Adoption of new and revised accounting standards

Basis of Preparation of the Financial Statements

During the current Year, Mwalimu Commercial Bank has adopted all of the new and revised standards and
interpretations issued by the IASB and the IFRIC that are relevant to its operations and effective for annual reporting
periods beginning on 1 January 2016. The adoption of these new and revised standards and interpretations has not
resulted in material changes to the Bank's accounting policies

For the case of Mkombozi commercial bank, a number of new standards and amendments to standards and
interpretations are effective for annual periods beginning after 1 January 2017, and have not been applied in preparing
these financial statements. None of these is expected to have a significant effect on the financial statements of the
Bank, except the following set out below:

IFRS 9-Financial instruments, IFRS 15 - Revenue from contracts with customers, IFRIC22 - Foreign Currency
Transactions and Advance Consideration. IFRS 16 Leases. IAS 12 Income Taxes

From the preliminary assessment of the banks, all of the above standards will impact the bank and manag

Different practices on Plant Property and Equipment.

Both Banks have Property and equipment stated at cost less accumulated depreciation and imparement in value.
Depreciation is calculated in strainght-line basis; however there’s a difference in depreciation charge for the following
classes of assets.

Table I

S/N ASSET CLASS MKOMBOZI COMMERICAL BANK PLC MWALIMU COMMERCIAL BANK PLC
1 Leasehold Improvements 20% 10%
2 Furniture and Fittings 12.5% 20%
3 Computer Equipment 33.3% 33%

As illustrated from the table above, In terms of performance the profit reported by Mkombozi Commercial Bank is
highly impacted with the depreciation compared to Mwalimu Commercial Bank. However depreciation is a non-cash
expense, therefore it will have no impact on cash flow of both companies only performance of the two companies will
be affected.

Provisions for Impairment

The internal tools to assist management in determining whether objective evidence of impairment exists under IAS 39
for Mwalimu Commercial Bank, The criteria set are many compared to those of Mkombozi as per table II below; Hence
the provisions value set by Mwalimu will be higher with negative impact to the income statement compared to
Mkombozi Bank.

Table II.

S/N MKOMBOZI COMMERICAL BANK PLC MWALIMU COMMERCIAL BANK PLC

1 Delinquency in contractual payments of principal or Delinquency in contractual payments of principal or
interest interest
2 Cash flow difficulties experienced by the borrower Cash flow difficulties experienced by the borrower
3 Breach of loan covenants or conditions Breach of loan covenants or conditions
4 Deterioration in the value of collateral Deterioration in the value of collateral
5 Initiation of bankruptcy proceedings
6 Deterioration of the Borrower’s competitive position

US GAAP and the International Standards or IFRS

US GAAP and the International Standards or IFRS have many standards in common, but they also disagree on many
common accounting practices. For instance, US GAAP allows for a different method of accounting for pension
programs. This means that a US based bank JPMorgan Chase won’t use the same accounting methods as a foreign-
based bank like HSBC. These two banks liabilities and funding will be reported differently. This means the two banks
are not comparable in this respect. Luckily, most foreign banks still report their statements on US exchanges using
GAAP, although this is likely to change in the future as IRFS is more widely adopted.

Inventory valuation
Assume that company A uses the FIFO inventory method and company B uses the LIFO inventory method for valuing
its inventory. All else being equal, company B’s financial statements would most likely show less income because of a
higher cost of goods sold. Company A would conversely have a lower income but higher inventory. These two
companies don’t have comparable financial statements. They use different methods of accounting. In order to
compare these statements properly, you must convert one of their inventory methods to match the other.

Currency is another form of comparability. Financial statements presented in different currencies can’t be compared at
face value. They must be converted into the same currency in order to be compared meaningfully.