Section 1 – Statement of compliance with international accounting standards
The 2014 consolidated financial statements have been drawn up in accordance with the IASs/IFRSs in force at 31 December 2014 issued by the International Accounting Standards Board (IASB), together with the relevant interpretations (IFRICs and SICs).These standards were endorsed by the European Commission in accordance with the provisions in article 6 of European Union Regulation no. 1606/2002. This regulation was implemented in Italy with Legislative Decree no. 38 of 28 February 2005.
In interpreting and adopting the international accounting standards, reference was made also to IASB’s ‘Framework for the preparation and presentation of financial statements’, even though it was not officially approved.
These consolidated financial statements are subject to certification by the delegated corporate bodies and the Corporate Accounting Reporting Officer, as per article 154 bis paragraph 5 of Legislative Decree no. 58 of 24 February 1998.
The consolidated financial statements are audited by Reconta Ernst & Young S.p.A.
Section 2 – Basis of preparation
The consolidated financial statements consist of:
- the consolidated financial statements (statement of financial position and income statement, the statement of comprehensive income, the statement of changes in equity and the statement of cash flows);
- the Notes to the Consolidated Financial Statements.
In addition, they contain the Directors’ Report.
The consolidated financial statements have been drawn up according to the general principles of IAS 1, also referring to IASB’s ‘Framework for the preparation and presentation of financial statements’, with particular attention to the fundamental principles of substance over legal form, the concepts of relevance and materiality of information, and the accruals and going concern accounting concepts.
For the preparation of these financial statements, reference was made to the format set out by Bank of Italy’s Circular no. 262 of 22 December 2005, 2nd update of 22 December 2014, due to changes in the relevant accounting framework.
The money of account is the Euro and, if not indicated otherwise, amounts are expressed in thousands of Euro. The tables in the notes may include rounded amounts; any inconsistencies and/or discrepancies in the data presented in the different tables are due to these rounding differences.
The notes do not include the items and tables required by Bank of Italy’s Regulation no. 262/2005 where these items are not applicable to the Banca IFIS Group.
Assets and liabilities, as well as costs and revenues, have been offset only if required or permitted by an accounting standard or the relevant interpretation.
We have used the same classification for the items in the financial statements as in the previous financial year.
Changes in accounting standards
Starting from 1 January 2014, the Group adopted the following new accounting standards and the amendments subsequently made to other accounting standards, whose nature and impact is reported below:
IFRS 10 – Consolidated Financial Statements
According to the IFRS 10, control of an investee requires exposure or rights to variable returns and the ability to affect those returns through power over the investee. Power is defined by the standard as the existing rights that give the current ability to direct the relevant activities. Relevant activities are those that significantly affect the investee's returns.
Control exists if the investor has the following:
- power over the investee
- exposure to variable returns on the investment
- a link between power and returns
Consideration of the following factors is specifically required, among other things, to determine whether an investor controls an investee:
- the purpose and design;
- what the relevant activities are and how decisions about those activities are made;
- rights of the investor to direct these relevant activities;
- whether the investor is exposed to the variable returns from its involvement with the investee;
- whether the investor has the ability to use its power over the investee to affect the amount of the investor’s returns.
Once the existence of control has been determined, consolidation shall be made according to the rules set out below.
Consolidated financial statements must be prepared using uniform accounting policies for like transactions and other events in similar circumstances. Balances, transactions, revenues and costs deriving from intragroup transactions are eliminated in full.
In preparing the consolidated financial statements, Banca IFIS consolidates the financial statements of the Parent Company and its subsidiaries on a line-by-line basis, totalling the respective values for assets, liabilities, equity, revenues and costs.
Changes regarding the ownership of the Parent Company in reference to a subsidiary, which do not represent a change in control, are recorded under equity.
Should control of a subsidiary be lost, the assets, liabilities and equity relating to the same are derecognised. Any investment retained in the aforementioned subsidiary will be recognised at its fair value at the date when control is lost.
The application of this standard had no impact on the Group's consolidation scope.
IFRS 12: Disclosure of Interests in Other Entities
The objective of this new accounting standard is to require the disclosure of information that enables users of financial statements to evaluate:
- the nature of, and risks associated with, its interests in other entities;
- the effects of those interests on its financial position, financial performance and cash flows.
In order to achieve this objective, the entity shall provide:
- significant judgements and assumptions it has made in determining the nature of its interest (subsidiary, joint venture or associate);
- information on investments in:
- associates and joint ventures;
- structured entities that are not controlled by the entity.
According to this standard, a “Structured Entity” has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, because the relevant activities are directed by means of contractual arrangements.
On the basis of the standard, Banca IFIS presents information separately for interests in:
- structured entities;
- joint ventures;
- unconsolidated structured entities;
- sponsored structured entities.
Changes in operating procedures
Receivables Purchased Outright (ATD, a titolo definitivo in Italian): starting from 2014, interest on arrears includes a portion of the interest accruing from the estimated collection date on receivables from the Health Service: the Bank, based on historical data and available information, estimates that at least 20% can be recovered.
Information on the business as a going concern
The Bank of Italy, Consob and Isvap, with document no. 2 issued on 6 February 2009 (“Disclosure in financial reports on the going concern assumption, financial risks, asset impairment tests and uncertainties in the use of estimations”), together with the subsequent document no. 4 of 4 March 2010, require directors to assess with particular accuracy the existence of the company as a going concern, as per IAS 1.
