Page 94 - ICD-AR22-English

Notes to the Separate Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2022
Zakat and tax
The Corporation, being a multilateral financial institution, is not subject to Zakat or taxation in the member countries. The Corporation’s equity is part of Baitul Mal, which is not subject to Zakat and tax.
Segment reporting
Management has determined the chief operating decision maker to be the Board of Directors as this body
is responsible for overall decisions about resource allocation to development initiatives within its member countries. Development initiatives are undertaken through a number of Islamic finance products as disclosed on the face of the Separate Statement of Financial Position, which are financed centrally through the Corporation’s equity capital and financing. Management has not identified separate operating segments within the definition of FAS 22 "Segment Reporting" since the Board of Directors monitor the performance and financial position of the Corporation as a whole.
4 ACCOUNTING JUDGMENTS AND ESTIMATES
Estimates, assumptions and judgments are continually evaluated and are based on historical experience and other factors, including professional advices and expectation of future events that are believed to be reasonable under the circumstances. Significant areas where management has used estimates, assumptions or exercised judgments are as follows:
i) Impairment allowance for financing assets
The measurement of credit losses under FAS 30 across all categories of financial assets requires judgement, in particular, the estimation of the amount and timing of future cash flows and collateral values when determining impairment losses and the assessment of a significant increase in credit risk. These estimates are driven
by a number of factors, changes in which can result in different levels of allowances. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.
The Corporation’s ECL calculations are outputs of complex models with a number of underlying assumptions regarding the choice of variable inputs and their interdependencies. Elements of the ECL models that are considered accounting judgements and estimates include:
i) The Corporations internal credit grading model, which assigns PDs to the individual grades;
ii) TheCorporation’scriteriaforassessingiftherehasbeenasignificantincreaseincreditrisknecessitatingtheloss allowance to be measured on a 12 month or lifetime ECL basis and the applicable qualitative assessment;
iii) Development of ECL models, including the various formulas and the choice of inputs
iv) Determination of associations between macroeconomic scenarios and, economic inputs, such as unemployment levels and collateral values, and the effect on PDs, EADs and LGDs
v) Selectionofforward-lookingmacroeconomicscenariosandtheirprobabilityweightings,toderivetheeconomic inputs into the ECL models
92 ICD ANNUAL REPORT 2022