2 Other accounting policies
Inhoudsopgave Voorwoord Bestuursverslag Corporate governance
Consolidated Financial Statements Company Financial Statements Pillar 3
management to make subjective judgments and assumptions.
Because these estimates and assumptions could result in
significant differences to the amounts reported if underlying
circumstances were to change, these estimates are considered
to be critical.The important assumptions for determining
recoverable value of goodwill are set out in Section 14 and
for investments in associates and joint ventures are set out in
Section 13 of the consolidated financial statements.
Taxation
Estimates are used when determining the income tax charge
and the related current and deferred tax assets and liabilities.
Tax treatment of transactions is not always clear or certain and,
in a number of countries, prior year tax returns often remain
open and subject to tax authority approval for lengthy periods.
The tax assets and liabilities reported are based on the best
available information, and where applicable, on external advice.
Differences between the final outcome and the estimates
originally made are accounted for in the current and deferred
tax assets and liabilities in the period in which reasonable
certainty is obtained.
Other provisions
In applying IAS 37 judgement is involved in determining
whether a present obligation exists and in estimating
the probability, timing and amount of any outflows.
More information on judgements regarding the provision for
SME derivatives and the restructuring provision is included in
section 25 Provisions of the consolidated financial statements.
The consolidation of structured entities is a critical estimate that
requires judgement and is described in section 50 Structured
entities of the consolidated financial statements.
2.1 Subsidiaries
The participating interests over which Rabobank has control
are its subsidiaries. Control is exercised over a participating
interest if the investor is entitled to receive variable returns
from its involvement in the participating interest and has
the ability to influence these returns through its control over
the participating interest.The subsidiaries are stated at net
asset value.
2.2 Investments in associates and joint ventures
Investments in associates and joint ventures are initially
recognised at cost and subsequently accounted for using the
equity method of accounting. Its share of post-acquisition
profits and losses are recognised in the income statement
and its share of post-acquisition movements in reserves
are recognised directly in other comprehensive income.
The cumulative post-acquisition movements are included in the
carrying amount of the investment.
Associates are entities over which Rabobank can exercise
significant influence and in which it generally holds between
20% and 50% of the voting rights but does not have control.
A joint venture is an agreement between one or more parties
under which the parties jointly have control and are jointly
entitled to the net assets under the agreement. Unrealised
profits on transactions between Rabobank and its associates
and joint ventures are eliminated in proportion to Rabobank's
interest in the respective associates and joint ventures.
Unrealised losses are also eliminated unless the transaction
indicates that an impairment loss should be recognised on the
asset(s) underlying the transaction.
Investments in associates include the goodwill acquired.
Where the share of an associate's losses is equal to or exceeds
its interest in the associate, losses are recognised only where
Rabobank has given undertakings to, or made payments on
behalf of, the associate.
2.3 Derivatives and hedging
Derivatives generally comprise foreign exchange contracts,
currency and interest rate futures, forward rate agreements,
currency and interest rate swaps and currency and interest rate
options (written or acquired). Derivatives are recognised at fair
value determined on the basis of listed market prices (with mid-
prices being used for EUR, USD and GBP derivatives that have
a bid-ask range), prices offered by traders, discounted cash flow
models and option valuation models based on current market
prices and contract prices for the underlying instruments
and reflecting the time value of money, yield curves and the
volatility of the underlying assets and liabilities. Derivatives
are included under assets if their fair value is positive and
under liabilities if theirfair value is negative. If their risks and
characteristics are not closely related to those of the underlying
non-derivative host contract and the contract is not classified
as at fair value, derivatives that are embedded in other financial
instruments are bifurcated and measured separately with
unrealised profits and losses being recognised in profit and loss
in 'Gains/ (losses) on financial assets and liabilities at fair value
through profit or loss'.
2.4 Financial assets and liabilities held for trading
Financial assets held for trading are financial assets acquired
with the objective of generating profit from short-term
fluctuations in prices or trading margins or they are financial
assets that form part of portfolios characterised by patterns
of short-term profit participation. Financial assets held for
trading are recognised at fair value based on listed bid prices
264 Rabobank Jaarverslag 2016