Notes to the Consolidated Financial Statements

Saudi Stock Exchange Company (Tadawul) (“the Company”) is a Saudi Closed Joint Stock Company registered in the Kingdom of Saudi Arabia established by Royal Decree No. M/15 dated 01/03/1428H (corresponding to 20 March 2007). The share capital of the Company is SAR 1,200 million divided into 120 million shares of SAR 10 each fully subscribed by the Public Investment Fund (“PIF”).

The Minister of Commerce and Industry resolution No. 320/k dated 1/12/1428 H (corresponding to 11 December 2007) was issued approving the license to establish the Company as a Saudi joint stock company. The Company was registered as a Saudi joint stock company in Riyadh under Commercial Registration number 1010241733 dated 2/12/1428 H (corresponding to 12 December 2007). All rights, assets, liabilities, obligations and records were transferred from Saudi Share Registration Company (a company which existed before the establishment of Tadawul) to the Company as at 30/11/1428 H (corresponding to 10 December 2007).

The Company’s main activity is to provide, create and manage the mechanisms of trading of securities, providing depository and registration of securities ownership, dissemination of securities information and engage in any related other activity to achieve the objectives as defined in the Capital Market Law.

These Consolidated Financial Statements comprise the financial statements of Tadawul and its subsidiaries (collectively referred to as “the Group”).

The Company’s registered address is as follows:

6897, King Fahd Road – Al Ulaya
Unit Number: 15
Riyadh 12211-3388
Kingdom of Saudi Arabia

Subsidiaries

Securities Depository Centre Company (“Edaa”)

Capital Market Authority (“ CMA Capital Market Authority ”) Board approved the formation of Securities Depository Centre Company (“Edaa”) as a new Saudi joint stock company in the Kingdom of Saudi Arabia in accordance with the Capital Market Law issued by the Royal Decree No. M/30 dated 1424 H/02/06 (corresponding to 22 march 2003). Edaa was registered as a Saudi joint stock company in Riyadh under Commercial Registration No. 1010463866 dated 1437 H/11/27 (corresponding to 30 August 2016) with an authorized share capital of SAR 400 million divided into 40 million shares of SAR 10 each.

As at 31 December 2018 and 31 December 2017, the Company held 100 per cent of the issued share capital of Edaa. The main objective of Edaa is to provide depository and registration of securities ownership, and settlement services of securities.

Muqassa (Central Counterparty Clearing House)

During the year ended 31 December 2017, the Company’s Board of Directors in their meeting dated 30 October 2017 under a decision number 03-04-2017/04-04-2017 approved the formation of a new company, Muqassa Central Counterparty Clearing House was registered as a closed joint stock company in Riyadh under Commercial Registration number 1010935131 dated 02/06/1439 (corresponding to 18 February 2018) with an authorized share capital of SAR 600 million divided into 60 million shares of SAR 10 each.

As at 31 December 2018, the Company held 100 per cent of the issued share capital of Muqassa Central Counterparty Clearing House . The main objective of Muqassa Central Counterparty Clearing House is to provide, create and manage the mechanisms of trading of securities, providing settlement and clearing services of securities and engage in any related other activity to achieve the objectives as defined in the Capital Market Law.

The significant accounting policies adopted in the preparation of these consolidated financial statements are set out below, these policies have been consistently applied to all the periods presented unless otherwise stated, where policies are applicable only on or from 1 January 2018, those policies have been particularly specified.

Basis of consolidation

These consolidated financial statements comprise the financial statements of Tadawul and its subsidiaries (collectively referred to as “the Group”). Control is achieved when the Group is exposed, or has rights to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

In assessing control, potential voting rights that presently exercisable are taken into account. The financial statements of subsidiaries are included in the IFRS consolidated financial statements from the date that control commences until the date control ceases.

All transactions and resulting balances between the Company and the subsidiaries are eliminated in preparing these consolidated financial statements. Any unrealized gains and losses arising from intra-group transactions are eliminated on consolidation.

Adoption of new standards as at 1 January 2018

Effective 1 January 2018, the Group has adopted IFRS 15 – “Revenue from Contracts with Customers” and IFRS 9 – “Financial Instruments”. The impact of the adoption of these standards is explained below:

IFRS 15 – Revenue from Contracts with Customers

The Group adopted IFRS 15 – “Revenue from Contracts with Customers” resulting in a change in the revenue recognition policy of the Group in relation to its contracts with customers.

