ING Direct 2004 Annual Report Download - page 71

ING Group Annual Report 2004 69
economic conditions, loss experience in recent years and credit and geographical concentration trends. Changes in such
judgements and analyses may lead to changes in provisions over time.
Fair value of financial assets and liabilities
Fair value determinations for financial assets and liabilities are based generally on listed market prices or broker or dealer price
quotations. If prices are not readily determinable or if liquidating the positions is reasonably expected to affect market prices,
fair value is based on either internal valuation models or management’s estimate of amounts that could be realised under
current market conditions, assuming an orderly liquidation over a reasonable period of time. Certain financial instruments,
including OTC derivative instruments, are valued using pricing models that consider, among other factors, contractual and
market prices, correlations, time value, credit, yield curve volatility factors and/or prepayment rates of the underlying positions.
The use of different pricing models and assumptions could produce materially different estimates of fair value.
Impairments
The carrying value of all assets is reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. The identification of impairment and the determination of the recoverable amount
are an inherently uncertain process involving various assumptions and factors, including the financial condition of the
counterparty, expected future cash flows, observable market prices and expected net selling prices. The determination of
impairment is specifically relevant to the investments in equity securities and fixed interest securities.
In order to determine whether negative revaluations on equity securities represent impairment, all equity securities for
which the market value has been significantly below cost price for a considerable period of time are individually reviewed. A
distinction is made between negative revaluations due to general market fluctuations and due to issuer-specific developments.
The impairment review focuses on issuer specific developments regarding financial condition and future prospects, taking into
account the intent and ability to hold the securities under the Group’s long-term investment strategy.
In order to determine whether investments in fixed-interest securities are impaired, all fixed-interest securities for which the
market value has been significantly below cost price for a considerable period of time are individually reviewed. Distinction
is made between negative revaluations due to general interest rate and other market fluctuations and due to issuer-specific
developments. The impairment review focuses on issuer specific developments regarding financial condition and prospects of
the issuer identifying whether repayment of interest and principal is expected, taking into account the intent and ability to hold
the securities under the Group’s long-term investment strategy.
Although all individual securities are reviewed to ensure that no material impairments are required to be charged to the
profit and loss account, the identification of impairment and the determination of the recoverable amount are an inherently
uncertain process involving various assumptions and factors, including the financial condition of the counterparty, expected
future cash flows, observable market prices and expected net selling prices. Further developments after the balance sheet date
may indicate that certain unrealised losses that existed as of the balance sheet date will result in impairment in future periods,
resulting in a negative impact on the profit and loss account for future periods.
PRINCIPLES OF VALUATION AND DETERMINATION OF RESULTS
GENERAL PRINCIPLES
Recognition
An asset is recognised in the balance sheet when it is probable that the future economic benefits will flow to the enterprise and
the asset can be measured reliably. A liability is recognised in the balance sheet when it is probable that an outflow of resources
embodying economic benefits will result from the settlement of a present obligation and the amount at which the settlement will
take place can be measured reliably. If the criteria for recognition are no longer met, the assets and liabilities are derecognised.
Income is recognised in the profit and loss account when an increase in future economic benefits related to an increase in an
asset or a decrease of a liability has arisen that can be measured reliably. Expenses are recognised in the profit and loss account
when a decrease in future economic benefits related to a decrease in an asset or an increase of a liability has arisen that can be
measured reliably.
Valuation
Assets and liabilities are shown at face value except where a different valuation principle is stated below.
Use of estimates
The preparation of the annual accounts necessitates the use of estimates and assumptions. These estimates and assumptions