debt. Generally, these instruments pay a higher coupon, but if there is a trigger caused by a severe market event, the bonds would be written down based on a predetermined formula. Good Bank has issued these subordinated bonds and redeemed some senior bonds (Note 32). Impairment of part of the bank s Europe Segment sovereign debt portfolio - Due to the ongoing sovereign debt crisis in Europe, many banks have considered whether any of their investments are impaired. Furthermore, a number of regulatory and advisory bodies have recommended further disclosures on country risk and sovereign debt exposures. Good Bank has recorded provisions against its Greek debt exposure and has disclosed its exposures to other selected governments and countries (Note 39.5). 4 Good Bank (International) Limited

9 Allowed alternative treatments In some cases, IFRS permits more than one accounting treatment for some transactions or events. Preparers of financial statements should choose the treatment that is most relevant to their business. IAS 8 requires an entity to select and apply its accounting policies consistently for similar transactions, and/or other events and conditions, unless an IFRS specifically requires or permits categorisation of items for which different policies may be appropriate (for example, a loan portfolio would generally be classified as loans and receivables at amortised cost, but under certain circumstances, could be classified as fair value through profit and loss and held at fair value). Where a standard requires or permits such categorisation, an appropriate accounting policy is selected and applied consistently to each category. Therefore, once a choice of one of the alternative treatments has been made, it becomes an accounting policy and must be applied consistently. Changes in accounting policy should only be made if required by a standard or interpretation, or if the change results in the financial statements providing reliable and more relevant information. In this publication, where a choice is permitted by IFRS, the bank has adopted one of the treatments as appropriate to the circumstances of the bank. The commentary provides details of which policy has been selected, and the reasons for this, and summarises the difference in the disclosure requirements. Good Bank (International) Limited 5

10 Basis of preparation and presentation The bank s consolidated annual financial statements are presented to illustrate consolidated (1) annual financial statements produced in accordance with IFRS and, where applicable, interpretations issued by the Interpretations Committee. Disclosures have not been illustrated for a number of IFRS standards that are either not relevant to the financial services industry or not applicable to the bank s circumstances. A list of IFRS standards have been provided below with indications of whether the standard/interpretation is included within Good Bank or within our illustrative financial statements for Good Group. Standards not included within Good Bank or Good Group may be included within one of Ernst & Young s other sets of illustrative financial statements listed after the list of standards. IFRS 1 First-time Adoption of International Financial Reporting Standards IFRS 2 Share-based Payment IFRS 3 Business Combinations (Revised in 2008) IFRS 4 Insurance Contracts IFRS 5 Non-current Assets Held for sale and Discontinued Operations IFRS 6 Exploration for and Evaluation of Mineral Resources IFRS 7 Financial Instruments: Disclosures IFRS 8 Operating Segments IFRS 9 Financial Instruments IFRS 10 Consolidated Financial Statements IFRS 11 Joint Arrangements IFRS 12 Disclosure of Interests in Other Entities IFRS 13 Fair Value Measurement IAS 1 Presentation of Financial Statements IAS 2 Inventories IAS 7 Statement of Cash Flows IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors IAS 10 Events after the Reporting Period IAS 11 Construction Contracts IAS 12 Income Taxes IAS 16 Property, Plant and Equipment IAS 17 Leases IAS 18 Revenue IAS 19 Employee Benefits IAS 20 Accounting for Government Grants and Disclosure of Government Assistance IAS 21 The Effects of Changes in Foreign Exchange Rates IAS 23 Borrowing Costs IAS 24 Related Party Disclosures IAS 26 Accounting and Reporting by Retirement Benefit Plans IAS 27 Consolidated and Separate Financial Statements (Revised in 2008) IAS 28 Investments in Associates IAS 29 Financial Reporting in Hyperinflationary Economies IAS 31 Interests in Joint Ventures IAS 32 Financial Instruments: Presentation IAS 33 Earnings per Share IAS 34 Interim Financial Reporting IAS 36 Impairment of Assets IAS 37 Provisions, Contingent Liabilities and Contingent Assets IAS 38 Intangible Assets IAS 39 Financial Instruments: Recognition and Measurement IAS 40 Investment Property IAS 41 Agriculture Good Bank Good Group (1) The consolidated financial statements do not include the standalone disclosures for the parent. In certain jurisdictions, IFRS may apply to the parent entity and hence disclosures should also be made for the parent. 6 Good Bank (International) Limited

