Contents Introduction Management report Appendices Corporate governance Consolidated Financial Statements Company Financial Statements
on the date of the consolidated financial statements, and
the amounts reported for income and expenses during the
reporting period.
The accounting principles listed below require critical
estimates that are based on assessments and assumptions.
Although management estimates are based on the most careful
assessment of current circumstances and activities on the basis
of available financial data and information, the actual results
may deviate from these estimates.
Loan impairment allowance
Rabobank assesses at each reporting period whether an
impairment loss should be recorded in the income statement.
The impairment methodology for loans and advances results in
the recognition of:
Specific allowances for individual impaired loans;
Collective allowances for:
- Retail exposures if it is not economically justified
to recognise the loss on an individual basis;
- Incurred but not reported losses.
The detailed approach for each category is further explained
in section 2.15 'Loans and advances to customers and banks'.
Loan impairment allowances are recognised where there is
objective evidence that not all amounts due under the original
terms of the contract may be recoverable. Determining an
allowance requires a significant degree of judgement, based
on management's evaluation of the risks in the loan portfolio,
the current economic circumstances, credit losses in previous
years, and developments in financial credits, business sectors,
business concentrations and geopolitical factors. Changes in
management judgement formulation and further analyses
may lead to changes in the magnitude of loan impairment
allowances over time. Uncertainty is inherent in determining
objective evidence of reduced creditworthiness and in
determining the magnitude of the recoverable amounts and
these involve assessing a variety of assumptions and factors
regarding the creditworthiness of borrowers, the expected
future cash flows and the value of collateral.
See section 7'Loans and advances to banks'and section 11
'Loans and advances to customers'for an analysis of the loan
impairment allowances on loans to customers and banks.
Fair value of financial assets and liabilities
Information regarding the determination of the fair value of
financial assets and liabilities is included in section 4.9'Fair value
of financial assets and liabilities'and section 10'Derivatives'.
Impairment ofgoodwiii, other intangible assets and
investments in associates and joint ventures
Goodwill and other intangible assets are assessed for
impairment - at least once a year - by comparing the
recoverable value to the carrying amount, while investments
in associates and joint ventures are tested for impairment
when specific triggers are identified. The determination of the
recoverable amount in an impairment assessment of these
assets requires estimates based on quoted market prices,
prices of comparable businesses, present value or other
valuation techniques, or a combination thereof, necessitating
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 ofgoodwiii are set out in section 14 and
for investments in associates and joint ventures are set out in
section 13.
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'.
The consolidation of structured entities is a critical estimate that
requires judgement and is described in section 51 'Structured
entities'.
Rabobank Annual Report 2017 - Consolidated financial statements
176
