4.1 Basis of preperation

The financial statements are prepared on a going concern basis and the Board of Directors of the Company (“the Board”) is satisfied that the Company will continue as a going concern for the foreseeable future.

In its consideration of whether accounting on a going concern basis is appropriate, the Board has had regard to the functions of the SBCI as set out in the SBCI Act 2014 and in the SBCI’s Memorandum of Association, and believes it is reasonable to assume that, given the purpose of the legislation, the State will take appropriate steps to ensure that the Company is put in a position to discharge its mandate (See Note 17).

The functions of the Company are, inter alia, to provide, and promote the provision of, additional credit in a prudent manner to enterprises and other persons in the State, particularly SMEs, and to provide finance to projects which promote the economic development of the State.

The Company’s activities are subject to risk factors including credit, liquidity, market, concentration and capital risk. The Board has reviewed these risk factors and all relevant information to assess the Company’s ability to continue as a going concern. The Board and Audit and Risk Committee review key aspects of the Company’s activities on an on-going basis and review, whenever appropriate, the critical assumptions underpinning its long term strategies.

The financial statements are presented in euro (€), which is the Company’s functional and presentational currency. The figures shown in the financial statements are stated in € thousands.

The Statement of Financial Position has been presented showing assets and liabilities in their broad order of liquidity as the Company believes this presentation provides reliable and more relevant information than separate current and non-current classifications.

4.2 Basis of measurement

The financial statements have been prepared under the historic cost convention, except for loans and receivables and financial liabilities which are held at amortised cost.

The Statement of Cash Flows shows the changes in cash and cash equivalents arising during the financial period from operating activities, investing activities and financing activities.

The cash flows from operating activities are determined using the direct method, whereby major classes of gross cash receipts and gross payments are disclosed.

4.3 IFRS Standards, amendments and interpretations issued but not effective

A number of new standards have been issued for annual financial periods beginning after 1 January 2015. However, the Company has not applied the following new standards in preparing these financial statements:

IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers will be applicable for accounting periods beginning on or after 1 January 2018 subject to EU endorsement.

IFRS 9 applies one classification approach for all types of financial assets. Two criteria are used to determine how financial assets should be classified and measured, namely the entity’s business model for measuring financial assets and the contractual cash flows characteristics of the financial assets. The standard identifies three categories of financial assets, i.e. amortised cost, fair value through other comprehensive income and fair value through profit or loss.

IFRS 9 retains almost all of the existing requirements from IAS 39 on the classification of financial liabilities.

The Company is currently assessing the potential impact on its financial statements resulting from the application of IFRS 9. As regards impairment, IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with an ‘expected credit loss’ model with this model being applied to all financial instruments. IFRS 9 requires an entity to account for expected credit losses from when financial instruments are first recognised and to recognise full lifetime expected credit losses on a timely basis. The revised standard has not yet been EU endorsed and therefore has not been adopted by the Company.

IFRS 15 replaces IAS 11 Construction Contracts and IAS 18 Revenue. IFRS 15 specifies how and when an entity recognises revenue from a contract with a customer through the application of a single, principles based five-step model. The standard specifies new qualitative and quantitative disclosure requirements to enable users of financial statements understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The impacts of this standard are being considered by the Company. The standard is subject to EU endorsement.

4.4 Financial Assets

The Company classes its financial assets in accordance with IAS 39 classifications. The Company determines the classification of its financial instruments at initial recognition.

Loans and receiveables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. On initial recognition, the loans are measured at fair value plus incremental direct transaction costs. They are then subsequently measured at amortised cost using the EIR (“Effective Interest Rate”) method as described in Note 4.7.

4.5 Financial liabilities

Funding and borrowings drawn down from its funders are the Company’s only financial liabilities at period end. The Company recognises these loans in its Statement of Financial Position on the date the loan is drawn down. These loans are measured initially at fair value. They are subsequently measured at amortised cost using the EIR method.

4.6 De-recognition of financial assets and liabilities

Financial assets are derecognised when the contractual rights to receive the cash flows from these assets have ceased to exist or the assets have been transferred and substantially all the risks and rewards of ownership of the assets have also been transferred. Financial liabilities are derecognised when they have been redeemed or otherwise extinguished.