IFRS 15 was issued in May 2014 and is effective for annual periods commencing on or after 1 January 2018. IFRS 15 outlines a single comprehensive model of accounting for revenue arising from contracts with customers and supersedes previous revenue guidance, which was found across several Standards and Interpretations within IFRS. It established a new five-step model that will apply to revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.

IFRS 15 also includes a comprehensive set of disclosure requirements that will result in an entity providing users of financial statements with comprehensive information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts with customers.

The Group has assessed that the impact of IFRS 15 is not material on the consolidated financial statements of the Group as at the initial adoption and the reporting date.

IFRS 9 – Financial Instruments

Effective 1 January 2018, the Group has adopted IFRS 9 Financial Instruments issued in July 2014 with a date of initial application at 1 January 2018. Accounting policies and significant judgements and estimates relating to IFRS 9 are set out below. As permitted by IFRS 9, the Group has opted for the modified retrospective approach that does not require restatement of comparative reporting periods. Hence, comparative figures are presented under Previous GAAP. The difference in the carrying amount of financial assets and financial liabilities resulting from the adoption of IFRS 9 are recognized in retained earnings as of 1 January 2018. Accordingly, the information presented for 2017 does not reflect the requirements of IFRS 9 and therefore are not comparable to the information presented for 2018 under IFRS 9.

3.1 Financial instruments

Policies applicable before 1 January 2018

Held-for-trading investments

Investment in trade securities which are purchased for trading purposes are initially recorded at cost and then remeasured and stated in the balance sheet at market value and included under current assets. Realized gain or loss on sale of trading securities and changes in market value at balance sheet date are credited or charged to consolidated statement of profit or loss.

Available-for-sale investments

Available-for-sale investments consist of quoted and unquoted equity investments including mutual funds’ investments, which are not held for trading purposes and where the Group does not have any significant influence or control. These are initially recognized and subsequently remeasured at fair value. Any changes in fair value are recognized in equity as fair value reserve until the investment is disposed. On derecognition, any cumulative gain or loss previously recognized in equity is included in the consolidated statement of income. Any significant and prolonged decline in fair value of the available-for-sale, if any, is charged to the statement of income. The fair value of investments that are actively traded in organized financial markets is determined by reference to quoted market bid prices The price a trader is willing to pay for a given share. at the close of business on the balance sheet date. For investments where there is no active market, including investments in unquoted private equity, fair value is determined using valuation techniques. Such techniques include using recent arm's length market transactions; reference to the current market value of another instrument, which is substantially the same, otherwise the cost is considered to be the fair value for these investments.

Held-to-maturity investments

Investments having fixed or determinable payments and fixed maturity for which the Management has a positive intention and ability to hold to maturity are classified as held to maturity. Held-to-maturity investments are initially recognized at fair value including direct and incremental transaction costs and subsequently measured at amortized cost, less provision for impairment in their value. Amortized cost is calculated by taking into account any discount or premium on acquisition using the effective yield method. Any gain or loss on such investments is recognized in the consolidated statement of income when the investment is derecognized or impaired. These investments are classified in current assets if their maturity falls within twelve months from the balance sheet date and in non-current assets if their maturity after twelve months from the balance sheet date.

Account receivables

Account receivables are stated at original invoice amount less provisions made for doubtful debts. A provision against doubtful debts is established when there is an objective evidence that the Group will not be able to collect the amounts due according to the original terms of receivables. Bad debts are written off when identified, against its related provisions. The provisions are charged to consolidated statement of income and any subsequent recovery of receivable amounts previously written off are credited to income.

Impairment of financial assets

An assessment is made at each balance sheet date to determine whether there is objective evidence that a specific financial asset may be impaired. If such evidence exists, any impairment loss is recognized in the consolidated statement of income.

Impairment is determined as follows:

1. For asset carried at fair value, impairment is the difference between cost and fair value, less any impairment loss previously recognized in the consolidated statement of income.
2. For asset carried at cost, impairment is the difference between carrying amount and the present value cash flows discounted at the current market rate of return for a similar financial asset.
3. For assets carried at amortized cost, impairment is the difference between carrying amount and the present value of future cash flows discounted at the original effective profit rate.

