Significant accounting policies

1       Basis of preparation

The financial statements have been prepared in accordance with the International Financial Reporting Standards as promulgated by the International Accounting Standards Board, interpretations issued by the Financial Reporting Interpretations Committee and the provisions of Amiri Decree 24 of 1976, as amended.  The financial statements are prepared under the historical cost convention except for the remeasurement of financial assets at fair value through profit or loss, available-for-sale investments and certain categories of property, plant and equipment which are stated at their fair values.

2       Principles of consolidation

Subsidiary undertakings are those entities in which the Group has an interest of more than one half of the voting rights, or otherwise has power to exercise control over the entities’ operations, and are hence consolidated.  Subsidiary undertakings are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. All inter-company transactions, balances and unrealised gains or losses on transactions between Group companies are eliminated; unrealised losses are also eliminated unless the costs cannot be recovered.  Where necessary, the subsidiary undertakings accounting policies have been changed to ensure consistency with the policies adopted by the Group.

3       Investment in associated undertakings

Investment in associated undertakings are accounted for by the equity method of accounting. Associated undertakings are those companies over which the Organisation exercises significant influence but which it does not control.  Significant influence is usually evidenced by the Organisation owning, directly or indirectly, between 20 percent and 50 percent of the share capital. Equity accounting involves recognising in the statement of income the Organisation’s share of the associated undertakings profit or loss for the year.  The Organisation’s interest in these undertakings is carried in the balance sheet at an amount that reflects its share of the net assets of the associated undertakings.

4       Property, plant and equipment

All property, plant and equipment is stated at cost less accumulated depreciation except for land, which is carried at market values, based on valuations conducted by external independent valuers.  Cost includes all costs directly attributable to bringing the property, plant and equipment to working condition for their intended use.

Increases in the carrying amount arising on revaluation of land are credited to a revaluation reserve in Scheme members’ funds.  Decreases that offset previous increases of the same class of revalued assets are charged against the revaluation reserve; all other decreases are charged to the statement of income.

Significant accounting policies (continued)

4       Property, plant and equipment (continued)

Depreciation is calculated using the straight-line method to write-off the cost of property, plant and equipment to their estimated residual values over their expected useful lives as follows:

Freehold land is not depreciated as it is deemed to have an infinite life.

Gains and losses on disposal of property, plant and equipment are determined by reference to their carrying amounts and are taken into account in determining net profit.  On disposal of revalued assets, amounts in the revaluation reserve relating to these assets are transferred to retained earnings.

Repairs and renewals are charged to the statement of income when the expenditure is incurred.

Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount.

5       Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are initially measured at cost, and are subsequently re-measured to their fair values with any resultant gains or losses being recognised in the statement of income.

6       Available-for-sale investments and investment fair value reserve

Available-for-sale investments are initially measured at cost, including transactions costs, and subsequently re-measured to their fair values.  Purchases and sales of available-for-sale investments are accounted for on the trade date.  Unrealised gains and losses arising from changes in the fair values of available-for-sale investments are recognised as ‘investment fair value reserve’. The fair values of investments listed on active markets are determined by reference to the quoted market prices.  The fair values of investments listed on inactive markets and unlisted investments are determined using other generally accepted valuation methods such as the adjusted prices of similar instruments.  Equity securities for which fair values cannot be measured reliably are recognised at cost, less impairment provision.  In the event of sale, disposal or impairment, the cumulative gains and losses recognised in scheme members’ funds are transferred to the statement of income. 

Significant accounting policies (continued)

7       Held-to-maturity investments

Investments with a fixed maturity date that management has the intention and ability to hold to maturity are classified as held-to-maturity investments. Such investments are initially recognised at cost and are subsequently carried at amortised cost using the effective yield method.  Any realised and unrealised gains or losses arising either from derecognition or impairment are recognised in the statement of income.

8       Originated loans

Originated loans are created by the subsidiary undertakings by providing money directly to the borrowers and are initially recognised at cost.  Specific provisions for impairment are made on the basis of a continuous appraisal of the subsidiary undertakings lending portfolio and reflect an amount which, in the opinion of the management, is adequate to provide for identified impairment.

9       Investment properties

Investment properties, are held for capital appreciation and long-term rental yields and are not occupied by the Group.  Investment properties are treated as long-term investments and are carried at cost less accumulated depreciation and impairment losses.  Buildings on freehold land are depreciated over a period of 25 to 40 years, whereas freehold land is not depreciated as it is deemed to have an infinite life.

10     Employee benefits

Employee benefits and entitlements to annual leave, holiday, air passage and other short-term benefits are recognised as they accrue to the employees.  The employees of the Organisation are covered by the pension scheme to which the employees and employers contribute monthly on a fixed percentage of salaries basis.  This is a defined contribution pension plan and the Organisation’s contributions are charged to the statement of income in the year to which they relate.  In respect of this plan, there is a legal obligation to pay the contributions as they fall due and no obligation exists to pay the future benefits.

The expatriate employees of the Group are paid leaving indemnity in accordance with the provisions of the Bahrain Labour Law.  The Group accrues for its liability in this respect on an annual basis.

11     Foreign currency transactions

Foreign currency assets and liabilities at year-end are translated into Bahrain Dinars at rates prevailing at the balance sheet date.  Transactions during the year carried out in foreign currencies are converted at the rates of exchange prevalent at the time of the transaction.  All exchange gains and losses are taken to the statement of income for the year.

Significant accounting policies (continued)

12     Social insurance

Social insurance income is recognised on the accruals basis and in accordance with Amiri Decree 24 of 1976, as amended.  Contributions legally due from entities that have not registered are excluded, as are those from entities, which have registered but not submitted the necessary declarations.  Specific provision is made for unpaid contributions at the balance sheet date, based on estimates made by management in the light of available information.

Social insurance benefits paid in accordance with Amiri Decree 24 of 1976, as amended, are recognised on the accruals basis.

13     Investment income

Interest and rental income are recognised on the accruals basis. Dividends are recognised as income when declared by the investee companies.

14     Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, bank balances and short-term fixed deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value.