BANCO BILBAO VIZCAYA ARGENTARIA, S.A. AND ... - BBVA

2.2.16. FOREIGN CURRENCY TRANSACTIONS AND EXCHANGE DIFFERENCES
The Group’s functional currency is the euro. Therefore, all balances and transactions denominated in
currencies other than the euro are deemed to be denominated in “foreign currency”. The balances in the
financial statements of consolidated entities whose functional currency is not the euro are converted to euros
as follows:
• Assets and liabilities: at the average spot exchange rates as of the date of each of the accompanying
consolidated balance sheets.
• Income and expenses and cash flows: at the average exchange rates for the period from January 1,
2010 to the date of each of the accompanying consolidated income statements.
• Equity items: at the historical exchange rates.
The exchange differences arising from the conversion of foreign currency balances to the functional currency
of the consolidated entities and their branches are generally recognized in the “Net exchange differences”
heading of the consolidated income statement. Exceptionally, the exchange differences arising on nonmonetary
items whose fair value is adjusted with a balancing item in equity are recognized under the
heading “Valuation adjustments - Exchange differences” in the consolidated balance sheet.
The exchange differences arising from the conversion to euros of balances in the functional currencies of the
consolidated entities whose functional currency is not the euro are recognized under the heading “Valuation
adjustments – Exchange differences” in the consolidated balance sheet. Meanwhile, the differences arising
from the conversion to euros of the financial statements of entities accounted for by the equity method are
recognized under the heading "Valuation adjustments - Entities accounted for using the equity method" until
the item to which they relate is derecognized, at which time they are recognized in the income statement.
The breakdown of the main balances in foreign currencies of the accompanying consolidated balance
sheets, with reference to the most significant foreign currencies, are set forth in Appendix IX.
2.2.17. RECOGNITION OF INCOME AND EXPENSES
The most significant criteria used by the Group to recognize its income and expenses are as follows:
Interest income and expenses and similar items
As a general rule, interest income and expenses and similar items are recognized on the basis of their period
of accrual using the effective interest rate method. Specifically, the financial fees and commissions that arise
on the arrangement of loans, basically origination and analysis fees, must be deferred and recognized in the
income statement over the expected life of the loan. The direct costs incurred in arranging these transactions
can be deducted from the amount thus recognized. Also, dividends received from other companies are
recognized as income when the consolidated companies’ right to receive them arises.
However, when a debt instrument is deemed to be impaired individually or is included in the category of
instruments that are impaired because of amounts more than three months past-due, the recognition of
accrued interest in the consolidated income statement is interrupted. This interest is recognized for
accounting purposes as income, as soon it is received, from the recovery of the impairment loss.
Commissions, fees and similar items
Income and expenses relating to commissions and similar fees are recognized in the consolidated income
statement using criteria that vary according to the nature of such items. The most significant income and
expense items in this connection are:
• Those relating to financial assets and liabilities measured at fair value through profit or loss, which
are recognized when collected.
• Those arising from transactions or services that are provided over a period of time, which are
recognized over the life of these transactions or services.
• Those relating to single acts, which are recognized when this single act is carried out.
Non-financial income and expenses
These are recognized for accounting purposes on an accrual basis.
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