interest income and expenses are reported in the income state ment in the line

Interest income and expenses are reported in the

This preview shows page 99 - 101 out of 222 pages.

interest income and expenses are reported in the income state- ment in the line ‘Net interest income’. If securities purchased under agreement to resell are subsequently sold to third parties, the obligation to return the securities is recorded as a short sale within ‘Trading liabilities’. (vi) Financial assets or financial liabilities designated at fair value through profit or loss Financial assets or financial liabilities classified in this category are those that have been designated by management on initial recognition (fair value option). Erste Group uses the fair value option in the case of financial assets managed on a fair value basis. In accordance with a docu- mented investment strategy, the performance of the portfolio is evaluated and regularly reported to the management board. The portfolio consists largely of investments in bonds issued by EU governments and EU municipalities. Financial assets designated at fair value through profit or loss are recorded in the balance sheet at fair value in the line ‘Financial assets – at fair value through profit or loss’ with changes in fair value recognised in the income statement in the line ‘Result from financial instruments – at fair value through profit or loss’. Inter- est earned on debt instruments as well as dividend income on equity instruments is shown in the position ‘Interest and similar income’.
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96 Erste Group uses the fair value option in case of some hybrid financial liabilities, if: _ such classification eliminates or significantly reduces an ac- counting mismatch between the financial liability otherwise measured at amortised cost and the related derivative meas- ured at fair value; or _ the entire hybrid contract is designated at fair value through profit or loss due to existence of an embedded derivative. The amount of fair value change attributable to changes in own credit risk for financial liabilities designated at fair value through profit or loss is calculated by the method described by IFRS 7. This amount is the difference between the present value of the liability and the observed market price of the liability at the end of the period. The rate used for discounting the liability is the sum of the observed (benchmark) interest rate at the end of the period and the instrument-specific component of the internal rate of return determined at the start of the period. Financial liabilities designated at fair value through profit or loss are reported under the respective financial liabilities positions ‘Customer deposits’, ‘Debt securities in issue’ or ‘Subordinated liabilities’. Changes in fair value are recognised in the income statement in the line ‘Result from financial instruments – at fair value through profit or loss’. Interest incurred is reported in the line ‘Interest and similar expenses’.
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