11 IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities IFRIC 2 Members Shares in Co-operative Entities and Similar Instruments IFRIC 4 Determining whether an Arrangement Contains a Lease IFRIC 5 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds IFRIC 6 Liabilities arising from Participating in a Specific Market Waste Electrical and Electronic Equipment IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies IFRIC 9 Reassessment of Embedded Derivatives IFRIC 10 Interim Financial Reporting and Impairment IFRIC 12 Service Concession Arrangements IFRIC 13 Customer Loyalty Programmes IFRIC 14 IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction IFRIC 15 Agreements for the Construction of Real Estate IFRIC 16 Hedges of a Net Investment in a Foreign Operation IFRIC 17 Distributions of Non-cash Assets to Owners IFRIC 18 Transfers of Assets from Customers IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments SIC 7 Introduction of the Euro SIC 10 Government Assistance No Specific Relation to Operating Activities SIC 12 Consolidation Special Purpose Entities SIC 13 Jointly Controlled Entities Non-Monetary Contributions by Venturers SIC 15 Operating Leases Incentives SIC 21 Income Taxes Recovery of Revalued Non-Depreciable Assets SIC 25 Income Taxes Changes in the Tax Status of an Entity or its Shareholders SIC 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease SIC 29 Service Concession Arrangements: Disclosures SIC 31 Revenue Barter Transactions Involving Advertising Services SIC 32 Intangible Assets Web Site Costs Good Bank Good Group All standards and interpretations listed above incorporate all amendments effective 1 January 2011, unless otherwise stated. It is important to note that the IASB may have issued new and revised standards and interpretations subsequent to 30 September Therefore, users of this publication are advised to verify that there has been no change in the IFRS requirements between 30 September 2011 and the date on which their financial statements are authorised for issue. Any standards issued but not yet effective need to be considered in the disclosure requirements of a reporting entity. This set of illustrative statements is one of many prepared by Ernst & Young to assist you in preparing your own financial statements. Refer to: Good Group (International) Limited for other non-bank specific disclosures (e.g., investment property) Good Investment Fund (International) Limited for disclosures relating to asset management companies Good Insurance (International) Limited for illustrative disclosures relating to the insurance industry Good First-time Adopter (International) Limited Other model accounts currently available are: Good Petroleum (International) Limited Good Mining (International) Limited Good Real Estate Group (International) Limited Good Group (International) Limited - Illustrative interim condensed consolidated financial statements Good Construction Group (International) Limited Look for other industry-specific illustrative financial statements to be added in the future. Good Bank (International) Limited 7

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13 Good Bank (International) Limited Consolidated Financial Statements 31 December 2011 Good Bank (International) Limited 9

14 General information Directors N. Brown (Chairman) T.M. Henry (Chief Executive) S.R. Ividya (CFO) P. Khatun A. Adedoyin-Bolaji J. Murphy G. van Lof M. Acucheta Company Secretary M. Menon Registered Office Currency House 29 Hedge Street Goodville, Goodland Solicitors Solicitors & Co. 7 Scott Street Goodville, Goodland Auditors Chartered Accountants & Co. 17 Goodville Square Goodville, Goodland 10 Good Bank (International) Limited

