Major accounting policies and estimates and judgements applied in the preparation of these consolidated financial statements are presented in the notes and below. These policies were applied consistently in all the years presented. Presented below is a summary of accounting policies and major estimates and judgements for the individual items of the consolidated income statement and the consolidated statement of financial position.
|INCOME STATEMENT||Note||The accounting principles*|
|Interest income and expense||7||Y|
|Fee and commission income and expense||8||Y|
|Net income from financial instruments measured at fair value||10||Y|
|Gains less losses from investment securities||11||Y|
|Net foreign exchange gains (losses)||12||Y|
|Other operating income and expenses||13||Y|
|Net impairment allowance and write-downs||14||Y|
|Income tax expense||17||Y|
* The letter Y indicates the presence of a particular accounting policy
|STATEMENT OF FINANCIAL POSITION||Note||The accounting principles*||Critical estimates and judgements*|
|Cash and balances with the Central Bank||19||Y|
|Amounts due from banks||20||Y|
|Trading assets excluding derivative financial instruments||21||Y|
|Derivative financial instruments||22||Y||Y|
|Derivative hedging instruments||23||Y|
|Financial assets designated upon initial recognition at fair value throughprofit and loss||24||Y|
|Loans and advances to customers||25||Y||Y|
|Investment securities available for sale||26||Y||Y|
|Investment securities held to maturity||27||Y|
|Non-current assets held for sale||28||Y|
|Tangible fixed assets||30||Y||Y|
|Amounts due to banks||32||Y|
|Amounts due to customers||33||Y|
|Debt securities in issue||35||Y||Y|
|Equity and shareholding structure of the Bank||39||Y|
* The letter Y indicates the presence of a particular accounting policy or major estimates and judgements
3.1. Foreign currencies
Functional and presentation currency
Items presented in the financial statements of the individual Group entities operating outside of Poland are measured in functional currency i.e. in the currency of the basic economic environment in which the given entity operates. The functional currency of the parent company and other entities included in these financial statements, except for the Branch in Germany and entities conducting their activities outside of the Republic of Poland is the Polish zloty. The functional currency of the entities operating in Ukraine is the Ukrainian hryvnia, and the functional currency of the branch in Germany and the entities operating in Sweden and in Ireland is euro.
Transactions and balances denominated in foreign currencies
Foreign currency transactions are translated into the functional currency using exchange rates prevailing at the dates of the transactions. At each balance sheet date items are translated by the Group using the following principles:
1) monetary assets denominated in foreign currency using a closing rate i.e. the average rate announced by the National Bank of Poland prevailing as at the balance sheet date,
2) non-monetary assets measured at historical acquisition cost in foreign currency using exchange rate as of the date of the transaction,
3) non-monetary assets measured at fair value in foreign currency using exchange rates prevailing as at the date of the determination of fair value.
Gains and losses on settlements of these transactions and the carrying amount valuations of monetary and non-monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.
|Exchange rate as at the end of the given period||0.1542||0.1622|
|Average of exchange rates as at end of each month in the given period||0.1542||0.1722|
|The highest exchange rate in the given period||0.1632||0.2381|
|The lowest exchange rate in the given period||0.1436||0.1096|
|Exchange rate as at the end of the given period||4.4240||4.2615|
|Average of exchange rates as at end of each month in the given period||4.3757||4.1848|
|The highest exchange rate in the given period||4.4405||4.2652|
|The lowest exchange rate in the given period||4.2684||4.0337|
3.2. Basis of consolidation
Subsidiaries are entities controlled by the parent company, which means that the parent company has a direct or indirect impact on the financial and operating policy of the given entity in order to gain economic benefits from its operations.
The ‘full’ method of consolidation
All entities of the PKO Bank Polski SA Group are consolidated using the ‘full’ consolidation method.
The ‘full’ method of consolidation requires the adding up of full amounts of all individual items of the statement of financial position, income statement and other comprehensive income of the parent company and the subsidiaries, and making appropriate consolidation adjustments and eliminations. The carrying amount of the Bank's investments in subsidiaries and the equity of these entities at the date of their acquisition are eliminated at consolidation. The following items are eliminated in full at consolidation:
1) inter-company receivables and payables, and any other settlements of a similar nature, between the consolidated entities,
2) revenue and costs arising from business transactions conducted between the consolidated entities,
3) gains or losses from business transactions conducted between consolidated entities, included in the carrying amount of the assets of the consolidated entities, except for losses indicating impairment,
4) dividends accrued or paid by the subsidiaries to the parent company and to other consolidated entities,
5) inter-company cash flows in the statement of cash flows.
