International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards
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• the level of aggregation or disaggregation (see 20.1.2 below); and
• whether users of financial statements need additional information to evaluate the
quantitative information disclosed. [IFRS 13.92].
An entity might, for example, disclose the nature of the item being measured at fair
value, including the characteristics of the item being measured that are taken into
account in the determination of relevant inputs. In addition, when describing the
valuation techniques and inputs used for fair value measurements categorised within
Levels 2 and 3, the entity might disclose how third-party information (such as broker
quotes, pricing services, net asset values and relevant market data) was taken into
account when measuring fair value. For example, for residential mortgage-backed
securities, an entity might disclose the following:
(i) the types of underlying loans (e.g. prime loans or sub-prime loans);
(ii) collateral;
(iii) guarantees or other credit enhancements;
(iv) seniority level of the tranches of securities;
(v) the year of issue;
(vi) the weighted-average coupon rate of the underlying loans and the securities;
(vii) the weighted-average maturity of the underlying loans and the securities;
(viii) the geographical concentration of the underlying loans; and
(ix) information about the credit ratings of the securities. [IFRS 13.IE64(a)].
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IFRS 13 includes the above example to illustrate the type of additional information an
entity might disclose based on the considerations outlined in paragraph 92 of IFRS 13.
These additional disclosures are intended to help financial statement users better
understand and evaluate the quantitative information provided by the entity (e.g. the
quantitative information the entity disclosed regarding the valuation of its residential
mortgage-backed securities holdings).
20.1.1
Format of disclosures
IFRS 13’s requirements, with regard to the format of disclosures, are limited to the
presentation of quantitative information. An entity is required to use a tabular format to
present the quantitative disclosures required by IFRS 13, unless another format is more
appropriate. [IFRS 13.99].
20.1.2
Level of disaggregation
IFRS 13 requires disclosures to be presented by class of asset or liability (the definition
of a class of asset or liability is discussed at 20.1.2.A below). Unlike certain other IFRSs,
IFRS 13 does not specify the level of aggregation or disaggregation an entity must use
when complying with its disclosure requirements. Instead, as discussed below, it simply
provides the basis for making this determination. As such, the appropriate class of assets
and liabilities may depend on the entity’s specific facts and circumstances and the needs
of users of its financial statements.
According to the standard, a class of assets and liabilities will often require greater
disaggregation than the line items presented in the statement of financial position.
Therefore, an entity must present information in sufficient detail to permit
reconciliation back to the statement of financial position. [IFRS 13.99]. Such a
reconciliation could be presented through the use of subtotals that correspond to line
items disclosed in the statement of financial position; however, other approaches may
be acceptable.
20.1.2.A
Determining appropriate classes of assets and liabilities for disclosure
Determining appropriate classes of assets and liabilities requires judgement. An entity
bases this determination on the nature, characteristics and risks of the asset or liability
and the level of the fair value hierarchy within which the fair value measurement is
categorised (see 16.2 above for further discussion). [IFRS 13.94]. In addition, the standard
specifies that the number of classes may need to be greater for fair value measurements
categorised within Level 3 of the fair value hierarchy because they have a greater degree
of uncertainty and subjectivity.
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Other IFRSs may specify classes for asset or liability. For example, IAS 16 and IAS 38
– Intangible Assets – require disclosures by class of property, plant and equipment
or intangible respectively. If another IFRS specifies the class for an asset or a liability
and that class meets the requirements for determining a class in accordance with
IFRS 13, an entity may use that class in providing IFRS 13’s required disclosures.
[IFRS 13.99].
The determination of a class includes considering the fair value measurement’s
categorisation within the fair value hierarchy as noted above with respect to
Level 3 measurements. IFRS 13 requires disclosure of this categorisation for each
class of asset or liability (see 20.3 to 20.4 below). While an entity takes the fair
value categorisation into consideration when determining a class, this does not
mean assets or liabilities within a single class cannot be categorised within
different levels of the hierarchy. For example, assume an entity has grouped all its
buildings within one class in accordance with IAS 16 and measures all those
buildings using the revaluation approach in that standard. Further assume that the
fair value measurements of some buildings are categorised within Level 2, while
others are categorised within Level 3, based on the availability of observable
inputs used in the fair value measurement. In and of itself, the assets’
categorisation within two levels of the hierarchy does not necessarily mean the
entity would need to further disaggregate the IAS 16 class of buildings into two
classes for disclosure in accordance with IFRS 13. However, it may be appropriate
to do that if the differing categorisation indicated the buildings categorised within
Level 2 were different in their nature, characteristics or risks compared to those
categorised within Level 3.
