2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED) 2.5 Financial instruments (continued) Financial liabilities (continued) Investment accounts Investment accounts are either: (i) Unrestricted investment accounts An unrestricted investment account (“UA”) refers to a type of investment account where the investment account holder (“IAH”) provides the Bank with the mandate to make the ultimate decision without specifying any particular restrictions or conditions. The UA is structured under Mudharabah and Wakalah contracts. Impairment allowances required on the assets for investment accounts are charged to and borne by the investors. (ii) Restricted investment accounts Restricted investment account (“RA”) refers to a type of investment account where the IAH provides a specific investment mandate to the Bank such as purpose, asset class, economic sector and period of investment. RA is accounted for as off-balance sheet as the Bank has no risk and reward in respect of the assets related to the RA or to the residual cash flows from those assets except for the fee income generated by the Bank for managing the RA. The Bank also has no ability to exercise power over the RA to affect the amount of the Bank’s return. The RA is structured under the Wakalah contract whereby the IAH appoints the Bank as the agent to invest the funds provided by IAH to finance customers with a view of earning profits and the Bank receives fees for the agency service provided. Financial guarantee contracts A financial guarantee contract is a contract that requires the Group and the Bank to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. Fees and commissions arising from financial guarantee contracts are classified as deferred income and are amortised to profit or loss using a straight-line method over the contractual period or, when there is no specified contractual period, recognised in profit or loss upon discharge of the guarantee. Financial guarantee contracts are initially measured at fair value and subsequently measured at the higher of: • the amount of the allowance for impairment; and • the premium received on initial recognition less cumulative income recognised in accordance with the principal of MFRS 15. 285 1 2 3 4 5 6 7 8 9 www.bankislam.com FINANCIAL STATEMENTS
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