ING Direct 2008 Annual Report Download - page 106

2.1 Consolidated annual accounts
Interest
Interest income and expense are recognised in the profit and loss account using the effective interest method. The effective interest
method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or
interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or
receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the
financial asset or financial liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual
terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all
fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs
and all other premiums or discounts. Once a financial asset or a group of similar financial assets has been written down as a result of an
impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of
measuring the impairment loss.
All interest income and expenses from trading positions and non-trading derivatives are classified as interest income and interest expenses
in the profit and loss account. Changes in the ‘clean fair value’ are included in Valuation results on non-trading derivatives.
Fees and commissions
Fees and commissions are generally recognised as the service is provided. Loan commitment fees for loans that are likely to be drawn down
are deferred (together with related direct costs) and recognised as an adjustment to the effective interest rate on the loan. Loan syndication
fees are recognised as income when the syndication has been completed and the Group has retained no part of the loan package for itself
or has retained a part at the same effective interest rate as the other participants. Commission and fees arising from negotiating, or
participating in the negotiation of, a transaction for a third party – such as the arrangement of the acquisition of shares or other securities
or the purchase or sale of businesses – are recognised on completion of the underlying transaction. Portfolio and other management
advisory and service fees are recognised based on the applicable service contracts as the service is provided. Asset management fees
related to investment funds and investment contract fees are recognised on a pro-rata basis over the period the service is provided. The
same principle is applied for wealth management, financial planning and custody services that are continuously provided over an extended
period of time. Fees received and paid between banks for payment services are classified as commission income and expenses.
Lease income
The proceeds from leasing out assets under operating leases are recognised on a straight-line basis over the life of the lease agreement.
Lease payments received in respect of finance leases when ING is the lessor are divided into an interest component (recognised as interest
income) and a repayment component.
EXPENSE RECOGNITION
Expenses are recognised in the profit and loss account as incurred or when a decrease in future economic benefits related to a decrease
in an asset or an increase in a liability has arisen that can be measured reliably.
Share-based payments
Share-based payment expenses are recognised as the employees provide the service. A corresponding increase in equity is recognised if
the services are received in an equity-settled share-based payment transaction. A liability is recognised if the services are acquired in a
cash-settled share-based payment transaction. The cost of acquiring the services is expensed as a staff expense. Prior to 2007, ING Group
generally provided equity-settled share-based payment transactions. However, since 2007, ING Group has generally provided cash-settled
share-based payment transactions. The fair value of equity-settled share-based payment transactions is measured at the grant date and
the fair value of cash-settled share-based payment transactions is measured at each balance sheet date.
EARNINGS PER ORDINARY SHARE
Earnings per ordinary share is calculated on the basis of the weighted average number of ordinary shares outstanding. In calculating
the weighted average number of ordinary shares outstanding:
Own shares held by group companies are deducted from the total number of ordinary shares in issue;•
The computation is based on daily averages;•
In case of exercised warrants, the exercise date is taken into consideration.•
The non-voting equity securities are not ordinary shares, because their terms and conditions (especially with regard to coupons and
voting rights) are significantly different. Therefore, the weighted average number of ordinary shares outstanding during the period is
not impacted by the non-voting equity securities.
Accounting policies for the consolidated balance sheet
and profit and loss account of ING Group (continued)
ING Group Annual Report 2008
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