For equity investments held as available-for-sale, a significant and prolonged decline in fair value below its cost represents objective evidence of impairment. The impairment loss cannot be reversed through consolidated statement of income as long as the asset continues to be recognized i.e. any increase in fair value after impairment can only be recognized in equity. On derecognition, any cumulative gain or loss previously recognized in equity is included in the consolidated statement of income for the period.

Policies applicable from 1 January 2018

The details of new significant accounting policies and the nature and effect of the changes to previous accounting policies are set out below:

(i) Classification and measurement of financial assets

The adoption of IFRS 9 has not had a significant effect on the Group’s accounting policies related to financial liabilities. The impact of IFRS 9 on the classification and measurement of financial assets is set out below.

Under IFRS 9, on initial recognition, a financial asset is classified as measured at: amortised cost; Fair value through other comprehensive income (FVOCI) – debt investment; FVOCI – equity investment; or FVTPL. The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics.

Financial assets at amortized cost

A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL:

• it is held within a business model whose objective is to hold assets to collect contractual cash flows; and
• its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Financial assets at FVOCI

A financial asset is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:

• it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and
• its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment’s fair value in OCI. This election is made on an investment-by-investment basis.

Financial assets at FVTPL

All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL. This includes all derivative A security or financial instrument whose value is determined by an underlying asset financial assets. On initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

A financial asset (unless it is a trade receivable without a significant financing component that is initially measured at the transaction price) is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition.

The following accounting policies apply to the subsequent measurement of financial assets.

Financial assets at FVTPL	These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognized in the consolidated statement of profit or loss.
Financial assets at amortised cost	These assets are subsequently measured at amortised cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains, and losses and impairment are recognized in profit or loss. Any gain or loss on derecognition is recognized in the consolidated statement of profit or loss.
Debt investments at FVOCI	These assets are subsequently measured at fair value. Interest income is calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.
Equity investments at FVOCI	These assets are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to profit or loss.

(ii) Classification and measurement of financial liabilities

Financial liabilities at amortized cost are initially measured at fair value less transaction costs.

Subsequently, financial liabilities are measured at amortized cost, unless they are required to be measured at fair value through profit or loss or the Group has opted to measure a liability at fair value through profit or loss as per the requirements of IFRS 9.

(iii) Derecognition

Financial assets

A financial asset is derecognized when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.

On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset derecognized) and the sum of (i) the consideration received (including any new asset obtained less any new liability assumed) and (ii) any cumulative gain or loss that had been recognized in OCI is recognized in profit or loss.

Financial liabilities

A financial liability is derecognized when its contractual obligations are discharged or cancelled, or expire.

(iv) Off-setting

Financial assets and liabilities are offset and reported net in the statement of financial position when there is a currently legally enforceable right to set off the recognised amounts and when the Group intends to settle on a net basis, or to realise the asset and settle the liability simultaneously. Income and expenses are not offset in the statement of profit or loss unless required or permitted by any accounting standard or interpretation, and as specifically disclosed in the accounting policies of the Group.

(v) Impairment of financial assets

IFRS 9 uses “expected credit loss” (ECL) model to assess for impairment of financial assets. The new impairment model applies to financial assets measured at amortized cost, contract assets and debt investments at FVOCI, but not to investments in equity instruments.

Loss allowances for receivables are always measured at an amount equal to lifetime ECL. Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument.

At each reporting date, the Group assesses whether financial assets carried at amortized cost are credit-impaired. A financial asset is “credit-impaired” when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets. Impairment losses related to accounts receivables and investments at amortized cost are presented in the Consolidated Statement of Profit or Loss.

