Notes to the consolidated financial statements

5b. Changes in comparative data

Download note 5b in XLS

(I) The change in the method of recognizing revenue due to sale of bancassurance products

Acquisition of a majority of insurance products related to credit facilities offered by the Group is voluntary, hence in previous reporting periods the Group treated such insurance products and credit products independently and the revenue due to sale of bancassurance products were accounted for on a one-off basis as commission income. If an insurance product collateralized a given credit facility, it was treated as facility-related item and the Group recognized a portion of the revenue due to sale of bancassurance products, estimated as the fair value of the agency services on a one-off basis as commission income and the remaining portion was accounted for as a an element of the effective interest rate of the facility under interest income.

With relation to the letter of the Polish Financial Supervision Authority of March 2013 addressed to the entire banking sector and concerning the method of recognizing revenue due to sale of bancassurance products, the Bank changed the method of recognizing the revenue in question in the accounting records for 2013. The change concerned bancassurance services, which were assessed as unrelated to credit facilities, and consisted in:

• deferring a revenue portion corresponding to the fee for time spent by the Bank’s staff on post-sales support for insurance services (in accordance with the stage of completion principle);
• recognizing provisions for potential reimbursement of the remuneration by the Bank due to early termination of insurance policies;
• adequate recognition of cost of selling the insurance, in line with the matching principle.

Changes resulting from the implemented methodology were recognized in the accounting records as at 30 June 2013 and covered the period from January to June 2013. As the changes made did not significantly affect the Bank’s equity, the Bank did not adjust the opening balance for 2013.

In December 2013, similarly to other banks, the Bank received a letter of the Polish Financial Supervision Authority with detailed guidelines concerning the accounting treatment of the revenue due to sale of bancassurance products. The letter recommended more stringent criteria than those applied by the Group to assessing direct relation of an insurance product and a credit facility and implemented a fair value model to distribution of the agency fee for the sale of insurance. The Group applied changes to the accounting treatment of revenue due to sale of bancassurance products to sales carried out in 2013 and in previous years. Retrospective changes in the accounting principles (policy) resulted in restating the financial data in the approved financial statements for prior years, i.e. the opening balance as at 1 January 2012 and, consequently, as at 1 January 2013 and the financial performance for 2012.

Following the changes in the accounting principles (policy) the Group recognizes the revenue and expense due to sale of bancassurance products related to credit facilities in the following manner:

• cash loans with insurance policy – from 6% to 11% of the revenue due to sale of bancassurance products related to cash loans is recognized on a one-off basis as commission income, while the remaining portion of the income is accounted for as interest income using the effective interest method during the credit financing period;
• mortgage loans with insurance policy – from 0% to 15% of the revenue due to sale of bancassurance products related to mortgage loans is recognized on a one-off basis as commission income, while the remaining portion of the income is accounted for as interest income using the effective interest method during the credit financing period.

The costs of sale of bancassurance products are accounted for proportionally to the method of recognizing the revenue due to sale of bancassurance products related to the facility.

 

(II) Change in the method of recognizing actuarial gains and losses on measurement of post-employment defined benefit plans

The change results from the revised IAS 19, introducing the principle of recognizing actuarial gains and losses from measurement of defined post-employment benefits related to changes in actuarial assumptions in other comprehensive income instead of profit or loss, as it was the case so far. In 2013 the Group introduced a change in accounting principles (policy) related to presentation of actuarial gains and losses with relation to the measurement of provisions for retirement and pension benefits. Retrospective changes in the accounting principles (policy) resulted in restating the financial data in the approved consolidated financial statements for prior years, i.e. the opening balance as at 1 January 2012 and, consequently, as at 1 January 2013 and the consolidated financial performance for 2012. The adjustment did not affect the total equity as at 1 January 2012, 31 December 2012 and 31 December 2013.

The impact of the aforementioned changes in accounting principles (policy) on individual items of the consolidated income statement, consolidated statement of other comprehensive income and consolidated statement of financial position in previous years has been presented in tables below.

