2.2 Consolidated Financial Statements About this Report Chairman's Foreword Corporate Management Report Appendices Governance Consolidated Financial Company Financial Statements Statements different regions. Important variables are gross domestic product growth, unemployment rates and interest rates. These forward-looking macroeconomic forecasts require judgment and are partly based on internal Rabobank research. Measurement of expected credit losses: The probability of default (PD) x loss given default (LGD) x exposure at default (EAD) inputs are used to estimate expected credit losses. These inputs require estimates in the following way: PD -The probability of default is an estimate of the likelihood of default over a given time horizon. EAD - The exposure at default is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after reporting date. LGD -The loss given default is an estimate of the loss arising in the case where a default occurs at a given time. It is based on the difference between the contractual cash flows due and those that Rabobank would expect to receive, including cash flows expected from collateral and other credit enhancements. Measurement of individually assessed financial asset: For credit-impaired financial assets that are assessed on an individual basis, a discounted cash flow calculation is performed. In many cases, judgment is required for the estimation of the expected future cash flows and the weighting of the three scenarios. 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 11 'Derivatives'. Impairment of Goodwill, 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 com paring the recoverable val ue 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 of goodwill are set out in Section 15 and for investments in associates and joint ventures these are set out in Section 14. 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 numberof countries, prioryeartax 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 37judgement is involved in determining whether a present obligation exists and in estimating the probability, timing and amount of any outflows. More information on jugements regarding the provision for SME derivatives and the restructuring provision is included in Section 26 Provisions. Structured Entities The consolidation of structured entities is a critical estimate that requires judgment and is described in Section 53 Structured entities. 2.2.1 Subsidiaries The participating interests over which Rabobank has control are its subsidiaries (including structured entities) and these are consolidated. 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 overthe participating interest. The assets, liabilities and profit and loss of these companies are fully consolidated. Subsidiaries are consolidated as from the date on which Rabobank acquires effective control and subsidiaries are de- consolidated as of the date on which this control is ceded. Transactions, balances and unrealized gains and losses on transactions between and among Rabobank Group and its subsidiaries are eliminated on consolidation. Cross-guarantee System Following approval by the Dutch Central Bank, the cross- guarantee system (a remnant of the previous cooperative structure of Rabobank Group) was terminated on December 11, 2018. There are no outstanding, residual and/or contingent liabilities. Annual Report 2018 - Consolidated Financial Statements 137

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Annual Reports Rabobank | 2018 | | pagina 139