Unlike in the past, present conditions on financial markets and in the real economy, together with the negative short/medium-term forecasts, require particularly accurate assessments of the going concern assumption, as records of the company’s profitability and easy access to financial resources may no longer be sufficient in the current context.
In this regard, having examined the risks and uncertainties connected to the present macro-economic context, and considering the financial and economic plans drawn up by the parent company, the Banca IFIS Group can indeed be considered a going concern, in that it can be reasonably expected to continue to operate in the foreseeable future. Therefore, the 2014 consolidated financial statements have been prepared in accordance with this fact.
Uncertainties connected to credit and liquidity risks are considered insignificant or, at least, not significant enough to raise doubts over the company’s ability to continue as a going concern, thanks also to the good profitability levels that the Group has consistently achieved, to the quality of its loans, and to its current access to financial resources.
Section 3 - Consolidation scope and method
The consolidated financial statements have been prepared based on the draft financial statements at 31 December 2014, prepared by the directors of the companies included in the consolidation scope for approval by the Shareholders’ Meeting.
Pursuant to the line-by-line method of consolidation, the consolidated financial statements include the financial statements of the parent company, Banca IFIS S.p.A, and its Polish subsidiary, IFIS Finance Sp. Z o. o.
The financial statements of the subsidiary expressed in foreign currencies are translated into Euro in asset and liability items according to the rate of exchange at the end of the period. In the income statement, figures are translated according to the average exchange rate, which is considered as a valid approximation of the spot exchange rate. Exchange differences arising from the application of different exchange rates for the statement of financial position and the income statement, as well as the exchange differences from the translation of the investee company’s equity, are recognised under capital reserves.
Assets and liabilities, off-balance-sheet transactions, income and expenses, as well as the profits and losses arising from relations between the consolidated companies are all eliminated.
Starting with the financial statements for periods beginning after 1 July 2009, business combinations must be recognised by applying the principles established by IFRS 3; purchases of equity investments in which control is obtained and counting as “business combinations” must be recognised by applying the acquisition method, which requires:
- identification of the acquirer;
- determination of the acquisition date;
- recognition and measurement of the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree;
- recognition and measurement of goodwill or a gain from a bargain purchase.
As for the subsidiary IFIS Finance Sp. Z o.o., the consolidation process has brought about goodwill for 819 thousand Euro at the period-end exchange rate, recognised under item 130 ‘Intangible assets’.
1. Investments in exclusively controlled companies
|Name of company||Main office||Head office||Type(1)||Investment||Voting rights %(2)|
|Held by||Quota %|
|IFIS Finance Sp. Z o.o.||Warsaw||Warsaw||1||Banca IFIS S.p.A.||100%||100%|
1 = majority of voting rights in the Annual Shareholders’ Meeting
2 = dominant influence in the Annual Shareholders’ Meeting
3 = agreements with other shareholders
4 = other forms of control
5 = exclusive control as per article 26, paragraph 1, of Legislative Decree no. 87/92
6 = exclusive control as per article 26, paragraph 2, of Legislative Decree no. 87/92
(2) Voting rights in the Annual Shareholders’ Meeting, distinguishing between effective and potential voting rights.
2. Significant judgements and assumptions in determining the scope of consolidation
In order to determine the scope of consolidation, Banca IFIS assessed whether it meets the requirements of IFRS 10 for controlling investees or other entities with which it has any sort of contractual arrangements.
An entity controls another entity when the former has all the following:
- power over the investee,
- exposure to variable returns,
- and the ability to affect the amount of its returns.
The assessment carried out confirmed the scope of consolidation determined in the previous year and identified a non-consolidated structured entity (for more information, see part E, section D of these Notes).
Section 4 – Subsequent events
No significant events occurred between year-end and the preparation of these consolidated financial statements other than those already included herein.
For information on such events, please refer to the Directors’ report.
Section 5 – Other aspects
Risks and uncertainties related to estimates
Estimates on the carrying amounts of items recognised in the consolidated financial statements at 31 December 2014, as per the international accounting standards and relevant regulations in force, are largely based on the expected future recoverability of the amounts recognised and were made on a going concern basis.
Management is required to make subjective estimates mainly about the following:
- calculating the amounts of impairment losses on receivables;
- calculating the amounts of provisions for risks and charges;
- determining the fair value of goodwill.
In particular, with reference to distressed retail loans in the DRL sector, it should be noted that the expected cash flows used for calculating amortised cost are estimated with a statistical model using data derived from historical time series on collection activities, and are regularly reviewed.
It is important to note that this estimation process was particularly complicated by current macroeconomic and market conditions, which could undergo unpredictable and rapid changes.
Coming into effect of new accounting standards
For the introduction of new accounting standards to be applied by the Group as from 1 January 2014, see Section 2 - Basis of preparation in Part A.
Deadlines for the approval and publication of the separate financial statements
Pursuant to art. 154-ter of Legislative Decree no. 58/98 (Consolidated Law on Finance), the Parent Company must approve the separate financial statements and publish the annual financial report, including the draft separate financial statements, the consolidated financial statements, the directors' report, and the declaration as per article 154-bis, paragraph 5, within 120 days of the end of the financial year. The Board of Directors approved the Parent Company's draft separate financial statements and the consolidated financial statements on 18 February 2015; the Parent Company's separate financial statements will be submitted to the Shareholders' Meeting to be held on 2 April 2015 on first call for approval.
There were no other changes requiring disclosure as per IAS 8, paragraphs 28, 29, 30, 31, 39, 40 and 49.