15 Independent auditor s report to the shareholders of Good Bank (International) Limited We have audited the accompanying consolidated financial statements of Good Bank (International) Limited and its subsidiaries (the bank), which comprise the consolidated statement of financial position as at 31 December 2011, and the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and the related notes. Management s responsibility for the consolidated financial statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement. Auditor s responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects the financial position of the bank as at 31 December 2011, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. Chartered Accountants & Co. 31 January Goodville Square Goodville Goodland Commentary The auditor s report has been prepared in accordance with ISA 700 (Revised) The Auditor s Report on Financial Statements, as issued by the IAASB under the auspices of the IFAC, which is applicable for audits of financial statements for periods ending on or after 15 December The audit report may differ depending on the requirements of the relevant jurisdictions. Good Bank (International) Limited 11

16 Consolidated income statement for the year ended 31 December 2011 IAS 1.9(d), IAS 1.51(c),(d),(e) 2010 IAS 1.29, IAS Restated* IFRS 5.34 Notes $ million $ million IAS 1.46, IAS 1.45 IAS Interest and similar income 4 4,748 4,655 IFRS 7.20(b) Interest and similar expense 5 (2,001) (1,982) IFRS 7.20(b), IAS 1.82(b) Net interest income 2,747 2,673 Fees and commission income 6 1,277 1,215 IFRS 7.20(c)(i) Fees and commission expense 6 (133) (110) IFRS 7.20(c)(i) Net fee and commission income 6 1,144 1,105 Net trading income IFRS 7.20(a)(i) Net loss on financial assets and liabilities designated at fair value through profit or loss 8 (37) (10) IFRS 7.20(a)(i) Other operating income IFRS 7.20(a) Total operating income 4,333 4,196 IAS 1.85 Credit loss expense 10 (667) (910) IFRS 7.20(e) Impairment losses on financial investments 11 (360) (110) IFRS 7.20(e) Net operating income 3,306 3,176 IAS 1.82(a) Personnel expenses 12 1,204 1,200 IAS 1.99 Depreciation of property and equipment IAS 1.99 Amortisation of intangible assets IAS (d) Other operating expenses 13 1, IAS 1.99 Total operating expenses 2,364 2,299 IAS 1.85 Profit before tax from continuing operations IAS 1.85 Income tax expense IAS 1.82(d), IAS Profit for the year from continuing operations IAS 1.82(f) Discontinued operations Profit after tax for the year from discontinued operations IAS 1.82(e)(i) Profit for the year Attributable to: Equity holders of the parent Profit for the year from continuing operations IAS 1.83(a) Profit for the year from discontinued operations Profit for the year attributable to equity holders of the parent Non Controlling Interest Profit for the year from continuing operations 6 7 IAS 1.83(a), IAS Profit for the year from discontinued operations 3 1 Profit for the year attributable to non controlling interests Earnings per share $ $ Equity shareholders of the parent for the year: Basic earnings per share IAS Diluted earnings per share IAS Basic earnings per share from continuing operations Diluted earnings per share from continuing operations * Certain amounts shown here do not correspond with the 2010 financial statements to reflect adjustments made for discontinued operations as detailed in Note 2.4(27). Commentary IAS 1.86 and IAS 1.99 requires expenses to be analysed by their nature or by their function within the entity, whichever provides information that is reliable and more relevant. The bank has presented the analysis of expenses by nature. 12 Good Bank (International) Limited