(vi) Transition

Changes in accounting policies resulting from the adoption of IFRS 9 have been applied retrospectively, except as described below:

• Comparative periods have not been restated. Differences arising due to change in classification and the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 are recognized in retained earnings as at 1 January 2018. Accordingly, the information presented for 2017 does not reflect the requirements of IFRS 9 and therefore is not comparable to the information presented for 2018 under IFRS 9.
• The following assessments have been made on the basis of the facts and circumstances that existed at the date of initial application:
  1. The determination of the business model within which a financial asset is held.
  2. The designation and revocation of previously designated financial assets and financial liabilities as measured at FVTPL.
  3. The designation of certain investments in equity instruments not held for trading as FVOCI.
  4. For financial liabilities designated as at FVTPL, the determination of whether presenting the effects of changes in the financial liability’s credit risk in OCI would create or enlarge an accounting mismatch in profit or loss.

3.2 Property and equipment

Property and equipment except land are measured at cost less accumulated depreciation and accumulated impairment losses, if any. Land is measured at its cost.

Cost includes expenditure that are directly attributable to the acquisition of the asset including the cost of purchase and any other costs directly attributable to bringing the assets to a working condition for their intended use. Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates.

When parts of an item of property and equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment.

An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the assets (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated statement of profit or loss in the year the asset is derecognized.

The cost of replacing part of an item of operating fixed assets is recognized in the carrying amount of the item if it is probable the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognized. The cost of the day-to-day servicing of operating fixed assets are recognized in the statement of profit or loss as incurred.

Depreciation

Depreciation is calculated over depreciable amount, which is the cost of an asset, or other amount substituted for cost, less its residual value.

Depreciation is recognized in the consolidated statement of profit or loss on a straight-line basis over the estimated useful lives of each component of an item of property and equipment. Depreciation of an asset begins when it is available for use.

The estimated useful lives for current and comparative periods of different items of property and equipment are as follows:

	Estimated useful lives (years)
Building	30
Furniture and fixtures	10
Computers	4
Office equipment	6
Vehicles	4

Depreciation methods, useful lives, impairment indicators and residual values are reviewed at each annual reporting date and adjusted, if appropriate.

3.3 Intangible assets

These represent software held for use in the normal course of the business and are stated at cost less accumulated amortization and accumulated impairment losses, if any. Amortization is charged to the statement of profit or loss over an estimated useful life of the software using the straight-line method. The estimated useful life of software is six years.

3.4 Impairment of non-financial assets

The carrying amounts of the Group’s non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”, or “CGU”). For the purposes of goodwill impairment testing, goodwill acquired in a business combination is allocated to the group of CGUs that is expected to benefit from the synergies of the combination. This allocation is subject to an operating segment ceiling test and reflects the lowest level at which that goodwill is monitored for internal reporting purposes.

The Group’s corporate assets do not generate separate cash inflows. If there is an indication that a corporate asset may be impaired, then the recoverable amount is determined for the CGU to which the corporate asset belongs.

An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in the consolidated statement of profit or loss. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the units, and then to reduce the carrying amounts of the other assets in the unit on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. Impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss (except against goodwill) is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

3.5 Investments in associates (investment in equity-accounted investees)

An associate is an entity over which the Group has significant influence, but not control or joint control. Significant influence is the power to participate in the financial and operating policy decisions of the investee.

Investments in associates are accounted for using the equity method and are recognized initially at cost. The consolidated financial statements include the Group’s share of the income and expenses and equity movements of equity-accounted investees, after adjustments to align the accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases.

When the Group’s share of losses exceeds its interest in an equity-accounted investee, the carrying amount of that interest, including any long-term investments, is reduced to nil, and the recognition of further losses is discontinued except to the extent that the Group has a corresponding obligation.

3.6 Cash and cash equivalents

Cash and cash equivalents comprise cash in hand, cash at banks in current accounts and other short-term liquid investments with original maturities of three months or less, if any, which are available to the Group without any restrictions.

3.7 Provisions

A provision is recognised if, as a result of a past event, the Group 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. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost in the statement of profit or loss.

3.8 Defined benefits obligation – employees’ end-of-service benefits

Employees’ end-of-service benefits are payable to all employees employed under the terms and conditions of the labor laws applicable to the Group.

The Group’s net obligation in respect of employees’ end-of-service benefits is calculated separately for each plan by estimating the amount of future benefits that employees have earned in the current and prior periods. That benefit is discounted to determine its present value.

Remeasurements, comprising of actuarial gains and losses, are recognized immediately in the consolidated statement of financial position with a corresponding debit or credit to retained earnings through other comprehensive income, in the period in which they occur. Remeasurements are not reclassified to profit or loss in subsequent periods.

