İllİk hesabat annual RepoRt

OPEN JOINT STOCK COMPANY AMRAHBANK JOINT STOCK BANK 

 

NOTES TO THE FINANCIAL STATEMENTS (Continued) 

FOR THE YEAR ENDED 31 DECEMBER 2008 

(in Azerbaijan Manats) 

10 

 

 

Functional currency 

 

Items included in the financial statements of the Bank are measured using the currency that best 

reflects the economic substance of the underlying events and circumstances relevant to that entity 

(the “functional currency”). The reporting currency of the financial statements is the Azerbaijan 

Manat (“AZN”). 

 

 

3.  SIGNIFICANT ACCOUNTING POLICIES  

 

Recognition and measurement of financial instruments 

 

The Bank recognizes financial assets and liabilities on its balance sheet when it becomes a party to 

the contractual obligation of the instrument. Regular way purchases and sales of the financial assets 

and liabilities are recognized using settlement date accounting. Regular way purchases of financial 

instruments that will be subsequently measured at fair value between the trade date and the 

settlement date are accounted for in the same way as for acquired instruments. 

 

Financial assets and liabilities are initially recognized at fair value plus, in the case of a financial 

asset or financial liability not at fair value through profit or loss, transaction costs that are directly 

attributable to the acquisition or issue of the financial asset or financial liability. The accounting 

policies for subsequent re-measurement of these items are disclosed in the respective accounting 

policies set out below. 

 

Cash and cash equivalents 

 

Cash and cash equivalents include cash on hand, unrestricted balances on correspondent and time 

deposit accounts with the National Bank of the Republic of Azerbaijan with original maturity within 

90 days, advances to banks in countries included in the Organization for Economic Cooperation and 

Development (“OECD”). For the purposes of determining cash flows, the minimum reserve deposit 

required by the National Bank of the Republic of Azerbaijan is not included as a cash equivalent due 

to restrictions on its availability (Note 11). 

 

Due from banks 

 

In the normal course of business, the Bank maintains advances or deposits for various periods of 

time with other banks. Due from banks are initially recognized at fair value. Due from banks with a 

fixed maturity term are subsequently measured at amortized cost using the effective interest method, 

and are carried net of any allowance for impairment losses. Those that do not have fixed maturities are 

carried at amortized cost based on expected maturities. Amounts due from credit institutions are carried 

net of any allowance for impairment losses. 

 

Loans to customers 

 

Loans to customers are non-derivative assets with fixed or determinable payments that are not 

quoted in an active mark other than those classified in other categories of financial assets. 

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OPEN JOINT STOCK COMPANY AMRAHBANK JOINT STOCK BANK 

 

NOTES TO THE FINANCIAL STATEMENTS (Continued) 

FOR THE YEAR ENDED 31 DECEMBER 2008 

(in Azerbaijan Manats) 

11 

 

 

Loans to customers granted by the Bank with fixed maturities are initially recognized at fair value 

plus related transaction costs, directly attributable to the acquisition or creation of qualifying 

financial assets. Where the fair value of consideration given does not equal the fair value of the loan, 

for example where the loan is issued at lower than market rates, the difference between the fair value 

of consideration given and the fair value of the loan is recognized as a loss on initial recognition of 

the loan and included in the Bank’s income statement according to the nature of these losses. 

Subsequently, loans are carried at amortized cost using the effective interest method. Loans to 

customers are carried net of any allowance for impairment losses. 

 

Write off of loans and advances 

 

Loans and advances are written off against the allowance for impairment losses when deemed 

uncollectible. Loans and advances are written off after management has exercised all possibilities 

available to collect amounts due to the Bank and after the Bank has sold all available collateral. 

Subsequent recoveries of amounts previously written off are reflected as an offset to the charge for 

impairment of financial assets in the income statement in the period of recovery. In accordance with 

the statutory legislation, loans may only be written off with approval at the Shareholders’ Meeting 

and, in certain cases, with the respective decision of the Court. 

 

Allowance for impairment losses 

 

Assets carried at amortised cost 

The Bank accounts for impairment losses of financial assets when there is objective evidence that a 

financial asset or group of financial assets is impaired. The impairment losses are measured as the 

difference between carrying amounts and the present value of expected future cash flows, including 

amounts recoverable from guarantees and collateral, discounted at the financial asset’s original 

effective interest rate. 

 

Such impairment losses are not reversed unless if in a subsequent period the amount of the 

impairment loss decreases and the decrease can be related objectively to an event occurring after the 

impairment was recognized, such as recoveries, in which case the previously recognized impairment 

loss is reversed by adjusting an allowance account. 

 

For financial assets carried at cost the impairment losses are measured as the difference between the 

carrying amount of the financial asset and the present value of estimated future cash flows 

discounted at the current market rate of return for a similar financial asset. Such impairment losses 

are not reversed. 

 

Available-for-sale financial assets 

If an available-for-sale asset is impaired, amount comprising the difference between its cost (net of 

any principal payment and amortization) and its current fair value, less any impairment loss 

previously recognized in the income statement, is transferred from equity to the income statement. 

Reversals of impairment losses in respect of equity instruments classified as available-for-sale are 

not recognized in the income statement. Reversals of impairment losses on debt instruments are 

reversed through the income statement if the increase in fair value of the instrument can be 

objectively related to an event occurring after the impairment losses were recognized in the income 

statement. 

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