ING Direct 2008 Annual Report Download - page 96

2.1 Consolidated annual accounts
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, these 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 values 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.
See Note 33 ‘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 so designated by management. 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 from banking
operations and Investment income in the profit and loss account, using the effective interest method.
Dividend income from equity instruments classified as at fair value through profit and loss is generally recognised in Investment income in
the profit and loss account when dividend has been declared. Investment result from investments for risk of policyholders is recognised in
investment result for risk of policyholders. For derivatives reference is made to the ‘Derivatives and hedge accounting’ section. For all
other financial assets classified as at fair value through profit and loss changes in fair value are recognised in Net trading income.
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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