Annual Report 2015
93
3 SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
(continued)
Estimates and assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are
described below. The Group based its assumptions and estimates on parameters available when the consolidated financial statements
were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or
circumstances arising that are beyond the control of the Group. Such changes are reflected in the assumptions when they occur.
Impairment of financial assets
Management makes judgements at each statement of financial position date to determine whether financial assets are impaired.
Financial assets are impaired when the carrying value is greater than the recoverable amount and there is objective evidence of
impairment. The recoverable amount is the present value of the future cash flows.
Inherent provisions on advances (Note 4b)
Inherent provisions on advances are calculated on an estimate of impairment incurred but not reported, existing in assets as at the
consolidated statement of financial position date. Estimated impairment incurred is determined by applying against performing
loan balances, the average loan default rates and adjusting this balance for current economic factors that affect loan performance.
An anticipated recovery rate (determined from historical average) is then applied to determine the value that is recoverable. This
calculation is computed by product type.
Valuation of investments (Note 5)
The Group has applied IAS 39 in its classification of investment securities which requires measurement of securities at fair value. For
unlisted securities, fair values are estimated using price/earnings or price/cash flow ratios which have been refined to accommodate
the specific circumstances of the issuer.
Net pension asset/liability (Note 9)
In conducting valuation exercises to measure the effect of all employee benefit plans throughout the Group, the Bank’s independent
actuaries use judgement and assumptions in determining discount rates, salary increases, NIS ceiling increases, pension increases and
the rate of return on the assets of the Plans.
Goodwill (Note 8)
The Group financial statements include goodwill arising from acquisitions. In accordance with IFRS 3, goodwill was reviewed for
impairment as at September 30, 2015 using the ‘value in use’ method. This requires the use of estimates for determination of future
cash flows expected to arise from each cash-generating unit and an appropriate perpetuity discount rate to calculate present value.
Deferred taxes (Note 10)
In calculating the provision for deferred taxation, management uses judgement to determine the probability that future taxable profits
will be available to facilitate utilisation of temporary tax differences which may arise.
