2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.8 Leases (continued) Lessee accounting (continued) Lessor accounting As a lessor, the Group and the Bank classifies its leases as either operating or finance leases. A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership of the underlying asset, and classified as an operating lease if it does not. Leases, where the Group and the Bank does not assume substantially all the risks and rewards of ownership are classified as operating leases and, the leased assets are not recognised on the statement of financial position. Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised in profit or loss as an integral part of the total lease expense, over the term of the lease. Contingent rentals are charged to profit or loss in the reporting period in which they are incurred. When the Group and the Bank are an intermediate lessor, it assesses the lease classification of a sublease with reference to the ROU asset arising from the head lease, not with reference to the underlying asset. If a head lease is a short-term lease to which the Group and the Bank apply the exemption described above, then it classifies the sublease as an operating lease. 2.9 Bills and other receivables Bills and other receivables are stated at amortised cost less any allowance for impairment. 2.10 Impairment Impairment of financial assets (i) Impairment of financial assets The Group and the Bank recognise allowance for impairment or allowance for expected credit losses “ECL” on financial assets measured at amortised cost, financial guarantee contracts, financing commitments and debt securities measured at FVOCI, but not to investments in equity instruments. ECL is recognised and measured according to two approaches, which are general approach/three stage approach or simplified approach. General approach/three stage approach Under collective assessment, the Group and the Bank apply a three-stage approach to measuring ECL on financial assets measured at amortised cost and FVOCI. Financial assets migrate through the following three stages based on the change in credit quality since initial recognition: i) Stage 1: 12 months ECL (“Stage 1”) For exposures where there has not been a significant increase in credit risk since initial recognition and that are not credit impaired upon recognition, the portion of lifetime ECL associated with the probability of default events occurring within the next 12 months is recognised. Financial Statements 269 01 05 03 07 02 06 09 04 08 Bank Islam Malaysia Berhad
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