4.7 Interest income and expense

Interest income and expense for all interest-bearing financial instruments is recognised in interest income and interest expense in the Income Statement using the EIR method.

The EIR method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant financial period. The EIR is the rate that exactly discounts estimated future cash payments or receipts over the expected life of the financial instrument to the net carrying amount of the financial asset or liability. When calculating the EIR, the Company estimates cash flows considering all contractual terms of the financial instrument.

Once a financial asset has been written down as a result of an impairment loss, interest income is recognised using the original rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.

Interest income received on loans to on-lenders is accounted for within operating activities in the Statement of Cash Flows. All other interest income is accounted for within investing activities.

4.8 Impairment of financial assets

The Company assesses at the end of each financial period, whether there is objective evidence that a financial asset or group of financial assets, measured at amortised cost, is impaired.

For loans and receivables, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original EIR. The amount of the impairment loss is recognised using an allowance account in the Income Statement.

The loans of each on-lender are objectively assessed for impairment at the end of the financial period. Objective evidence that a financial asset is impaired includes:

• significant financial difficulty of the on-lender;
• non-compliance with the respective loan covenants and undertakings, and any terms and conditions imposed by the SBCI;
• breaches of contract, such as default or delinquency in interest or principal payments;
• signs that the on-lender will enter bankruptcy or other financial reorganisation.

Following impairment, interest income is recognised using the original effective rate of interest which was used to discount the future cash flows for the purpose of measuring the impairment loss. If, in a subsequent financial period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the Income Statement.

When a loan has been subjected to a specific provision and the prospects of recovery do not improve, a time will come when it may be concluded that there is no real prospect for recovery. When this point is reached, the amount of the loan which is considered to be beyond the prospect of recovery is written off against the related provision for loan impairment. Subsequent recoveries of amounts previously written off decrease the amount of the provision for loan impairment in the Income Statement.

4.9 Cash and cash equivalents

Cash comprises cash on hand and on demand deposits. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

Cash and cash equivalents are carried at amortised cost in the Statement of Financial Position.

4.10 Intangible assets

Software acquired by the Company is measured at cost less accumulated amortisation and any accumulated impairment losses.

Subsequent expenditure on software assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.

Software is amortised in the Income Statement on a straight line basis over its estimated useful life, from the date on which it is available for use. The estimated useful life of software is 5 years.

Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.

At each reporting date, the Company reviews the carrying amount of its software to determine whether there is any indication of impairment. If any such indication exists, these assets are subject to an impairment review.

The impairment review comprises a comparison of the carrying amount of the asset with its recoverable amount. The recoverable amount is determined as the higher of the fair value less costs to sell off the asset and its value in use. Value in use is calculated by discounting the expected future cash flows obtainable as a result of the asset’s continued use, including those resulting from its ultimate disposal, at a market-based discount rate on a pre-tax basis.

The carrying value of the software is written down by the amount of any impairment and this loss is recognised in the Income Statement in the financial period in which it occurs. A previously recognised impairment loss may be reversed in part or in full when there is an indication that the impairment loss may no longer exist and there has been a change in the estimates used to determine the asset’s recoverable amount. The carrying amount of the asset will only be increased up to the amount that it would have been had the original impairment not been recognised.

4.11 Provisions

A provision is recognised if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.

When the effect is material, provisions are determined by discounting expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

4.12 Contingent liabilities

Contingent liabilities are possible obligations whose existence will be confirmed only by the occurrence of uncertain future events or present obligations where the transfer of economic benefit is uncertain or cannot be reliably estimated. Contingent liabilities are not recognised but disclosed in the notes to the financial statements unless the probability of the transfer of economic benefit is remote.

4.13 Costs reimbursable to the NTMA

In accordance with section 10 of the SBCI Act 2014, the NTMA provides business and support services and systems in addition to assigning staff to the SBCI. Costs reimbursable to the NTMA are recognised on an accruals basis as expenses to the SBCI. These expenses are recovered from the SBCI by the NTMA at cost. Further information on costs reimbursable to the NTMA is included in Note 7.1.

4.14 Key management personnel

The Company is controlled by the SBCI CEO and the Board. The Chief Executive of the NTMA is an ex-officio member of the Board. The SBCI CEO and the Board have the authority and responsibility for planning, directing and controlling the activities of the SBCI and, therefore, are key management personnel of the SBCI.

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