PT BANK MANDIRI PERSERO Tbk. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2015 and for the year then ended Expressed in millions of Rupiah, unless otherwise stated
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3. USE OF CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS continued Key sources of estimation uncertainty continued
a. Allowances for impairment losses of financial assets continued
Allowance for impairment losses related to a specific counterparty in the entire allowance for impairment losses established for the charges that are individually evaluated for impairment based
on Managements best estimate of the present value of cash flows expected to be received. In calculating the allowance for impairment losses, management makes consideration of the financial
condition of the counterparty and the net realizable value of the collateral received. Each asset is impaired are evaluated, and its completion strategy and estimation of cash flows considered
recoverable are independently approved by the Credit Risk Management Unit.
Evaluation of impairment losses collectively cover credit losses inherent in the portfolio bill with similar economic characteristics when there is objective evidence that impairment has occurred in
the portfolio of the bill, but the decline in the value of the individual cannot be identified. In determining the need to establish loss reserves a collective impairment, management considers
factors such as credit quality, size of portfolio, credit concentrations, and economic factors. In estimating the required reserves, the assumptions made to determine default and loss model to
determine the required input parameters, based on historical experience and current economic conditions. The accuracy of this backup depends on how precise the estimated future cash flows
to determine the individual reserves and the model assumptions and parameters used in determining collective reserves.
b. Determining fair values of financial instruments
In determining the fair value for financial assets and financial liabilities for which there is no observable market price, the Group uses the valuation techniques as described in Note 2c for
financial instruments that are traded infrequently and a lack of price transparency, fair value is less objective and requires varying degrees of judgement depending on liquidity, concentration,
uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument.
c. Pension programs
Pension programs are determined based on actuarial valuation. The actuary valuation involves making assumptions about discount rate, expected rate of return investments, future salary
increases, mortality rate, resignation rate and others refer to Note 2ai and 50. Any changes in those assumptions will impact to the liability balance of employee benefit obligations.
The Group determines the appropriate discount rate at the end of each year including interest rate that should be used to determine the present value of estimated future cash outflows expected to
settle the pension obligations. In determining the appropriate discount rate, the Group considers the interest rates of Government Bonds denominated in the similar currency with payments that
will be made and have terms to maturity approximating the terms of the related employee benefit liability. Other key assumptions for pension obligations are determined based in part on current
market conditions.
d. Insurance liabilities on insurance contracts
Technical reserves of subsidiaries recorded in the consolidated statement of financial position as part of Other liabilities are calculated based on actuarial calculation using certain actuarial
assumptions. Included in the technical reserves are liability for future policy benefits, estimated claim liabilities, unearned premium income, Unexpired Risk Reserve URR and liability to
policyholders.
PT BANK MANDIRI PERSERO Tbk. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2015 and for the year then ended Expressed in millions of Rupiah, unless otherwise stated
69
3. USE OF CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS continued Key sources of estimation uncertainty continued
e. Deferred tax assets
Deferred tax assets are recognized for all deductible temporary differences, as long as it is likely that taxable income will be available so that the temporary differences can be used. Significant
estimates by management is required in determining the amount of deferred tax assets that can be recognized, based on current usage and the level of taxable income and future tax planning
strategies. Banks do not take into account some of the benefits of deferred tax assets as management believes that deferred tax assets will not be recoverable in the future.
f. Depreciation and estimated useful life of fixed assets
Cost of acquisition of fixed assets are depreciated using the straight-line method based on their estimated economic useful life. Bank management estimates the useful lives of the assets
between 5 five to 20 twenty years.
Changes in the level of usage and technological developments could affect the economic useful lives and residual value of assets, and therefore future depreciation charges may be revised.
The carrying value of fixed assets Bank disclosed in Note 18.
g. Impairment of non-financial assets
Bank Mandiri and its subsidiaries assess impairment of non-financial assets whenever events or changes in circumstances indicate that the carrying value of non-financial assets cannot be
recovered. Important factors that could cause impairment of non-financial assets are as follows:
a Performance is not achieved significantly against expectations of historical or projected operating results in the future;
b A significant change in the way the use of the asset or the overall business strategy; and c Industry or economic trends are significantly negative.
Management of the Bank and Subsidiaries recognize an impairment loss if the carrying amount of the asset exceeds its recoverable amount. Recoverable amount is the higher value between the
fair value minus costs of disposal with the use value of the asset or cash-generating unit. Estimated recoverable amount for individual assets or, if not possible, for the cash-generating unit
in which the asset forming part of the unit.
Accounting considerations are important in applying accounting policies the Bank and Subsidiaries
Accounting considerations are important in applying accounting policies the Bank and Subsidiaries include:
Going Concern
Bank and Subsidiaries Management has assessed the ability of the Bank and Subsidiaries to continue its business continuity and believes that the Bank and Subsidiaries have the resources to
continue their business in the future. In addition, management is not aware of any material uncertainties that may cause significant doubt on the ability of the Bank and Subsidiaries to
maintain its viability. Therefore, the consolidated financial statements have been prepared on the basis of a going concern.
Classification of financial assets and liabilities
Management of the Bank and Subsidiaries determine the classification of the assets and certain liabilities as financial assets and financial liabilities by considering if the definitions set SFAS
No. 55 Revised 2014 have been met. Accordingly, financial assets and financial liabilities are recognized in accordance with the accounting policy of the Bank and Subsidiaries as disclosed in
Note 2.c.E.
