The preparation of financial statements in conformity with IFRS requires the use of estimates and judgements that affect the reported amounts of assets and liabilities. Estimates and judgements are continually evaluated and are based on a number of factors, including expectations of future events that are believed to be reasonable under the circumstances.

Management believes that the underlying assumptions used are appropriate and that the Company’s financial statements, therefore, present the financial position and results fairly. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are described as below:

3.1 Loan impairment assessment

The Company reviews its portfolio of loans and receivables for impairment at least annually. In determining whether an impairment loss should be recorded in the income statement at the reporting date, the SBCI makes judgements as to whether any observable data exists indicating evidence of impairment which would be likely to result in a measurable delay in the timing or decrease in realisable amounts of the estimated future cash flows.

The SBCI assesses each loan individually at financial year-end and completes a brief report, having regard to the credit rating of each counterparty (if rated), the payment history and performance of the loan, compliance with covenants, the value of the underlying collateral, market conditions and the economic environment. The assessment is reviewed and approved by the SBCI management, including the Head of Risk and Chief Executive Officer (“CEO”).

As management judgement involves an estimate of the likelihood of future events, actual results could differ from those estimates, which could affect the future reported amounts of assets and liabilities.

3.2 Income recognition on loans and receivables

The accounting policy for the recognition of interest income on loans and receivables is set out in Note 4.7.

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