International Financial
Reporting Standards
Property
Equity versus debt capital
Goodwill
Consolidation
19 Rabobank Group Annual Report 2004
International Financial Reporting Standards
As from 2005, Rabobank Group will prepare its financial statements in
accordance with International Financial Reporting Standards (IFRS), as
approved by the European Commission. For listed companies, these
standards will replace the current Guidelines for Annual Reporting in the
Netherlands and the provisions of Part 9 of Book 2 of the Netherlands
Civil Code. Application of IFRS is expected to increase transparency
and enable a better international comparison of companies' results.
Reporting to the supervisory authorities will be based on IFRS as well.
The new standards will mean changes not only to the accounting
policies, but also to the additional information to be disclosed in the
notes to the financial statements. Since 2002, Rabobank Group has
devoted a great deal of attention to the implementation of IFRS and
the associated training of its finance staff.
For Rabobank Group, the main areas affected by IFRS are:
- software
- property
- equity versus loan capital
- goodwill
- Fund for general banking risks
- consolidation
- investment portfolio - bonds
- employee benefits
- provision for loan losses
- derivatives and hedge accounting
Software
Under IFRS, investments in software are no longer treated as 'tangible
fixed assets' but as 'intangible fixed assets'. The capitalised amounts will
increase under IFRS.
Up to and including 2004, buildings were carried at current value,
derived from their replacement value based on continuity and functio
nality. Under IFRS, property in use by the Bank will be carried at cost.
Under IFRS, the Trust Preferred Securities I and II issued in 1999 and 2003
do not qualify as equity. Instead, they will be classified as (subordinated)
loans and the payment on the Trust Preferred Securities I and II will be
taken to the profit and loss account. From the point of view of the
supervisory authorities, Trust Preferred Securities I and II will continue to
form part of core capital.
Goodwill in the consolidated financial statements will no longer be
charged direct to reserves. Goodwill paid from 2004 onwards will be
capitalised. Capitalised goodwill will not be amortised, and instead will
be tested for impairment at least once a year.
Fund for general banking risks
The Fund for general banking risks, which serves to cover general risks
associated with banking activities where this is prudently required, is
not allowed under IFRS.
The transition to IFRS means the inclusion in the consolidation of several
participating interests that were not previously consolidated. The reverse
also occurs. A limited number of interests that were included in the
consolidation up to and including 2004 will no longer be consolidated
under IFRS.
Investment portfolio - bonds
Before 2005, gains and losses on the sale of bonds and other interest-
bearing securities were taken to reserves, taking into account deferred
taxation. These results were then recognised as interest income in the
profit and loss account over the remaining term to maturity of those
securities. Under IFRS, the results will be recognised at the time the
securities are sold.
