KENANGA ANNUAL REPORT 2017

4. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGMENTS (CONT’D.) (ii) The fair value of financial assets at fair value through profit or loss (Note 6), financial investments AFS (Note 7), derivative financial assets (Note 9) and derivative financial liabilities (Note 23) are derived from quoted and observable market prices. However, if the financial instruments are not traded in an active market, fair value may be established by using a valuation technique which includes but is not limited to using recent arm’s length market transactions between knowledgeable, willing parties, and reference to the current fair value of another instrument that is substantially the same. The Group and the Bank use acceptable valuation technique which involves making assumptions based on market conditions and other factors as of the reporting date. (iii) The Group and the Bank assess at each reporting date whether there is any objective evidence that loans, advances and financing are impaired. To determine whether there is objective evidence of impairment, the Group and the Bank consider factors such as those disclosed in Note 3.4(g). Where there is objective evidence of impairment, the amount and timing of future cash flows are estimated based on available information obtained from the debtors, market, and management’s judgment. Among the factors considered are the underlying assumptions used in the projected cash flows which include net realisable value of the underlying collaterals, capability and financial capacity to generate sufficient cash flows to service debt obligations. The carrying value of the Group’s and the Bank’s loans, advances and financing at the reporting date is disclosed in Note 10. (iv) The Group and the Bank estimate the useful lives of property, plant and equipment and software based on factors such as the expected level of usage due to physical wear and tear, future technological developments and legal or other limits on the use of the relevant assets. Future results of operations could be materially affected by changes in these estimates brought about by changes in the factors mentioned. A reduction in the estimated useful lives of property, plant and equipment, and software would increase the recorded depreciation and decrease their carrying value. The total carrying amounts of property, plant and equipment, and software are disclosed in Notes 17 and 18 respectively. (v) Deferred tax assets are recognised for all unutilised tax losses and unabsorbed capital allowances to the extent that it is probable that taxable profit will be available against which the tax losses and unabsorbed capital allowances can be utilised. Significant management judgment is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. As at financial year end, the total carrying value of unutilised tax losses and unabsorbed capital allowances are disclosed in Note 19. (vi) The Group and the Bank assess whether there is any indication that investments in subsidiaries and investment in associates may be impaired at each reporting date. If indicators are present, these assets are subject to impairment review. The impairment review comprises comparison of the carrying amount of the investment and the investment’s estimated recoverable amount. Judgments made by management in the process of applying the Group’s and the Bank’s accounting policies in respect of investments in subsidiaries and investment in an associate are as follows: – The Bank determines whether its investments are impaired following certain indications of impairment such as, amongst others, significant changes with adverse effects on the investment and deteriorating financial performance of the investment due to observed changes and fundamentals. – Depending on their nature and the industries in which the investments relate to, judgments are made by management to select suitable methods of valuation such as, amongst others, discounted cash flows and realisable net asset value. Kenanga Investment Bank Berhad 31 December 2017 120 notes to the financial statements