pwc
About this Chairman's Corporate Consolidated Financial Company Financial
Report Foreword Management Report Appendices Governance Statements Statements
Key audit matter
Our audit work and observations
Given the significance of the number of accounting
policy choices, judgements taken by management, the
complexity and the inherent limitations to the inputs
required by the loan impairment models, this areas is
subject to a higher risk of material misstatement due to
error or fraud. Therefore, we considered this a key
audit matter in our audit.
Valuation of financial instruments at fair
value
Refer to note 2.3 'Derivatives and hedging', note 2.4
'Financial assets and liabilities held for trading', note
2.5 'Financial assets and financial liabilities designated
at fair value', note 2.7 'Financial assets at fair value
through other comprehensive income' and note 4.9
'Fair value of financial assets and liabilities'.
The financial instruments that are measured at fair
value which are significant to the financial statements
are:
Derivatives (EUR 22.6 billion of derivative assets
and EUR 23.9 billion of derivative liabilities are
level 2 and level 3 financial instruments at 31
December 2018);
Financial assets held for trading (EUR 0.5 billion
of financial assets held for trading are level 2 or
level 3 financial instruments at 31 December
2018);
Financial assets designated at fair value (EUR 0.01
billion of financial assets designated at fair value
are level 2 or level 3 financial instruments at 31
December 2018);
Financial assets mandatorily at fair value (EUR 2.1
billion of financial assets mandatorily at fair value
are level 2 or level 3 financial instruments at 31
December 2018);
Financial assets at fair value through other
comprehensive income (EUR 4.3 billion of
financial assets at fair value through other
comprehensive income are level 2 or level 3
financial instruments at 31 December 2018);
Non-current assets held for sale (EUR 0.3 billion
of non-current assets held for sale are level 2 or
level 3 financial instruments at 31 December
2018); and
Financial liabilities designated at fair value (EUR
6.6 billion of financial liabilities designated at fair
value are level 2 or level 3 financial instruments at
31 December 2018).
Control design and operation effectiveness
Our audit work included, amongst others,
understanding and evaluating the design and testing the
operating effectiveness of the controls at the Bank that
cover the valuation process for financial instruments
such as:
The governance over valuation models, including
the validation and approval process of such models,
subsequent changes thereto and an assessment of
the impact of limitations inherent to the models
used;
Controls that cover the collateral valuation and
dispute process for collateralised derivatives;
Controls over the completeness and accuracy of
data inputs used in the valuation of financial
instruments; and
The Bank's independent price verification process
where the reasonableness of models and outputs is
assessed.
Based on these audit procedures, we determined that we
could place reliance on these controls for the purpose of
our audit.
Substantive audit procedures
With assistance of our internal valuation specialists, we
tested the appropriateness of the methodologies, models
and inputs applied in the valuation of the level 2 and 3
financial instruments in the balance sheet. Based on
these procedures we determine that the methodologies,
models and inputs used by the Bank are fit-for-purpose
and in line with best practices applied in the market.
Furthermore, we reconciled the most significant inputs
to independent sources and external available market
data, where possible. Where assumptions and estimates
were made by management on key valuation inputs, we
assessed and evaluated these by comparing them to
(other) available market data. In particular, we
performed the following procedures on the most
significant judgements in the assumptions and estimates
used by management in respect of the level 2
instruments:
Coöperatieve Rabobank UA. - EH44X5NCPJUJ-1288894667-935
Page 9 of 17
