ING Direct 2009 Annual Report Download - page 103

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.
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 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.
Investments
Investments (including loans quoted in active markets) are classified either as held-to-maturity or available-for-sale and are initially
recognised at fair value plus transaction costs. Investment securities and loans quoted in active markets with fixed maturity where
management has both the intent and the ability to hold to maturity are classified as held-to-maturity. Investment securities and actively
traded loans intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in
interest rates, exchange rates or equity prices, are classified as available-for-sale.
2.1 Consolidated annual accounts
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Accounting policies for the consolidated balance sheet and profit and loss account of ING Group (continued)