17 Consolidated statement of comprehensive income for the year ended 31 December Restated* IAS 1.51 (b)(c) Notes $ million $ million IAS 1.51,(d),(e) Profit for the year from continuing operations IAS 1.82(f) Discontinued operations Profit for the year IFRS 5.34,IAS 1.10(b) Other comprehensive income Net gain on hedge of net investments IAS 1.82(g) Exchange differences on translation of foreign operations (26) (76) IAS 1.82(g) Cash flow hedges: Gains arising during the year Less: Reclassification adjustments for (loss) included in the income statement (30) (25) IAS 1.92 Net gain on cash flow hedges Available for sale financial assets: Loss arising during the year (47) (72) Less: Reclassification adjustments for gain/(loss) included in the income statement 13 (14) IAS 1.92 Net loss on available for sale financial assets (34) (86) Total other comprehensive income 137 (84) Income tax (charge)/credit relating to components of other comprehensive income (44) 26 IAS 1.90,IAS 12,44 Other comprehensive income for the year, net of tax (58) IAS 1.85 Total comprehensive income for the year, net of tax 1, IAS 1.82 (i) Attributable to: Equity holders of the parent 1, IAS 1.83(b) (ii) Non controlling interest 9 8 1, IAS 1.83(b)(i) IAS * Certain amounts shown here do not correspond with the 2010 financial statements and reflect adjustments made for discontinued operations as detailed in Note 2.4(27). Commentary IAS 1.81 requires the bank to present a statement of changes in comprehensive income in either a single statement or two statements. The bank has elected to present the statement of comprehensive income in two statements, a statement presenting components of profit or loss (the consolidated income statement) and a second statement beginning with profit for the year, presenting components of other comprehensive income. The income tax effect has also been presented on an aggregated basis. Therefore, an additional note disclosure presents the income tax effect of each component. Refer to note 17. Alternatively, this information could have been presented within the statement of comprehensive income. Good Bank (International) Limited 13

18 Consolidated statement of financial position as at 31 December 2011 IFRS5.34,IAS 1.10(b) IAS 1.51 (b)(c) Notes $ million $ million IAS 1.51(d),(e) Assets Cash and balances with central banks 19 4,080 2,702 IAS 1.54(i) Due from banks 20 10,604 10,489 IAS 1.54(d), IFRS 7.8(c) Cash collateral on securities borrowed and reverse repurchase agreements 21 7,628 7,673 IAS 1.54(d), IFRS 7.8(c ) Derivative financial instruments 22 7,473 7,144 IAS 1.54(d), IFRS 7.8(a) Other financial assets held for trading 23 6,392 6,365 IAS 1.54(d), IFRS 7.8(a) Financial assets held for trading pledged as collateral 23 4,020 4,003 IAS 1.54(d), IAS 39.37(a) Financial assets designated at fair value through profit or loss 23 1,266 1,241 IAS 1.54(d), IFRS 7.8(a) Loans and advances to customers 25 47,924 47,163 IAS 1.54(d), IFRS 7.8(c) Financial investments available for sale 26 7,848 8,316 IAS 1.54(d), IFRS 7.8(d) Financial investments available for sale pledged as collateral 26 3,919 3,988 IAS 1.54(d), IAS 39.37(a) Financial investments held to maturity IAS 1.54(d), IFRS 7.8(b) Other assets 27 1,018 1,003 IAS 1.55 Property and equipment ,006 IAS 1.54(a) Goodwill and other intangible assets IAS 1.54(c) Deferred tax assets IAS 1.54(o) Non-current assets and disposal groups held for sale Total assets 103, ,535 Liabilities Due to banks 30 3,222 3,174 IAS 1.54(m), IFRS 7.8(f) Cash collateral on securities lent and repurchase 21 12,169 12,214 IAS 1.54(m) agreements Derivative financial instruments 22 8,065 7,826 IAS 1.54(m), IFRS 7.8(e) Other financial liabilities held for trading 23 4,160 4,078 IAS 1.54(m), IFRS 7.8(e) Financial liabilities designated at fair value through profit or loss 23 3,620 3,549 IAS 1.54(m), IFRS 7.8(e) Due to customers 31 56,143 56,177 IAS 1.54(m), IFRS 7.8(f) Debt issued and other borrowed funds 32 6,310 5,179 IAS 1.54(m), IFRS 7.8(f) Current tax liabilities IAS 1.54(n) Other liabilities 33 1,860 1,929 IAS 1.55 Provisions IAS 1.54(l) Deferred tax liabilities IAS 1.56,IAS1.54(O) Non-current liabilities and disposal groups held for 24 IAS 1.54(p) sale 10 Total liabilities 96,392 94,904 Equity attributable to equity holders of parent Issued capital IAS 1.54(r),IAS 1.78(e) Treasury shares 36 (22) (19) IAS 1.54(r),IAS 1.78(e) Share premium 1,160 1,160 IAS 1.54(r), IAS 1.78(e Retained earnings 4,632 4,121 IAS 1.54(r), IAS 1.78(e Other reserves IAS 1.54(r), IAS 1.78(e) 7,191 6,590 Non Controlling Interest IAS 27.27,IAS 1.54(q) Total equity 7,240 6,631 Total liabilities and equity 103, ,535 Commentary IAS 1.60 requires entities to present assets and liabilities in order of their liquidity (rather than split between current and noncurrent) when this presentation is reliable and more relevant, as will usually be the case for a bank. It is not necessary to show each category of financial instrument on the face of the statement of financial position. This information may be shown in the notes to the financial statements. 14 Good Bank (International) Limited

