Reversal of impairments on debt securities and equity investments
19.4 Accounting principles used for consolidation
19.4.1 Subsidiaries
Subsidiaries, i.e. all companies and other entities (including special purpose entities) in respect of which SNS REAAL has the power to determine the financial and operating policies, whether directly or indirectly, are consolidated. This is the case if more than half of the voting rights may be exercised, or if SNS REAAL has control in any other manner. Subsidiaries are fully consolidated from the date on which control is transferred to SNS REAAL. They are
de-consolidated from the date control ceases. The financial statements of these group companies are fully consolidated, with SNS REAAL accounting principles being applied. The interests of third parties are separately included in the consolidated balance sheet and income statement. Due to the transfer of Property Finance to Stichting
administratiekantoor beheer financiële instellingen as of 31 December 2013, the assets and liabilities of Property Finance are no longer consolidated in the financial statements of SNS REAAL.
19.4.2 Special Purpose Entities (SPEs)
SNS REAAL has securitised mortgage receivables in SPEs. With these transactions, the economic ownership of the mortgage loans is transferred to separate entities. SNS REAAL does not have any direct or indirect interests in these entities.
SNS REAAL fully consolidates these SPEs in its financial statements if, on the basis of the economic reality of the relationship between SNS REAAL and the SPE, SNS REAAL controls the SPE, or if SNS REAAL retains the majority of the risks and rewards.
19.4.3 Associated companies and joint ventures
Investments in associated companies (associates) are entities in which SNS REAAL generally has between 20% and 50% of the voting power, or over which SNS REAAL can exercise significant influence on the operational and financial policies, but in which it has no control.
Joint ventures are entities over which SNS REAAL has joint control, which control is laid down in an agreement, and strategic decisions on the financial and operational policies are taken unanimously.
The consolidated financial statements include SNS REAAL’s share in the total results of associates and joint ventures, from the date that SNS REAAL acquires significant influence to the date that significant influence ceases. The result is accounted for using the equity method, after adjusting the result to comply with SNS REAAL’s accounting principles, if needed.
Upon recognition, associates and joint ventures are initially accounted for at the cost price (including the transaction costs) and subsequently according to the equity method. The item also includes goodwill paid upon acquisition less accumulated impairment losses, where applicable.
Under the equity method, the share of SNS REAAL in the result of associates and joint ventures is recognised in the income statement under ‘share in the result of associates’. The share of SNS REAAL in changes in the reserves of associates or joint ventures is recognised directly in shareholders’ equity (change in share of associates in other comprehensive income).
If the book value of the associate falls to zero, no further losses are accounted for, unless SNS REAAL has entered into commitments, made payments on its behalf or acts as a guarantor.
Associates and joint ventures held for sale are classified as ‘held for sale’. These associates and joint ventures are measured at the lower of the book value or the sales price less sales costs. The result on the sale of an investment in an associate or joint venture is presented in the income statement as a total amount, consisting of the sales price less the transaction costs and the book value of the associate.
19.4.4 Elimination of group transactions
Intra-group transactions, intra-group balances and unrealised gains arising from intra-group transactions were eliminated in the preparation of the consolidated financial statements.
Unrealised gains on transactions between SNS REAAL and its associates and joint ventures are eliminated to the extent of SNS REAAL’s interest in these investments.
Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.
19.4.5 Foreign currencies
Upon initial recognition, transactions in foreign currencies are converted into euros at the exchange rate at the transaction date. Monetary balance sheet items denominated in foreign currencies are translated into euros at the exchange rate applicable on the reporting date. Exchange rate differences from these transactions and from converting monetary balance sheet items expressed in foreign currency are recorded in the income statement under ‘investment income’ or ‘result on financial instruments’, depending on the balance sheet item to which they relate.
The exchange rate differences of non-monetary balance sheet items measured at fair value, with changes in the fair value being taken to the income statement, are accounted for as part of these changes in the value of the asset in
historical cost are measured at the exchange rate applicable on the initial transaction date.
19.4.6 Accounting based on transaction date and settlement date
All purchases and sales of financial instruments, which have been settled in accordance with standard market practices, are recognised on the transaction date, in other words, the date on which SNS REAAL commits itself to buy or sell the asset or liability. All other purchases or sales are recorded as forward transactions until they are settled.
19.4.7 Offsetting of financial instruments
Financial assets and liabilities are offset and the net amount is reported on the balance sheet if there is a legally enforceable right to set off the recognised amounts, and there is an intention to settle the items on a net basis, or to settle the asset and the liability simultaneously. If these conditions are not met, amounts will not be offset.
19.4.8 Discontinued operations or assets held for sale
Assets and liabilities that are part of discontinued operations and assets held for sale, of which it is highly probable that, on balance sheet date, the discontinuation or sale is within twelve months, are recognised at the lower of the book value and fair value less expected sales costs.
Property projects of Property Finance held for sale were measured at the lower of cost or net realisable value up until the split-off from SNS REAAL on 31 December 2013. Financial instruments and insurance contracts held for sale follow the measurement of the instrument in accordance with IAS 39 and IFRS 4 requirements, respectively.
19.4.9 Information by segment
The five primary business segments of SNS REAAL are clearly distinctive organisational components, and carry out activities that generate income and expenses. It encompasses also the operational segment Group Activities that primarily performs transactions and activities with and on behalf of other parts of SNS REAAL. The Management Committee defines the performance targets and authorises and monitors the budgets that have been prepared by these business units. The management of each business unit defines the policy of that business unit, in accordance with the strategy and the performance targets as formulated by the Management Committee. The business segments are:
•
SNS Retail Bank•
Property Finance (as of 31 December 2013, these activities have been transferred to NLFI)•
Zwitserleven•
REAAL•
Group ActivitiesThe segment REAAL has three subsegments, REAAL Life, REAAL Non-life and REAAL Other. More information on the different segments can be found in the section 20.1 Information by segment.
In case of one-off, Group-directed intercompany transactions, the necessary corrections and eliminations in the consolidated results are incorporated directly in the segment in question. Formerly, these corrections were made in the eliminations column.
In the first quarter of 2013 the entire Property Finance segment was classified as held for sale. Because of this, the assets and liabilities of Property Finance are classified as assets and liabilities held for sale and the total result of the Property Finance segment is presented in the income statement on one line as ‘Result from discontinued operations’. On 31 December 2013 the Property Finance activities were split off SNS REAAL and transferred to NLFI.
19.4.10 Insurance contracts
In this balance sheet item, liabilities arising from insurance contracts are recorded. Insurance contracts are contracts that bear significant insurance risks. These contracts can also involve investment risks. SNS REAAL has insurance contracts for Life and Non-Life. For detailed information reference is made to section 19.5.10 Insurance contracts and the Notes to the consolidated financial statements.