Letno poročilo 2007 - UniCredit Banka Slovenija dd

Accounting ReportSummary of Accounting PoliciesThe fair value of derivative instruments held for trading is disclosedin Notes 2 and 12, while notional contract values are disclosed inNote 32, ‘Off balance sheet items, financial derivatives.’Foreign currency contractsForeign currency contracts are agreements to exchange specificamounts of currencies at a specified rate of exchange, on a spot date(settlement occurs two days after the trade date) or on a forwarddate (settlement occurs more than two days after the trade date).The notional amount of these contracts does not represent theactual market or credit risk associated with these contracts. Foreigncurrency contracts are used by the Bank for risk management andtrading purposes.Foreign exchange swaps and interest rate swapsThe Bank enters into foreign-exchange swap and interest rate swaptransactions. The foreign exchange swap transaction is a complexagreement concerning the swap of certain financial instruments,which usually consist of a prompt trade and one (FX swap) or more(cross-currency swap) future contracts.Interest rate swaps oblige two parties to exchange one or morepayments calculated with reference to fixed or periodically resetrates of interest applied to a specific notional principal amount. Thenotional principal is the amount upon which interest rates are appliedto determine the payment streams under interest rate swaps. Suchnotional principal amounts often are used to express the volumeof these transactions but are not actually exchanged between thecounter-parties. The Bank’s interest rate swaps were used for themanagement of interest rate exposures and have been accounted forat a mark-to-market value.Option contractsOption contracts represent the formal reservation of the right to buyor sell an asset at the specified quantity within a given time in thefuture and at a certain price. The buyer of the option has the right,but not the obligation, to exercise the right to buy or sell an assetand the seller has the obligation to sell or purchase the asset at thespecified quantity and at the price defined in the option contract.Hedging instrumentsa) fair value hedgeIn 2007, the Bank had not implemented fair value hedgingb) cash flow hedgeIn the case of the designation of a derivative as a cash flow hedge,the hedging instrument is recognised at its fair value. Changes in fairvalue are separated into an effective portion attributable to the hedgeand an ineffective portion not attributable to the hedge. A hedge ishighly effective if the actual changes are within the range of80-125 %. A hedge will be regarded as effective if, for eachtime bucket, the netted cash flows associated with the hedginginstruments are smaller than or equal to the cash flows of the hedgeditem(s).The effective portions are to be recognised directly in equity(cash flow hedge reserve). The ineffective portions are reportedin the income statement if the hedging instrument is a derivative.In order to avoid ineffectiveness, projections are made, especiallyfor limits and potential causes of ineffectiveness. The market riskdepartment runs an efficiency test at the end of each month.Property, plant and equipmentand intangible assetsProperty, plant and equipment as well as intangible assets areinitially recognised at cost. The Bank has chosen for measurementafter recognition cost model, that means asset is carried at its costless any accumulated depreciation and any accumulated impairmentlosses.Depreciation is calculated on a straight-line basis. Land and assetsin the course of construction are not depreciated.The useful lives are set out below:31.12.2007 31.12.2006Leasehold improvements 10 years 10 yearsHardware 4 years 4 yearsFurniture, devices and motorvehicles 4-10 years 8-10 yearsIntangible assets - software 5 years 5 yearsThe Bank periodically reviews the useful life and extends the periodof depreciation if appropriate.Leasehold improvements are capitalised and depreciated over thelesser of their useful life or the remaining lease term on a straightlinebasis.If of a minor extent, repairs and renewals are charged to the incomestatement when the expenditure is incurred.The Bank assesses whether assets may be impaired. If, and only if,the recoverable amount of an asset is less than its carrying amount,158 2007 Annual Report · UniCredit Bank