The Group recognises the following changes in the defined benefits obligation under “operating cost” and “general and administrative expenses” in the profit and loss account:

• Service costs comprising current service costs, past-service costs, gains and losses on curtailments and non-routine settlements
• Interest expense

The calculation of defined benefits obligation is performed annually by a qualified actuary using the projected unit credit method.

3.9 Revenue recognition

The Group recognizes revenue under IFRS 15 using the following five steps model:

Step 1: Identify the contract with customer	A contract is defined as an agreement between two or more parties that creates enforceable rights and obligations and sets out the criteria for every contract that must be met.
Step 2: Identify the performance obligations	A performance obligation is a promise in a contract with a customer to transfer a good or service to the customer.
Step 3: Determine the transaction price	The transaction price is the amount of consideration to which the Group expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.
Step 4: Allocate the transaction price	For a contract that has more than one performance obligation, the Group allocates the transaction price to each performance obligation in an amount that depicts the amount of consideration to which the Group expects to be entitled in exchange for satisfying each performance obligation.
Step 5: Recognise revenue	The Group recognises revenue (or as) it satisfies a performance obligation by transferring a promised good or service to the customer under a contract.

Dividend income

Dividend income is recognized when the right to receive is established.

Special commission income

Special commission income is recognized in the statement of profit or loss on an effective yield basis.

3.10 Expenses

General and administrative expenses are those arising from the Group’s efforts underlying the marketing, consultancy and maintenance functions. Allocations of common expenses between operating costs and general and administrative expenses, when required, are made on a consistent basis.

3.11 Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of the Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rate ruling at that date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortized cost in foreign currency translated at the exchange rate at the end of the reporting period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognized in profit or loss, except for differences arising on the retranslation of FVOCI instruments, which are recognized in other comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.

3.12 Zakat

Based on the GAZT letter number 2999/12 dated 5/6/1429 H, the Group will be subject to Zakat after the initial public offering and the participation of private sector in its share capital in accordance with the approval of the Minister of Finance on GAZT’s study regarding this matter dated 24/5/1429H. In addition, based on the GAZT letter number 16/33008 dated 28/12/1438H, the Group is not subject to Zakat as it is fully owned by the Public Investment Fund (a governmental agency) and hence no provision is recorded in these consolidated financial statements.

3.13 Contingent liabilities

All possible obligations arising from past events whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly with the control of the Group; or all present obligations arising from past events but not recognized because: (i) it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation, or (ii) the amount of the obligation cannot be measured with sufficient reliability; all should be assessed at reporting date and disclosed in the Group’s consolidated financial statements under contingent liabilities.

3.14 Fair value measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

• In the principal market for the asset or liability, or
• In the absence of a principal market, in the most advantageous market for the asset or liability

The principal or the most advantageous market must be accessible to by the Group. The fair value of an asset or a liability is measured using assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. The fair value of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities.

Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.

Level 3 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

For assets and liabilities that are recognized in the consolidated financial statements on a recurring basis, the Group determines whether transfers have occurred between Levels in the hierarchy by reassessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

At each reporting date, Management of the Group analyses the movements in the values of assets and liabilities which are required to be remeasured or reassessed as per the Group’s accounting policies. For this analysis, the Management verifies the major inputs applied in the latest valuation by agreeing the information in the valuation computation to contracts and other relevant documents.

For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities based on the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.

3.15 Current versus non-current classification

The Group presents assets and liabilities in the statement of financial position based on current/non-current classification. An asset as current when it is:

• expected to be realised or intended to sold or consumed in normal operating cycle;
• held primarily for the purpose of trading;
• expected to be realised within twelve months after the reporting period; or
• cash or cash equivalent, unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period

All other assets are classified as non-current.

A liability is current when:

• it is expected to be settled in normal operating cycle;
• it is held primarily for the purpose of trading;
• it is due to be settled within twelve months after the reporting period; or
• there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period.

The Group classifies all other liabilities as non-current.

