ING Direct 2008 Annual Report Download - page 100

2.1 Consolidated annual accounts
but not yet identified are adequately reflected in the Group’s loan loss provision. Although the loss confirmation periods are inherently
uncertain, the Group applies estimates to sub-portfolios (e.g. large corporations, small and medium size enterprises and retail portfolios)
that reflect factors such as the frequency with which customers in the sub-portfolio disclose credit risk sensitive information and the
frequency with which they are subject to review by the Group’s account managers. Generally, the frequency increases in relation to the
size of the borrower. Loss confirmation periods are based on historical experience and are validated, and revised where necessary,
through regular back-testing to ensure that they reflect recent experience and current events.
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 recognised (such as an improvement in the debtor’s credit rating), the previously recognised impairment loss is
reversed by adjusting the provision. The amount of the reversal is recognised in the profit and loss account.
When a loan is uncollectible, it is written off against the related loan loss provision. 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 are recognised in the profit and loss account.
IMPAIRMENT OF OTHER FINANCIAL ASSETS
At each balance sheet date, the Group assesses whether there is objective evidence that a financial asset or a group of financial assets is
impaired. In the specific case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the
security below its cost is considered in determining whether the assets are impaired. ‘Significant’ and ‘prolonged’ are interpreted on a
case-by-case basis for specific equity securities; generally 25% and 6 months are used as triggers. If any objective evidence exists for
available-for-sale debt and equity investments, the cumulative loss – measured as the difference between the acquisition cost and the
current fair value, less any impairment loss on that financial asset previously recognised in net result – is removed from equity and
recognised in the profit and loss account. Impairment losses recognised on equity instruments can never be reversed. If, in a subsequent
period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event
occurring after the impairment loss was recognised in the profit and loss account, the impairment loss is reversed through the profit and
loss account.
INVESTMENTS IN ASSOCIATES
Associates are all entities over which the Group has significant influence but not control. Significant influence generally results from a
shareholding of between 20% and 50% of the voting rights, but also is the ability to participate in the financial and operating policies
through situations including, but not limited to one or more of the following:
Representation on the board of directors;•
Participation in the policymaking process; and•
Interchange of managerial personnel.•
Investments in associates are initially recognised at cost and subsequently accounted for using the equity method of accounting.
The Group’s investment in associates (net of any accumulated impairment loss) includes goodwill identified on acquisition. The Group’s
share of its associates’ post-acquisition profits or losses is recognised in the profit and loss account, and its share of post-acquisition
changes in reserves is recognised in equity. The cumulative post-acquisition changes are adjusted against the carrying amount of the
investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured
receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.
Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the
associates. Unrealised losses are also eliminated unless they provide evidence of an impairment of the asset transferred. Accounting
policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group. The reporting
dates of all material associates are consistent with the reporting date of the Group.
For interests in investment vehicles the existence of significant influence is determined taking into account both the Group’s financial
interests for own risk and its role as investment manager.
REAL ESTATE INVESTMENTS
Real estate investments are stated at fair value at the balance sheet date. Changes in the carrying amount resulting from revaluations are
recognised in the profit and loss account. On disposal the difference between the sale proceeds and book value is recognised in the profit
and loss account.
The fair value of real estate investments is based on regular appraisals by independent qualified valuers. Each year every property is
valued either by an independent valuer or internally. Indexation is used when a property is valued internally. The index is based on the
results of the independent valuations carried out in that period. Market transactions, and disposals made by the Group, are monitored
as part of the procedures to back test the indexation methodology. All properties are valued independently at least every five years.
Accounting policies for the consolidated balance sheet
and profit and loss account of ING Group (continued)
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