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Chapter 9

Chapter 9. Financial Reporting in the Netherlands. The influence of IFRS. IASB’s version of IAS 39 fully adopted, except fair value option for liabilities which is not allowed by EU

dorothy-harding
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Chapter 9

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  1. Chapter 9 Financial Reporting in the Netherlands

  2. The influence of IFRS • IASB’s version of IAS 39 fully adopted, except fair value option for liabilities which is not allowed by EU • IFRS will not change the underlying performance of our business. Accounting should continue to reflect business decisions and not drive business decisions

  3. The influence of IFRS • Underlying income streams unchanged as differences are mainly due to transition impact and timing differences • Volatility of results could increase • IFRS transition will not have an impact on dividend • Most impact on BU NA and Group ALM. WCS modestly impacted. Other (S)BU’s are hardly impacted

  4. IFRS versus Dutch GAAP • Hedging Philosophy • Share Based Payments • Debt/Equity • Loan loss provisioning • Goodwill • Pensions • Mortgage Banking activities • Investment Portfolio/IER • Hedge Accounting • Fair Value • IAS 39

  5. IFRS versus Dutch GAAP: Main differences • Hedging Philosophy • Dutch GAAP: Accounting of the hedge follows the accounting of the hedged item • IFRS: Accounting of hedged item follows the accounting of the hedge – strict conditions apply

  6. IFRS versus Dutch GAAP: Main differences • Share Based Payments • Dutch GAAP: Stock options not expensed • IFRS: Stock options expensed at fair value

  7. IFRS versus Dutch GAAP: Main differences • Debt/Equity • A more strict definition of Equity is applicable under IFRS. An instrument only qualifies as equity if the payment of a dividend is at the discretion of the issuer

  8. IFRS versus Dutch GAAP: Main differences • Loan loss provisioning • Dutch GAAP: value based on nominal cash flows • IFRS: value based on discounted cash flows. Only specific loan losses are allowed • Goodwill • Dutch GAAP: Goodwill immediately charged to Equity • IFRS: goodwill has to be capitalised including an annual impairment test

  9. IFRS versus Dutch GAAP: Main differences • Mortgage banking activities • Dutch GAAP: only the realised results of terminated hedges are accounted for in the book value of the MSRs • IFRS: Hedge accounting requires unrealised fair value changes to be accounted for in the book value of the MSRs. In addition ineffectiveness is booked through the income statement immediately

  10. IFRS versus Dutch GAAP: Main differences • Investment portfolio/Interest Equalisation Reserve (IER) • Dutch GAAP: the portfolio is stated at amortised cost, results on sales are booked in the IER and amortised over the average life of the investment portfolio • IFRS: the AFS-part of the portfolio has to be fair valued through Equity. Realised results on sales have to be booked immediately through the income statement

  11. IFRS versus Dutch GAAP : IAS 39 Hedge Accounting • Effectiveness: in practice many hedges are less than 100% perfect Every difference in the change of the fair value of the hedge and the hedged item has to be booked immediately in the Income Statement. If ineffectiveness exceeds a certain level (80% - 125%) only the fair value change of the hedge can be booked in the Income Statement

  12. IFRS versus Dutch GAAP : IAS 39 Hedge Accounting • Externalisation: clear demonstration of external hedge relationship Every internal hedged risk has to be laid off through an external transaction - Documentation: required by IAS 39 rules To qualify as a hedge, the relation between a hedge and a hedged item has to be documented thoroughly

  13. IFRS versus Dutch GAAP : IAS 39 Fair Value • Broader scope: IFRS forces more instruments to be fair valued, for example all derivatives and the AFS portfolio - Deeper impact: the fair value should be based on objective (market) data

  14. IFRS versus Dutch GAAP : IAS 39 Fair Value - Bifurcation:if an instrument includes an embedded derivative with a nature that differs from the host instrument, that derivative has to be separated from the host instrument and marked-to-market through the Income Statement

  15. IFRS versus Dutch GAAP : IAS 39 • Endorsement of IAS 39 by EU: • a) Macro fair value hedging: Removes obstacles for macro fair value hedging of core deposits

  16. IFRS versus Dutch GAAP : IAS 39 • Endorsement of IAS 39 by EU: • b) Fair value options will only be used for Assets as it is prohibited for Liabilities • Impact largely quantified • Operational burden of increased use of bifurcation • IASB and EU may yet resolve this ‘disagreement’ arising from ECB concerns prior to our issuance of IFRS data

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