19 Consolidated statement of changes in equity for the year ended 31 December 2011 Issued capital Attributable to equity holders of the parent Treasury shares Share premium Retained earnings Other reserves (Note 36) Total Attributable to equity holders of the parent Non Controlling Interest Total equity IAS 1.51 (b), (c) IFRS 5.34 IAS $ million $ million $ million $ million $ million $ million $ million $ million IAS 1.51(d),(e) At 1 January (15) 1,159 3, , ,346 IAS 1.106(d) Total comprehensive income 753 (58) IAS 1.106(d)(I)(ii) Issue of share capital (Note 36) Share-based payments (Note 40) IFRS 2.50 Dividends (418) (418) (418) IAS Net purchase of treasury shares (Note 36) (4) (4) (4) IAS (d)(iii) Dividends of subsidiaries (1) (1) IAS At 31 December (19) 1,160 4, , ,631 Other comprehensive income IAS1.106 (d)(ii) Total comprehensive income , ,061 IAS 1.106(a) Share-based payments (Note 40 ) IFRS 2.50 Dividends (452) (452) (452) IAS Net purchase of treasury shares (Note 36 ) (3) (3) (3) IAS (d)(iii) Dividends of subsidiaries (1) (1) IAS At 31 December (22) 1,160 4, , ,240 Commentary For equity-settled share-based payment transactions, IFRS 2.7 requires entities to recognise an increase in equity when goods or services are received. However, IFRS 2 does not specify where in equity this should be recognised. The bank has chosen to recognise the credit in other capital reserves. The bank provided treasury shares to employees exercising share options and elected to recognise the excess of cash received over the acquisition cost of those treasury shares in share premium. In some jurisdictions, it is common to transfer other capital reserves to share premium or retained earnings when the share options are exercised or expire. The bank has elected to continue to present other capital reserves separately. Good Bank (International) Limited 15

