1. Member of International Accounting standards October 8, 2009 by Eleonora Zgonjanin Petrovic, MBA Implementation in FULM Macedonia

2. Member of

3. Description Year 1997 Year 2007 Population2,017,0002,045,000 Economic activity of population800,513907,138 Rate of unemployment36.0%34.9% GDP per head in US$1,8012,646 Average net salaries per employee in US$ 170cca 305 Consumer price inflation (end-year)2.3%1.2% Statistical Information-Macedonia Sources: State statistical office of the R.Macedonia, National Bank of the Republic of Macedonia and Ministry of Finance

4. Member of Financial (deposit taking) system in Macedonia Central bank 14 banks owned by international shareholders 4 banks owned by domestic shareholders 9 saving houses 1 credit union institution (FULM)

5. Member of Miscellaneous Financial Information – Macedonia It is NOT allowed to accept savings in foreign currency. Central bank statistics show 70% of all household savings are held in foreign currencies and 30% of savings are in Denars. Macedonia was involved in Pyramid Schemes Restrictions are in place for savings houses to match every 2 Denars accumulated in savings with 1 Denar reserved in capital. New Banking Law in Macedonia effective July 2007 No exemption of income tax Effect of Global Crises in Balkan region

6. Member of FULM info over 8.000 members from all over the country 1 Central office 6 Branches 2 Teller point 4 Access (sales) point 25 number of employees Total assets over 6 million dollars

7. Member of IAS regulation was set up by the Central bank in December 2007 Period of implementation is 2 years. Official implementation period is January,01, 2009

8. Member of As of 1 January 2008 : IAS 1 Presentation of Financial Statements IAS 7 Cash Flow Statements IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors IAS 10 Events After the Balance Sheet Date IAS 12 Income Taxes IAS 16 Property, Plant and Equipment IAS 17 Leases IAS 18 Revenue IAS 19 Employee Benefits IAS 21 The Effects of Changes in Foreign Exchange Rates IAS 23 Borrowing Costs IAS 24 Related Party Disclosures IAS 26 Accounting and Reporting by Retirement Benefit Plans IAS 27 Consolidated and Separate Financial Statements IAS 28 Investments in Associates IAS 32 Financial Instruments: Presentation IAS 33 Earnings per Share IAS 36 Impairment of Assets IAS 37 Provisions, Contingent Liabilities and Contingent Assets IAS 38 Intangible Assets IAS 39 Financial Instruments: Recognition and Measurement IAS 40 Investment Property

9. Member of As of 1 January 2008 : IFRS 2 Share-based Payment IFRS 3 Business Combinations IFRS 5 Non-current Assets Held for Sale and Discontinued Operations IFRS 7 Financial Instruments: Disclosures

10. Member of NOT APPLICABLE : IAS IAS 2 Inventories IAS 11 Construction Contracts IAS 20 Accounting for Government Grants and Disclosure of Government Assistance IAS 29 Financial Reporting in Hyperinflationary Economies IAS 31 Interests in Joint Ventures IAS 34 Interim Financial Reporting IAS 41 Agriculture IFRS 1 First-time Adoption of International Financial Reporting Standards IFRS 4 Insurance Contracts IFRS 6 Exploration for and evaluation of Mineral Resources IFRS 8 Operating Segments

11. Member of The MOST Challenged for implementation : 1) Composition of Effective interest rate IAS 39 2) Income/expenses of fees and commissions IAS 18 and IAS 39 3) Impairments of loans IAS 36

12. Member of Effective interest rate is the rate calculate from the exact discounted future cash flow for the expected period of financial instrument (loan ) 1) Composition of Effective interest rate IAS 18 and IAS 39

13. Member of 1) Composition of Effective interest rate IAS 18 and IAS 39 WHY Effective interest rate (EIR) is needed? Because, with the use of EIR, the TRUE Revenue from interests would be presented and measured in financial statements

14. Member of Calculation of EIR is consisted of : ALL paid or accepted fees, Transation cost and premium or disconts between the agreement parties. Expected future cash flow (not agreed cash flow) Income from interest is in the frame of one period, with comparatation of amortization cost of loan starting period and the date of balance sheet. 1) Composition of Effective interest rate IAS 18 and IAS 39

15. Member of How to make decision what is and what is not consisted in EIR? Examples YES Loan Application fee Loan Processing fee Fee for opening saving account NO Collateral apresial fee Collaction fee Fee for loan managment 1) Composition of Effective interest rate IAS 18 and IAS 39

16. Member of 2) Income/expenses of fees and commissions IAS 18 and IAS 39 Revenue from interest shall be recognized using the effective interest method when : there is probability for economic use from transactions and it would gain inflow/outflow for the institution There is proof for realistic measure for income

17. Member of 2) Income/expenses of fees and commissions IAS 18 and IAS 39 WHEN is INCOME/ EXPENCES? Examples In the future (according to the loan period) income statement Loan Application fee Loan Processing fee Fee for opening saving account Today income statement Collateral apresial fee Collaction fee Fee for loan managment

18. Member of Other fees from financial services that are not measured by objective value (use of EIR) will be direclly recorded in income statment 2) Income / expenses of fees and commissions IAS 18 and IAS 39

19. Member of 3) Impairments of loans IAS 36 Impairment of financial assets 3.1) Assets carried at amortized cost - Loans 3.2) Assets carried at fair value - Securities

20. Member of 3.1) Assets carried at amortized cost FULM assesses at each balance sheet date whether there is objective evidence that a financial asset is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

21. Member of 3.1) Assets carried at amortized cost The criteria that the FULM uses to determine that there is objective evidence of an impairment loss include: Delinquency in contractual payments of principal or interest, Cash flow difficulties experienced by the borrower, Breach of loan covenants or conditions, Start of bankruptcy procedures, Deterioration of the borrower’s competitive position, and Deterioration in the value of collateral.

22. Member of 3.1) Assets carried at amortized cost FULM assesses the existence of objective evidence for impairment on individual basis for individually significant financial assets and individually or collectively for financial assets that are not individually significant. FULM determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment.

23. Member of 3.1) Assets carried at amortized cost The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in the income statement.

24. Member of 3.1) Assets carried at amortized cost When a loan is uncollectible, it is written off against the related provision for loan impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off decrease the amount of the provision for loan impairment in the income statement.

25. Member of 3.1) Assets carried at amortized cost If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the debtor’s credit rating), the previously recognized impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognized in the income statement.

26. Member of 3.2. Assets carried at fair value FULM assesses at each balance sheet date whether there is objective evidence that a financial asset is impaired. Significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the assets are impaired. the difference between the acquisition cost and the current fair valueis direct in the income statement. the fair value of a security classified as available for sale increases and the increase can be objectively related to an event occurring the impairment loss is reversed through the income statement

27. Member of FULM Time table for implementation of IAS  New Policies and procedures 6 months  IT changes 3 months  Training 3 months  Testing of IT system 3 months  Daily monitoring of implemented IAS 12 months

28. Member of 1) Depreciation of fix assets (IAS 16 and IAS 12) Differences between the Calculation for financial reports and tax issues 2) Composition of EIR = Membership deposit as a withdrawal saving versa membership as a non withdrawal saving fee OTHER ISSUES with in the process of implementation of IAS 3) How to measure in Deterioration in the value of collateral.

29. Member of What is not Possible in implementation IAS? To be done manually To be done with less then 3 employees To be done with in less of 6 months To be done without external support

30. Member of Thank you Q&A ezgonjanin@fulm.com.mk