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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) 

16 

 

 

Dividends on ordinary shares are recognized in equity as a reduction in the period in which they are 

declared. Dividends that are declared after the balance sheet date are treated as a subsequent event 

under International Accounting Standard 10 “Events after the Balance Sheet Date” (“IAS 10”) and 

disclosed accordingly. 

 

Retirement and other benefit obligations 

 

In accordance with the requirements of the legislation of the Republic of Azerbaijan, certain percentages 

of pension payments are withheld from total disbursements to staff to be transferred to pension funds, 

such that a portion of salary expense is withheld from the employee and instead paid to a pension fund on 

behalf of the employees. This expense is charged in the period in which the related salaries are earned. 

Upon retirement all retirement benefit payments are made by the pension fund. The Bank does not 

have any pension arrangements separate from the state pension system of the Republic of 

Azerbaijan. In addition, the Bank has no post-retirement benefits or other significant compensated 

benefits requiring accrual. 

 

Recognition of income and expense 

 

Recognition of interest income and expense 

Interest income and expense are recognized on an accrual basis using effective interest rate method. 

The effective interest method is a method of calculating the amortized cost of a financial asset or a 

financial liability (or group of financial assets or financial liabilities) and of allocating the interest 

income or interest expense over the relevant period. The effective interest rate is the rate that exactly 

discounts estimated future cash payments or receipts through the expected life of the financial 

instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or 

financial liability.  

 

Once a financial asset or a group of similar financial assets has been written down (partly written 

down) as a result of an impairment loss, interest income is thereafter recognized using the rate of 

interest used to discount the future cash flows for the purpose of measuring the impairment loss. 

 

Interests earned on assets at fair value are classified within interest income. 

 

Interest income also includes interest income earned on investments in securities. Other income is 

credited to income statement when the related transactions are completed. 

 

Recognition of fee and commission income and expense 

Loan origination fees are deferred, together with the related direct and incremental costs, and 

recognized as an adjustment to the effective interest rate of the loan. Where it is probable that a loan 

commitment will lead to a specific lending arrangement, the loan commitment fees are deferred, 

together with the related direct costs, and recognized as an adjustment to the effective interest rate of 

the resulting loan. Where it is unlikely that a loan commitment will lead to a specific lending 

arrangement, the loan commitment fees are recognized in the income statement over the remaining 

period of the loan commitment. Where a loan commitment expires without resulting in a loan, the 

loan commitment fee is recognized in the income statement on expiry. Loan servicing fees are 

recognized as revenue as the services are provided. All other commissions are recognized when 

services are provided. 

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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) 

17 

 

 

Foreign currency translation 

 

Monetary assets and liabilities denominated in foreign currencies are translated into Azerbaijan 

Manats (functional currency) at the appropriate spot rates of exchange ruling at the balance sheet 

date. Foreign currency transactions are accounted for at the exchange rates prevailing at the date of 

the transaction. Transactions in currencies other than the functional currency are accounted for at the 

exchange rates prevailing at the date of the transaction. Profits and losses arising from these 

translations are included in net gain on foreign exchange operations.  

 

Rates of exchange 

 

The exchange rates at the year end used by the Bank in the preparation of the Bank financial 

statements as at year-end are as follows: 

 

31 December 2008 

 

31 December 2007 

 

 

 

 

 

 

 

USD 1  =  AZN 0.8010 

 

USD 1  =  AZN 0.8453 

EUR 1  =  AZN 1.1292 

 

EUR 1  =  AZN 1.2450 

GBP 1  =  AZN 1.1621 

 

GBP 1  =  AZN 1.6876 

RUR 1  =  AZN 0.0272 

 

RUR 1  =  AZN 0.0346 

 

 

Offset of financial assets and liabilities 

 

Financial assets and liabilities are offset and reported net on the Bank balance sheet when the Bank 

has a legally enforceable right to set off the recognized amounts and the Bank intends either to settle 

on a net basis or to realize the asset and settle the liability simultaneously. In accounting for a 

transfer of a financial asset that does not qualify for de-recognition, the Bank does not offset the 

transferred asset and the associated liability. 

 

Segment reporting 

 

A segment is a distinguishable component of the Bank that is engaged either in providing products or 

services (business segment) or in providing products or services within a particular economic 

environment (geographical segment), which is subject to risks and rewards that are different from those 

of other segments. Segments with a majority of revenue earned from sales to external customers and 

whose revenue, result or assets are ten per cent or more of all the segments are reported separately. 

Geographical segment of the Bank has been concentrated in the Republic of Azerbaijan.  

 

Areas of significant management judgment and sources of estimation uncertainty 

 

The preparation of the Bank’s financial statements requires management to make estimates and 

judgments that affect the reported amounts of assets and liabilities at the balance sheet date and the 

reported amount of income and expenses during the period ended. Management evaluates its 

estimates and judgments on an ongoing basis. Management bases its estimates and judgments on 

historical experience and on various other factors that are believed to be reasonable under the 

circumstances. Actual results may differ from these estimates under different assumptions or 

conditions. The following estimates and judgments are considered important to the portrayal of the 

Bank’s financial condition. 

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