20.1.3 Differentiating
between
‘recurring’ and ‘non-recurring’
IFRS 13 has different disclosure requirements for those fair value measurements that are
recognised (rather than just disclosed), depending on whether those measurements are
recurring or non-recurring in nature (see 20.3 below). Therefore, it is important to
understand the distinction.
• Recurring fair value measurements are those that another IFRS requires or permits
to be recognised in the statement of financial position at the end of each reporting
period. For example, the fair value of a financial asset classified as fair value
through profit or loss in accordance with IFRS 9 would need to be measured at the
end each reporting period. Other examples include a liability to distribute non-
cash assets to shareholders, measured at fair value in accordance with IFRIC 17 –
Distributions of Non-cash Assets to Owners.
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In our view, revaluations of property, plant and equipment in accordance with
IAS 16 represent a recurring fair value measurement. The revaluation model in
IAS 16 requires that revaluations be made ‘with sufficient regularity to ensure that
the carrying amount does not differ materially from tha
t which would be
determined using fair value at the end of the reporting period’. [IAS 16.31].
Furthermore, ‘the frequency of revaluations depends upon the changes in fair
values of the items of property, plant and equipment being revalued. When the fair
value of a revalued asset differs materially from its carrying amount, a further
revaluation is required’. [IAS 16.34]. Therefore, while an entity might not revalue an
asset each year, the objective is to ensure the carrying amount approximates fair
value, subject to materiality.
• Non-recurring fair value measurements are those that another IFRS requires or
permits to be recognised in the statement of financial position in particular
circumstances. For example, IFRS 5 requires an entity to measure an asset held
for sale at the lower of its carrying amount and fair value less costs to sell. Since
the asset’s fair value less costs to sell is only recognised in the statement of
financial position when it is lower than its carrying amount, that fair value
measurement is non-recurring. However, it should be noted that in a disposal
group, not all assets and liabilities are subject to the measurement requirements
of IFRS 5. If financial assets categorised as fair value through other
comprehensive income in accordance of IFRS 9 were included in a disposal
group, an entity would continue to measure these assets in accordance with
IFRS 9 at fair value. These fair value measurements would continue to be
recurring. [IFRS 13.93].
20.2 Accounting policy disclosures
In general, the requirements to disclose an entity’s accounting policies will be addressed
by the standard that requires or permits an item to be measured at fair value. In addition,
the disclosure requirements of IAS 8 would address any changes to an entity’s
accounting policies (see Chapter 3). In addition to these, IFRS 13 requires the disclosure
of two policies. [IFRS 13.95, 96].
Firstly, if an entity makes an accounting policy decision to use the exception in relation
to the measurement of fair value for financial assets and financial liabilities with
offsetting positions, it must disclose that fact (see 12 above for further discussion
regarding the measurement exception and criteria for selecting this accounting policy
choice). [IFRS 13.96].
Secondly, an entity must disclose its policy for determining when transfers between
levels of the fair value hierarchy are deemed to have occurred (see 16.2.2 above for
further discussion regarding this policy choice). [IFRS 13.95].
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As discussed at 14.1.4 above, changes to fair value resulting from a change in the
valuation technique or its application are accounted for as a change in accounting
estimate in accordance with IAS 8 (unless the valuation technique is applied in error,
which would be accounted for as a correction of an error in accordance with IAS 8).
However, information would be disclosed in accordance with IFRS 13, not IAS 8;
specifically, that there has been a change in valuation technique and the reasons for the
change (see 20.3.5 below for further discussion).
Extract 14.1: ING Groep N.V. (2014)
Notes to the consolidated annual accounts [Extract]
1 Accounting policies [Extract]
Critical accounting policies [Extract]
Fair values of real estate
Real estate investments are reported at fair value. The fair value of real estate investments is based on regular
appraisals by independent qualified valuers. The fair values are established using valuation methods such as:
comparable market transactions, capitalisation of income methods or discounted cash flow calculations. The
underlying assumption used in the valuation is that the properties are let or sold to third parties based on the actual
letting status. The discounted cash flow analyses and capitalisation of income method are based on calculations of
the future rental income in accordance with the terms in existing leases and estimations of the rental values for new
leases when leases expire and incentives like rental free periods. The cash flows are discounted using market based
interest rates that reflect appropriately the risk characteristics of real estate.