	Land	Building	Furniture and fixtures	Computers	Office equipment	Vehicles	Total
Cost:
Balance as at 1 January 2017	2,310,985	618,248	20,693,597	147,207,861	18,207,546	1,656,350	190,694,587
Transfers due to adoption of IFRS (Note 4.1)	–	–	965,660	1,912,746	369,592	–	3,247,998
Additions	–	–	508,442	3,777,318	246,366	–	4,532,126
Disposals	–	–	(382,390)	(787,947)	(428,180)	–	(1,598,517)
Balance as at 31 December 2017 – Restated	2,310,985	618,248	21,785,309	152,109,978	18,395,324	1,656,350	196,876,194
Balance as at 1 January 2018	2,310,985	618,248	21,785,309	152,109,978	18,395,324	1,656,350	196,876,194
Additions	–	–	692,156	1,635,572	318,458	–	2,646,186
Disposals	–	–	(2,216,232)	(48,802,995)	(802,590)	–	(51,821,817)
Balance as at 31 December 2018	2,310,985	618,248	20,261,233	104,942,555	17,911,192	1,656,350	147,700,563
Accumulated depreciation:
Balance as at 1 January 2017	–	27,478	16,418,883	127,183,080	15,714,880	907,462	160,251,783
Charge for the year	–	20,608	1,035,500	9,930,423	815,725	282,767	12,085,023
Disposals	–	–	(381,546)	(787,947)	(428,180)	–	(1,597,673)
Balance as at 31 December 2017	–	48,086	17,072,837	136,325,556	16,102,425	1,190,229	170,739,133
Balance as at 1 January 2018	–	48,086	17,072,837	136,325,556	16,102,425	1,190,229	170,739,133
Charge for the year	–	20,608	839,299	8,463,836	880,067	209,017	10,412,827
Disposals	–	–	(2,171,022)	(48,800,131)	(801,309)	–	(51,772,462)
Balance as at 31 December 2018	–	68,694	15,741,114	95,989,261	16,181,183	1,399,246	129,379,498
Net book value:
As at 31 December 2018	2,310,985	549,554	4,520,119	8,953,294	1,730,009	257,104	18,321,065
As at 31 December 2017 – Restated	2,310,985	570,162	4,712,472	15,784,422	2,292,899	466,121	26,137,061

5.1 The allocation of depreciation expense between operating costs and general and administrative expenses is as follows:

Description	2018	2017
Operating costs	7,209,368	8,837,065
General and administrative expenses	3,203,459	3,248,005
	10,412,827	12,085,070

This represents the Company’s share of investment in Tadawul Real Estate Company (“the Associate”), a company incorporated in the Kingdom of Saudi Arabia, where the Company has significant influence. The Company owns 20% (31 December 2017: 20%; 1 January 2017: 20%) share capital of the Associate. The main activity of the Associate is to develop Tadawul’s headquarter in the King Abdullah Financial District, Riyadh. The Group has not earned any dividend income from the Associate.

The movement of investment in the Associate is as follows:

For the year ended 31 December	2018	2017 (Restated)
Balance at beginning of the year	49,236,157	51,645,966
Share of loss for the year	(6,629,084)	(2,409,809)
Balance at end of the year	42,607,073	49,236,157

The Group has recognized share of loss based on the latest available financial statements of the Associate.

The following table summarizes the financial information of the Associate as included in its own financial statements. The table also reconcile summarized financial information to the carrying amount of the Group’s interest in the Associate:

	2018	2017
Percentage ownership interest	20%	20%
Total current assets	46,515,781	317,171,854
Total non-current assets	1,024,509,060	763,292,408
Total current liabilities	30,349,849	2,856,098
Total non-current liabilities	676,637,087	680,424,839
Net assets (100%)	364,037,905	397,183,325
Group’s share of net assets (20%)	72,807,581	79,436,665

	Notes	31 December 2018	31 December 2017	1 January 2017
Account receivables:
– Related parties	24.1	12,682,167	4,416,769	2,273,187
– Others		32,641,416	25,363,180	8,947,705
Less: Allowance for credit losses	9.1	(6,729,241)	(2,863,739)	(1,500,178)
		38,594,342	26,916,210	9,720,714

9.1 The movement in the allowance for credit losses is summarized as follows:

For the year ended 31 December	2018	2017
Balance at the beginning of the year	2,863,739	1,500,178
Effect on the adoption of IFRS 9 at 1 January 2018	25,831	–
Charge for the year	3,839,671	1,363,561
Balance at the end of the year	6,729,241	2,863,739

