Chapter 9 Financial Reporting in the Netherlands.

Chapter 9Financial 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

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