The consolidated statement of cash flows has been prepared on the basis of the consolidated statement of financial position, consolidated income statement and the additional notes and explanations.
The parent company and consolidated subsidiaries reporting periods for the financial statements are consistent. Consolidation adjustments are made in order to eliminate any differences in the accounting policies applied by the Bank and its subsidiaries.
The acquisition of subsidiaries by the Group is accounted for under the acquisition method.
In respect of mergers of the Group companies, i.e. so-called transactions under common control, the accounting policy is to apply the predecessor accounting, i.e. to recognise the acquired subsidiary at the carrying amount of its assets and liabilities recognised in the Group consolidated financial statements in respect of the given subsidiary, including also the goodwill which arose from the acquisition of that subsidiary.
Associates and joint ventures
Associates are entities on which the Group exerts significant influence but whose financial and operating policies it does not control, which usually accompanies having from 20% to 50% of the total number of votes in the decision-making bodies of the entities.
Joint ventures are trade companies or other entities, which are jointly controlled by the Bank on the basis of the Memorandum of Association, company’s agreement or an agreement concluded for a period longer than one year.
Investments in these entities are accounted in accordance with the equity method and are initially stated at cost. The investment includes goodwill determined as at the acquisition date, net of any potential accumulated impairment allowances.
The Group’s share in the results of the associates and joint ventures from the acquisition date are recorded in the income statement and its share in changes of other comprehensive income from the acquisition date is recorded in other comprehensive income. The carrying amount of investments is adjusted by the total movements in particular equity items from the acquisition date. When the Group’s share in the losses of an associate or joint ventures becomes equal or higher than the Group’s share in the associate or joint ventures, which covers potential unsecured receivables, the Group discontinues recognizing further losses unless it has assumed the obligation or has made payments on behalf of the given associate or joint ventures.
Unrealized gains on transactions between the Group and these entities are eliminated in proportion to the Group’s share in the above-mentioned entities. Unrealized losses are also eliminated unless the transaction proves that the given asset transferred has been impaired.
At each balance sheet date, the Group makes an assessment of whether there is any objective evidence of impairment in investments in associates and joint ventures. If any such evidence exists, the Group estimates the recoverable amount, i.e. the value in use of the investment or the fair value of the investment less costs to sale, depending on which of these values is higher. If carrying amount of the asset exceeds its recoverable amount, the Group recognises an impairment allowance in the income statement.
3.3. Accounting for transactions
Financial assets and financial liabilities, including forward transactions and standardized transactions giving rise to an obligation or a right to acquire or sell in the future a given number of specified financial instruments at a given price, are recognised in the books of account in trade date, irrespective of the settlement date provided in the contract.
3.4. Derecognition of financial instruments from the statement of financial position
Financial assets are derecognised from the statement of financial position when contractual rights to the cash flows from the financial asset expire, or when the financial asset is transferred by the Group to another entity. The financial asset is transferred when the Group:
- transfers the contractual rights to receive the cash flows from the financial asset, or
- retains the contractual rights to receive cash flows from the financial asset, but assumes a contractual obligation to pay cash flows to an entity outside the Group.
When the Group transfers a financial asset, it evaluates the extent to which it retains the risks and rewards of ownership of the financial asset. In such a case:
- if all the risks and rewards on a financial asset are substantially transferred, then the Group derecognises the financial asset from the statement of financial position,
- if all the risks and rewards on a financial asset are substantially retained by the Group, then the financial asset continues to be recognised in the statement of financial position,
- if substantially all the risks and rewards of the financial asset are neither transferred nor retained by the Group, then a determination is made as to whether control of the financial asset has been retained.
If the Group has retained control, it continues to recognise the financial asset in the statement of financial position to the extent of its continuing involvement in the financial asset, if control has not been retained, then the financial asset is derecognised from the statement of financial position.
The Group derecognizes a financial liability (or a part of a financial liability) from its statement of financial position when the obligation specified in the contract is met or cancelled or expires.
Usually the Group derecognises loans when they have been extinguished, when they are expired, or when they are not recoverable. Loans, advances and other receivables are written off against impairment allowances that were recognised for these accounts. In the case where no allowances were recognised against the account or the amount of the allowance is less than the amount of the loan, advance or other receivable, the loan, advance or receivable is written off after the amount of the impairment allowance is increased by the difference between the value of the receivable and the amount of the allowances that have been recognised to date.