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