20 Consolidated statement of cash flows for the year ended 31 December Restated* Notes $ million $ million IAS 1.51(d),(e) IAS 1.10(d), IFRS 5.34 IAS 7.18(b) IAS 7.10 Operating activities IAS 7.18(b) Profit before tax from continuing operations Profit before tax from discontinued operations Profit before tax 1,066 1,022 Adjustment for: Change in operating assets 41 (321) (2,311) IAS 7.20(a) Change in operating liabilities ,106 IAS 7.20(a) Other non-cash items included in profit before tax IAS 7.20(b) Net gain/(loss) from investing activities 1,326 (3,310) IAS 7.20(c) Net gain/(loss) from financing activities (2,817) 2,580 Income tax paid (147) (136) IAS 7.35 Net cash flows from operating activities Investing activities IAS 7.21, IAS 7.10 Proceeds from sale of Asset Management division 15 1,152 Purchase of property and equipment 28 (99) (90) IAS 7.16(a) Proceeds from sale of property and equipment IAS 7.16(b) Purchase of intangible assets 29 (15) (16) IAS 7.16(d) Net cash flows from/(used in) investing activities 1,056 (91) Financing activities IAS 7.21, IAS 7.10 Proceeds from exercise of options 2 IAS 7.17(a) Purchase of treasury shares 36 (5) (7) IAS 7.17(b) Proceeds from sale of treasury shares IAS 7.17(a) Proceeds from issuance of write-down bonds 32 1,998 IAS 7.17(e) Repayment of $1billion fixed rate notes due 2011/13 32 (998) IAS 7.17(c) Dividends paid to equity holders of the parent 18 (452) (418) IAS 7.31 Net cash flows from /(used in) financing activities 545 (420) Net increase/(decrease) in cash and cash equivalents 1,693 (300) Net foreign exchange difference IAS 7.28 Cash and cash equivalents at 1 January 3,974 4,250 Cash and cash equivalents at 31 December 41 5,696 3,974 IAS 7.45 Operational cash flows from interest and dividends Interest paid 2,101 2,005 IAS 7.31 Interest received 4,520 4,431 IAS 7.31 Dividend received IAS 7.31 * Certain amounts shown here do not correspond with the 2010 financial statements and reflect adjustments made for discontinued operations as detailed in Note 2.4(27) Commentary IAS 7.18 allows entities to report cash flows from operating activities using either the direct method (in which the major classes of gross cash payments and receipts are disclosed) or the indirect method whereby the profit or loss is adjusted to derive the cash flow from operating activities). The bank presents its cash flows using the indirect method. IAS 7.31 requires the cash flows from interest and dividends received and paid to be disclosed separately. These disclosures are included in a separate table because, for a bank that reports its statement of cash flows using the indirect method, most of these cash flows are part of the cash flows from operating activities. IAS 7 does not specify which profit or loss figure should be used in the indirect method. Good Bank (International) Limited has reconciled from profit before tax to the net cash flows from operating activities. However, use of alternative profit or loss subtotals would be permissible. 16 Good Bank (International) Limited

21 IAS 1.10(e) IAS IAS Corporate information IAS 1.10(e) IAS Good Bank (International) Limited (Good Bank) together with its subsidiaries ( the bank ), provides retail, corporate banking, and investment banking services in various parts of the world. Good Bank is the ultimate parent of the group. The principal activities of the bank are described in Note 3. Good Bank is a limited liability company incorporated and domiciled in Goodland. Its registered office is at Currency House, 29 Hedge Street, Goodville, Goodland. The bank has a primary listing on the Goodville Stock Exchange. The consolidated financial statements for the year ended 31 December 2011 were authorised for issue in accordance with a resolution of the directors on 31 January IAS IAS 1.138(b) IAS 1.138(a) IAS Commentary The accounting policies of Good Bank are for illustrative purposes. In practice, the disclosure will need to be more detailed and tailored to the bank s specific policies. IAS 1.10(e) 2. Accounting policies 2.1 Basis of preparation The consolidated financial statements have been prepared on a historical cost basis, except for available for sale investments, derivative financial instruments, other financial assets and liabilities held for trading, financial assets and liabilities designated at fair value through profit or loss and liabilities for cash settled share based payments, all of which have been measured at fair value. The carrying values of recognised assets and liabilities that are hedged items in fair value hedges, and otherwise carried at amortised cost, are adjusted to record changes in fair value attributable to the risks that are being hedged. The consolidated financial statements are presented in Goodland dollars ($) and all values are rounded to the nearest million dollars, except when otherwise indicated. IAS 1.112(a) IAS 1.117(a),(b) IAS 1.51(d),(e) Statement of compliance The consolidated financial statements of the bank have been prepared in accordance with IFRS as issued by the IASB. Presentation of financial statements The bank presents its statement of financial position broadly in order of liquidity. An analysis regarding recovery or settlement within 12 months after the reporting date (current) and more than 12 months after the reporting date (non current) is presented in note 42. Financial assets and financial liabilities are offset and the net amount reported in the consolidated statement of financial position only when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liability simultaneously. Income and expenses are not offset in the consolidated income statement unless required or permitted by any accounting standard or interpretation, and as specifically disclosed in the accounting policies of the bank. Basis of consolidation The consolidated financial statements comprise the financial statements of the bank and its subsidiaries for the year ended 31 December The financial statements of the bank s subsidiaries (including special purpose entities that the bank consolidates) are prepared for the same reporting year as Good Bank, using consistent accounting policies. IAS 1.16 IAS 1.60, 61 IAS IAS 1.32 IAS IAS IAS All intra group balances, transactions, income and expenses are eliminated in full. IAS Subsidiaries are fully consolidated from the date on which control is transferred to the bank. Control is achieved where the bank has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. IAS IAS IAS IAS