	Note	31 December 2018	31 December 2017	1 January 2017
Current at banks – current accounts		68,823,309	169,057,827	9,398,138
Short-term Murabaha deposits	11.1	294,355,609	444,000,000	100,000,000
		363,178,918	613,057,827	109,398,138

11.1 Short-term Murabaha deposits are with counter-parties having good credit ratings. These placements have an original maturity period of three months or less and carry an average special commission rate of 2.7% (31 December 2017: 2.1%; 1 January 2017: 2.7%).

In accordance with the approval of the Chairman of CMA Capital Market Authority vide letter No. 524/2007 dated 13 February 2007, a balance of the retained earnings was transferred to a contractual reserve, starting from 2006 for the purpose of financing the construction of Tadawul’s headquarters in the King Abdullah Financial District and any other future purposes to be decided by the Company’s Board of Directors. During the year 2008, the Board of Directors of the Company resolved according to a decision number 6/8/2008 to transfer such balance of the contractual reserve to general reserve.

At the establishment of the Company, all rights, assets, liabilities, obligations and records were transferred from the Saudi Share Registration Company (a company which existed before the establishment of Tadawul), to the Company as at 30/11/1428H (corresponding to 10 December 2007) under CMA Capital Market Authority Board Resolution number 1-202-2006 dated 08/02/1427H and the decision of the Council of Ministers number 91 dated 16/04/1424H. Accordingly, the Company is responsible for all obligations arising from the operations of the Saudi Share Registration Company.

The Company had made a provision equal to the amount of net assets transferred from the Saudi Share Registration Company. As at 31 December 2018, the provision was in the amount of SAR 17,430,875 (31 December 2017: SAR 17,430,875; and 1 January 2017: SAR 17,430,875).

	31 December 2018	31 December 2017	1 January 2017
Accrued employees expenses	39,599,064	30,109,595	25,621,764
Accrued employees vacation expenses	13,729,007	14,443,096	14,254,402
Accrued social insurance – General Organization for Social Insurance	1,409,935	1,559,305	1,547,762
Others	4,398,926	2,399,341	1,120,998
	59,136,932	48,511,337	42,544,926

Operating costs include direct expenses incurred by the Group to provide services to its customers and the Saudi Financial Market. A breakdown of operating costs is as follows:

For the year ended 31 December	Notes	2018	2017 (Restated)
CMA Capital Market Authority annual fees		130,000,000	130,000,000
Salaries and related benefits		92,756,391	88,017,099
Consultancy		1,128,959	2,454,167
Maintenance		21,934,036	23,653,293
Depreciation and amortization	5 & 6	21,801,544	24,171,053
Data network lines		11,085,864	10,428,966
Rent		2,854,836	4,167,266
Utilities		1,434,070	1,243,347
Security guards		1,605,473	1,604,149
Hospitality and cleaning		2,005,667	1,533,318
Charge for credit losses on accounts receivables	9.1	3,839,671	1,363,561
SAREE system usage fees		1,162,000	839,000
Communication		694,074	694,898
Business travel		718,223	1,189,501
Training		911,284	1,547,503
Marketing and sponsorship		1,639,797	1,047,357
License fees		860,173	213,378
Shareholder relations		1,111,251	278,457
Others		960,625	1,009,589
		298,503,938	295,466,902

For the year ended 31 December	Notes	2018	2017
Special commission income		57,918,638	57,731,048
Dividend income		6,859,810	5,890,794
Realised gain on investments		10,679,758	6,864,227
Unrealised gain on investments	8.6	3,753,316	16,702,044
		79,211,522	87,188,113

Commitments represent the value of the part not yet executed from supply contracts of assets and services to Group as follows:

	31 December 2018	31 December 2017	1 January 2017
Purchase of assets	26,171,655	5,341,315	6,638,330
Committed expenditure	10,291,394	7,194,923	12,931,731
Letter of guarantee	11,300,000	1,147,940	1,147,940
	47,763,049	13,684,178	20,718,001

The Group operates solely in the Kingdom of Saudi Arabia. For management purposes, the Group is organized into business units based on services provided. During 2018, the Group changed its reportable segments and organization chart and all the revenue generating operations have been defined under three segments, Markets, Edaa, and Market Information. The revised segments
of the Company are as under:

Markets

This business unit’s main objective is to grow business by improving products/services, attracting domestic listings, (in the longer term) foreign listings, and developing new asset classes. The responsibilities include maintaining the integrity, stability, and fairness of stock market operations. Its objective is to achieve outstanding results through operational excellence, collaboration with CMA Capital Market Authority , cost effectiveness, total customer experience management, and developing a capable workforce.