Market conditions in recent years have led to a reduced level of real estate transactions. Transaction values were
significantly impacted by low volumes of actual transactions. As a result comparable market transactions have been
used less in valuing ING’s real estate investments by independent qualified valuers. More emphasis has been placed
on discounted cash flow analysis and capitalisation of income method.
Reference is made to Note 43 ‘Fair value of assets and liabilities’ for more disclosure on fair values of real estate investments.
The valuation of real estate involves various assumptions and techniques. The use of different assumptions and
techniques could produce significantly different valuations. Consequently, the fair values presented may not be
indicative of the net realisable value. In addition, the calculation of the estimated fair value is based on market
conditions at a specific point in time and may not be indicative of future fair values. To illustrate the uncertainty of
our real estate investments valuation, a sensitivity analysis on the changes in fair value of real estate is provided in
the ‘Risk management’ section.
Fair values of financial assets and liabilities
Fair values of financial assets and liabilities are based on unadjusted quoted market prices where available. Such
quoted market prices are primarily obtained from exchange prices for listed instruments. Where an exchange price is
not available, market prices may be obtained from independent market vendors, brokers or market makers. In general,
positions are valued taking the bid price for a long position and the offer price for a short position or are valued at the price within the bid-offer spread that is most representative of fair value in the circumstances. In some cases where
positions are marked at mid-market prices, a fair value adjustment is calculated.
When markets are less liquid there may be a range of prices for the same security from different price sources,
selecting the most appropriate price requires judgement and could result in different estimates of fair value.
For certain financial assets and liabilities quoted market prices are not available. For these financial assets and
liabilities, fair value is determined using valuation techniques. These valuation techniques range from discounting of
cash flows to valuation models, where relevant pricing factors including the market price of underlying reference
instruments, market parameters (volatilities, correlations and credit ratings) and customer behaviour are taken into
account. All valuation techniques used are subject to internal review and approval. Most data used in these valuation
techniques are validated on a daily basis.
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To include credit risk in the fair valuation, ING applies both credit and debit valuation adjustments (CVA, DVA).
Own issued debt and structured notes that are valued at fair value are adjusted for credit risk by means of a DVA.
Additionally, derivatives valued at fair value are adjusted for credit risk by a CVA. The CVA is of a bilateral
nature as both the credit risk on the counterparty as well as the credit risk on ING are included in the
adjustment.
All market data that is used in the determination of the CVA is based on market implied data. Additionally, wrong-
way risk (when exposure to a counterparty is increasing and the credit quality of that counterparty decreases) and
right-way risk (when exposure to a counterparty is decreasing and the credit quality of that counterparty increases)
are included in the adjustment. ING also applies CVA for pricing credit risk into new external trades with
counterparties. To address the risk associated with the illiquid nature of the derivative portfolio, ING applies an
additional ‘liquidity valuation adjustment’. The adjustment is based on the market price of funding liquidity and
is applied to the uncollateralised derivatives. This additional discounting is taken into account in both the credit
and debit valuation adjustments.
Valuation techniques are subjective in nature and significant judgement is involved in establishing fair values for certain financial assets and liabilities. Valuation techniques involve various assumptions regarding pricing factors. The use of
different valuation techniques and assumptions could produce significantly different estimates of fair value.
Price testing is performed to assess whether the process of valuation has led to an appropriate fair value of the position and to an appropriate reflection of these valuations in the profit and loss account. Price testing is performed to
minimise the potential risks for economic losses due to incorrect or misused models.
Reference is made to Note 43 ‘Fair value of assets and liabilities’ and the ‘Risk management’ section for the basis of
the determination of the fair value of financial instruments and related sensitivities.
20.3 Disclosures for recognised fair value measurements
Paragraph 93 of IFRS 13 establishes the minimum disclosure requirements for fair value
measurements (and those based on fair value) that are recognised in the statement of
financial position after initial recognition. The requirements vary depending on whether
the fair value measurements are recurring or non-recurring and their categorisation
within the fair value hierarchy (i.e. Level 1, 2, or 3 – see 16 above for further discussion
regarding the fair value hierarchy).
Irrespective of the frequency with which the fair value is measured, the disclosures