ING Direct 2011 Annual Report Download - page 106

Group companies
The results and financial positions of all group companies that have a functional currency different from the presentation currency are
translated into the presentation currency as follows:
• Assets and liabilities included in each balance sheet are translated at the closing rate at the date of that balance sheet;
• Income and expenses included in each profit and loss account are translated at average exchange rates (unless this average is not a
reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses
are translated at the dates of the transactions); and
• All resulting exchange rate differences are recognised in a separate component of equity.
On consolidation, exchange rate differences arising from the translation of a monetary item that forms part of the net investment in a
foreign operation, and of borrowings and other instruments designated as hedges of such investments, are taken to shareholders’ equity.
When a foreign operation is sold, the corresponding exchange rate differences are recognised in the profit and loss account as part of the
gain or loss on sale.
Goodwill and fair value adjustments arising from the acquisition of a foreign operation are treated as assets and liabilities of the foreign
operation and translated at the exchange rate prevailing at the balance sheet date.
FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES
The fair values of financial instruments are based on quoted market prices at the balance sheet date where available. The quoted market
price used for financial assets held by the Group is the current bid price; the quoted market price used for financial liabilities is the current
ask price.
The fair value of financial instruments that are not traded in an active market are determined using valuation techniques. The Group uses
avariety of methods and makes assumptions that are based on market conditions existing at each balance sheet date.
Reference is made to Note 34 ‘Fair value of financial assets and liabilities’ for the basis of the determination of the fair value of financial instruments.
FINANCIAL ASSETS
Recognition of financial assets
All purchases and sales of financial assets classified as fair value through profit and loss, held-to-maturity and available-for-sale that require
delivery within the time frame established by regulation or market convention (‘regular way’ purchases and sales) are recognised at trade
date, which is the date on which the Group commits to purchase or sell the asset. Loans and receivables are recognised at settlement date,
which is the date on which the Group receives or delivers the asset.
Derecognition of financial assets
Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or where the Group has
transferred substantially all risks and rewards of ownership. If the Group neither transfers nor retains substantially all the risks and rewards
of ownership of a financial asset, it derecognises the financial asset if it no longer has control over the asset. In transfers where control
over the asset is retained, the Group continues to recognise the asset to the extent of its continuing involvement. The extent of continuing
involvement is determined by the extent to which the Group is exposed to changes in the value of the asset.
Realised gains and losses on investments
Realised gains and losses on investments are determined as the difference between the sale proceeds and (amortised) cost. For equity
securities, the cost is determined using a weighted average per portfolio. For debt securities, the cost is determined by specific identification.
CLASSIFICATION OF FINANCIAL INSTRUMENTS
Financial assets at fair value through profit and loss
Financial assets at fair value through profit and loss include equity securities, debt securities, derivatives, loans and receivables and other,
and comprise the following sub-categories: trading assets, non-trading derivatives, financial assets designated at fair value through profit
and loss by management and investments for risk of policyholders.
A financial asset is classified as at fair value through profit and loss if acquired principally for the purpose of selling in the short term or if
designated by management as such. Management will make this designation only if this eliminates a measurement inconsistency or if the
related assets and liabilities are managed on a fair value basis.
Investments for risk of policyholders are investments against insurance liabilities for which all changes in fair value of invested assets are
offset by similar changes in insurance liabilities.
Transaction costs on initial recognition are expensed as incurred. Interest income from debt securities and loans and receivables classified
as at fair value through profit and loss is recognised in Interest income banking operations and Investment income in the profit and loss
account, using the effective interest method.
Accounting policies for the consolidated annual accounts of ING Group continued
104 ING Group Annual Report 2011