Edaa

The activities of Edaa include registration of investment portfolios in the filing and settlement system, register and file its ownership, transfer, settlement and clearing its ownership, registering any restriction of ownership on the file securities, and associate with members of the market and settlement agents to filing and settlement system. Further, Edaa links and manages records of securities issuers, organizes general assemblies for issuers including remote voting service for such assemblies, provide reports, notifications and information in addition to providing any other service relating to its activities according to financial market regulations.

Market information

The activities of this segment is to grow business of market information which includes offer high-quality real-time trading data, reference data, market indices, and financial information to the financial community.

Corporate

Corporate manages future corporate development and controls all Treasury related functions. All investments are incubated within this business segment, which also comprise managing strategy for business development, legal, finance, operations, human resources, and customers’ relation management.

2018	Markets	Edaa	Market information	Corporate	Total
Operating revenues	224,150,902	298,320,362	60,808,776	–	583,280,040
Operating costs	(134,817,416)	(127,112,580)	(36,573,942)	–	(298,503,938)
General and administrative expenses	–	–	–	(210,520,277)	(210,520,277)
Operations income/(loss)	89,333,486	171,207,782	24,234,834	(210,520,277)	74,255,825
Total assets	18,211,205	566,423,092	4,105,840	2,943,208,846	3,531,948,983
Total liabilities	38,193,598	47,515,248	11,968,083	199,612,855	297,289,784

2017	Markets	Edaa	Market information	Corporate	Total
Operating revenues	197,576,131	284,845,762	63,027,657	–	545,449,550
Operating costs	(128,618,348)	(125,478,924)	(41,369,630)	–	(295,466,902)
General and administrative expenses	–	–	–	(192,528,380)	(192,528,380)
Operations income/(loss)	68,957,783	159,366,838	21,658,027	(192,528,380)	57,454,268
Total assets	17,596,101	563,548,255	4,255,660	2,828,928,177	3,414,328,193
Total liabilities	35,636,821	75,164,789	11,368,303	104,425,488	226,595,401

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Underlying the definition of fair value is the presumption that the Group is a
going concern and there is no intention or requirement to curtail materially the scale of its operations or to undertake a transaction on adverse terms.

A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis.

When measuring the fair value the Group uses market observable data as far as possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that can be accessed at the measurement date

Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at fair value as the carrying amount of the remaining financial assets and financial liabilities is a reasonable approximation of fair value.

		31 December 2018
	Carrying value	Fair value			Total fair value
		Level 1	Level 2	Level 3
Investments
FVTPL	1,303,776,087	1,228,320,127	75,455,960	–	1,303,776,087

		31 December 2017
	Carrying value	Fair value			Total fair value
		Level 1	Level 2	Level 3
Investments
Held for trading	1,227,595,478	1,227,595,478	–	–	1,227,595,478
Available for sale	88,635,408	–	88,635,408	–	88,635,408
	1,316,230,886	1,227,595,478	88,635,408	–	1,316,230,886

		1 January 2017
	Carrying value	Fair value			Total Fair Value
		Level 1	Level 2	Level 3
Investments
Held for trading	459,476,968	459,476,968	–	–	459,476,968
Available for sale	76,118,292	–	76,118,292	–	76,118,292
	535,595,260	459,476,968	76,118,292	–	535,595,260

There were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into or out of Level 3 fair value measurements were made during the year ended 31 December 2018.

The Ordinary General Assembly meeting held on 27 Ramadan 1439H (corresponding to 11 June 2018) approved the payment of dividend to shareholders for the year ended 31 December 2017 amounting to SAR 120,000,000 (for the year ended 31 December 2016: SAR 90,000,000).