ING Direct 2015 Annual Report Download - page 36

Contents
Who we are
Report of the
Management
Board
Corporate
Governance
Consolidated
annual accounts
Parent company
annual accounts
Other
information
Additional
information
Notes to the Consolidated annual accounts of ING Bank - continued
In 2015, the Hedge accounting workstream performed a technical assessment of the impact of the new hedge accounting
requirements. Based on the outcome of this technical assessment, ING Bank has made a preliminary decision to continue applying IAS
39 in its entirety for hedge accounting until the guidance of Macro fair value hedge accounting is finalised as allowed under IFRS 9. ING
Bank will continue to implement the IFRS 7 hedge accounting disclosure requirements.
IFRS 15 ‘Revenue from Contracts with Customers’
In May 2014, the International Accounting Standards Board (‘IASB’) issued IFRS 15 ‘Revenue from Contracts with Customers’. The
standard was originally effective for annual periods beginning on or after 1 January 2017. During 2015, the effective date was
amended to 1 Janaury 2018, with early adoption permitted. IFRS 15 is not yet endorsed by the EU. IFRS 15 provides a principles-based
approach for revenue recognition, and introduces the concept of recognising revenue as and when the agreed performance
obligations are satisfied. The standard should in principle be applied retrospectively, with certain exceptions. ING is currently assessing
the impact of this standard.
IFRS 16 ‘Leases’
In January 2016, the IASB issued IFRS 16 ‘Leases’ the new accounting standard for leases. The new standard is effective for annual
periods beginning on or after 1 January 2019 and will replace IAS 17 ‘Leases’ and IFRIC 4 ‘Determining whether an Arrangment
contains a Lease’. Early adoption is permitted for companies that also apply IFRS 15 ‘Revenue from Contracts with Customers’. IFRS 16
is not yet endorsed by the EU. The new standard removes the classification of leases as either operating leases or finance leases,
resulting in all leases for lessees being treated comparable to finance leases. All leases will be recognised on the balance sheet with
the exception of short-term leases with a lease term of less than 12 months and leases of low-value assets (for example tablets or
personal computers. The main reason for this change is to increase comparability between companies and increase the visibility of
these types of assets and liabilities. Lessor accounting remains largely unchanged. The standard permits a lessee to choose either a
full retrospective or a modified retrospective transition approach as well as some practical transitional relieves. ING Bank is currently
assessing the impact of this standard.
f) Critical accounting policies
ING Bank has identified the accounting policies that are most critical to its business operations and to the understanding of its results.
These critical accounting policies are those which involve the most complex or subjective decisions or assessments, and relate to loan
loss provisions, other impairments and the determination of the fair values of financial assets and liabilities. In each case, the
determination of these items is fundamental to the financial condition and results of operations, and requires management to make
complex judgements based on information and financial data that may change in future periods. As a result, determinations
regarding these items necessarily involve the use of assumptions and subjective judgements as to future events and are subject to
change, as the use of different assumptions or data could produce significantly different results. For a further discussion of the
application of these accounting policies, reference is made to the applicable notes to the consolidated financial statements and the
information below under ‘Principles of valuation and determination of results’.
Loan loss provisions
Loan loss provisions are recognised based on an incurred loss model. Considerable judgement is exercised in determining the extent of
the loan loss provision (impairment) and is based on management’s evaluation of the risk in the portfolio, current economic
conditions, loss experience in recent years and credit, industry, geographical and concentration trends. Changes in such judgements
and analyses may lead to changes in the loan loss provisions over time.
The identification of impairment and the determination of the recoverable amount are an inherently uncertain processes involving
various assumptions and factors including the financial condition of the counterparty, expected future cash flows, observable market
prices and expected net selling prices.
Future cash flows in a portfolio of financial assets that are collectively evaluated for impairment are estimated on the basis of the
contractual cash flows of the assets in the portfolio and historical loss experience for assets with credit risk characteristics similar to
those in the portfolio. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current
conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the
historical period that do not exist currently. Current observable data may include changes in unemployment rates, property prices and
commodity prices. The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any
differences between loss estimates and actual loss experience.
Other impairments
Impairment evaluation is a complex process that inherently involves significant judgements and uncertainties that may have a
significant impact on ING Bank’s consolidated financial statements. Impairments are especially relevant in two areas: Available-for-
sale debt and equity securities and Goodwill/Intangible assets.
ING Bank Annual Report 2015 34