22 2. Accounting policies (cont d) 2.1 Basis of preparation (cont d) Basis of consolidation (cont d) Non controlling Interests represent the portion of profit or loss and net assets of subsidiaries not owned, directly or indirectly, by Good Bank. Non controlling interests are presented separately in the consolidated income statement and within equity in the consolidated statement of financial position, but separate from parent shareholders equity. Any losses applicable to the non controlling Interests are allocated against the interests of the non controlling interest even if this results in a deficit balance. Acquisitions of non controlling Interests are accounted for using the parent entity extension method, whereby the difference between the consideration and the fair value of the share of the net assets acquired is recognised as equity. IAS IAS IAS IAS Significant accounting judgements, estimates and assumptions In the process of applying the bank's accounting policies, management has exercised judgement and estimates in determining the amounts recognised in the financial statements. The most significant uses of judgements and estimates are as follows: Going concern The bank s management has made an assessment of its ability to continue as a going concern and is satisfied that it has the resources to continue in business for the foreseeable future. Furthermore, management is not aware of any material uncertainties that may cast significant doubt upon the bank s ability to continue as a going concern. Therefore, the financial statements continue to be prepared on the going concern basis. Fair value of financial instruments Where the fair values of financial assets and financial liabilities recorded on the statement of financial position cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use of mathematical models. The inputs to these models are derived from observable market data where possible, but if this is not available, judgement is required to establish fair values. The judgements include considerations of liquidity and model inputs such as volatility for longer dated derivatives and discount rates, prepayment rates and default rate assumptions for asset-backed securities. The valuation of financial instruments is described in more detail in Note 37. Impairment losses on loans and advances The bank reviews its individually significant loans and advances at each statement-of-financial-position date to assess whether an impairment loss should be recorded in the income statement. In particular, management s judgement is required in the estimation of the amount and timing of future cash flows when determining the impairment loss. These estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the allowance. Loans and advances that have been assessed individually and found not to be impaired and all individually insignificant loans and advances are then assessed collectively, in groups of assets with similar risk characteristics, to determine whether provision should be made due to incurred loss events for which there is objective evidence, but the effects of which are not yet evident. The collective assessment takes account of data from the loan portfolio (such as levels of arrears, credit utilisation, loan-to-collateral ratios, etc.), and judgements on the effect of concentrations of risks and economic data (including levels of unemployment, real estate prices indices, country risk and the performance of different individual groups). The impairment loss on loans and advances is disclosed in more detail in Note 10 and Note 25 and further described in Note 39. Impairment of available for sale investments The bank reviews its debt securities classified as available for sale investments at each reporting date to assess whether they are impaired. This requires similar judgement as applied to the individual assessment of loans and advances. The bank also records impairment charges on available for sale equity investments when there has been a significant or prolonged decline in the fair value below their cost. The determination of what is significant or prolonged requires judgement. In making this judgement, the bank evaluates, among other factors, historical share price movements and duration and extent to which the fair value of an investment is less than its cost. The impairment loss on available for sale investments is disclosed in more detail in Note 11. IAS IAS IAS IAS IAS 39.AG74 IAS IAS IAS IAS