ING Direct 2011 Annual Report Download - page 113

Where a business combination is achieved in stages, ING Group’s previously held interests in the assets and liabilities of the acquired entity
are remeasured to fair value at the acquisition date (i.e. the date ING Group attains control) and the resulting gain or loss, if any, is
recognised in the profit or loss account. Amounts arising from interests in the acquire prior to the acquisition date that have previously
been recognised in other comprehensive income are reclassified to the profit or loss account, where such treatment would be appropriate
if that interest were disposed of. Acquisition-related costs are recognised in the profit or loss account as incurred and presented in the
profit and loss account as Other operating expenses.
Until 2009, before IFRS 3 ‘Business Combinations’ was revised the accounting of previously held interests in the assets and liabilities
oftheacquired entity were not remeasured at the acquisition date and the acquisition-related costs were considered to be part of the
totalconsideration.
The initial accounting for the fair value of the net assets of the companies acquired during the year may be determined only provisionally
asthe determination of the fair value can be complex and the time between the acquisition and the preparation of the Annual Accounts
can be limited. The initial accounting shall be completed within a year after acquisition.
Goodwill is only capitalised on acquisitions after the implementation date of IFRS-EU (1 January 2004). Accounting for acquisitions before
that date has not been restated; goodwill and internally generated intangibles on these acquisitions were recognised directly in shareholders’
equity. Goodwill is allocated to reporting units for the purpose of impairment testing. These reporting units represent the lowest level at
which goodwill is monitored for internal management purposes. This test is performed annually or more frequently if there are indicators of
impairment. Under the impairment tests, the carrying value of the reporting units (including goodwill) is compared to its recoverable amount
which is the higher of its fair value less costs to sell and its value in use.
Adjustments to the fair value as at the date of acquisition of acquired assets and liabilities that are identified within one year after
acquisition are recognised as an adjustment to goodwill; any subsequent adjustment is recognised as income or expense. On disposal of
group companies, the difference between the sale proceeds and carrying value (including goodwill) and the unrealised results (including
the currency translation reserve in equity) is included in the profit and loss account.
Computer software
Computer software that has been purchased or generated internally for own use is stated at cost less amortisation and any impairment
losses. Amortisation is calculated on a straight-line basis over its useful life. This period will generally not exceed three years. Amortisation
is included in Other operating expenses.
Value of business acquired (VOBA)
VOBA is an asset that reflects the present value of estimated net cash flows embedded in the insurance contracts of an acquired company,
which existed at the time the company was acquired. It represents the difference between the fair value of insurance liabilities and their
carrying value. VOBA is amortised in a similar manner to the amortisation of deferred acquisition costs as described in the section
‘Deferred acquisition costs’.
Other intangible assets
Other intangible assets are capitalised and amortised over their expected economic life, which is generally between three and ten years.
Intangible assets with an indefinite life are not amortised.
DEFERRED ACQUISITION COSTS
Deferred acquisition costs (DAC) are an asset and represent costs of acquiring insurance and investment contracts that are deferred and
amortised. The deferred costs, all of which vary with (and are primarily related to) the production of new and renewal business, consist
principally of commissions, certain underwriting and contract issuance expenses, and certain agency expenses.
For traditional life insurance contracts, certain types of flexible life insurance contracts, and non-life contracts, DAC is amortised over the
premium payment period in proportion to the premium revenue recognised.
For other types of flexible life insurance contracts DAC is amortised over the lives of the policies in relation to the emergence of estimated
gross profits. Amortisation is adjusted when estimates of current or future gross profits, to be realised from a group of products, are revised.
The estimates and the assumptions are reassessed at the end of each reporting period. Higher/lower expected profits (e.g. reflecting stock
market performance or a change in the level of assets under management) may cause a lower/higher balance of DAC due to the catch-up of
amortisation in previous and future years. This process is known as DAC unlocking. The impact of the DAC unlocking is recognised in the
profit and loss account of the period in which the unlocking occurs. Effective as of 2011, the estimate for the short-term equity growth
assumption used to calculate the amortisation of DAC in the United States (Insurance US) was changed to a mean reversion assumption.
DAC is evaluated for recoverability at issue. Subsequently it is tested on a regular basis together with the provision for life insurance
liabilities and VOBA. The test for recoverability is described in the section ‘Insurance, Investment and Reinsurance Contracts’.
For certain products DAC is adjusted for the impact of unrealised results on allocated investments through equity.
Accounting policies for the consolidated annual accounts of ING Group continued
1 Who we are 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information
111ING Group Annual Report 2011