Impact on consolidated income statement

	period from 1 January 2012 to 31 December 2012			period from 1 January 2012 to 31 December 2012
	before restatement	Adjustments  related to changes in accounting principles		restated data
	PLN '000	PLN '000		PLN '000
Interest income	445,919	4,871	1)	450,790
Interest expenses	(223,508)	0		(223,508)
Net interest income	222,411	4,871		227,282
Fee and commission income	81,258	(13,217)	2)	68,041
Fee and commission expense	(24,977)	0		(24,977)
Net fee and commission income	56,281	(13,217)		43,064
Gain/loss on financial instruments measured at fair value through profit or loss and gain/loss on foreign exchange transactions	6,678	0		6,678
Realized gain/loss on available-for-sale securities	13,231	0		13,231
General and administrative expenses	(218,283)	(73)	3)	(218,356)
Net impairment losses	(25,571)	472	4)	(25,099)
Other operating revenue	7,601	0		7,601
Other operating expenses	(5,736)	0		(5,736)
Operating profit/loss	56,612	(7,947)		48,665
Gross profit	56,612	(7,947)		48,665
Income tax	(11,226)	1,510	5)	(9,716)
Net profit	45,386	(6,437)		38,949

 

Impact on consolidated other comprehensive income

	period from 1 January 2012 to 31 December 2012			period from 1 January 2012 to 31 December 2012
	before restatement	Adjustments related to changes in accounting principles		restated data
	PLN '000	PLN '000		PLN '000
Net profit	45,386	(6,437)		38,949
Items which may be reclassified to the consolidated income statement in future periods
Gain/loss from measurement of financial assets available for sale, including:	6,343	0		6,343
- deferred tax	(1,488)	4,871		(1,488)
Items which will not be reclassified to the consolidated income statement in future
Actuarial gains and losses on measurement of defined benefit plans, including:	0	59	3)	59
- deferred tax	0	(14)	5)	(14)
Total other comprehensive income	6,343	59		6,402
Total comprehensive income	51,729	(6,378)		45,351

 

Impact on consolidated statement of financial position

	Balance as at 31 December 2012			Balance as at 31 December 2012
	before restatement	Adjustments related to changes in accounting principles		restated data
	PLN '000	PLN '000		PLN '000
Assets
Cash and balances in the Central Bank	934,743	0		934,743
Receivables from other banks	29,849	0		29,849
Financial assets held for trading	766	0		766
Loans and advances to customers	4,613,933	(14,388)	6)	4,599,545
Investments in financial assets	1,453,987	0		1,453,987
- available for sale	1,061,225	0		1,061,225
- held to maturity	392,762	0		392,762
Property, plant and equipment	44,213	0		44,213
Intangible assets	27,339	0		27,339
Current income tax receivables	61	0		61
Net deferred tax assets	12,137	2,734	7)	14,871
Other assets	15,279	0		15,279
Total assets	7,132,307	(11,654)		7,120,653
Liabilities and equity
Liabilities to the Central Bank	6	0		6
Lliabilities to other banks	2,824	0		2,824
Financial liabilities held for trading	17	0		17
Liabilities to customers	6,317,949	0		6,317,949
Provisions	3,995	0		3,995
Current income tax liabilities	7,826	0		7,826
Other liabilities	77,393	0		77,393
Liabilities arising from issue of debt securities	206,282	0		206,282
Subordinated liabilities	142,891	0		142,891
Total liabilities	6,759,183	0		6,759,183
Equity
Share capital	97,290	0		97,290
Supplementary capital	33,761	0		33,761
Revaluation reserve	4,185	196	8)	4,381
Other reserve capitals	195,070	0		195,070
Retained earnings	42,818	(11,850)	9)	30,968
Total equity	373,124	(11,654)		361,470
Total liabilities and equity	7,132,307	(11,654)		7,120,653

 

Impact on the consolidated statement of financial position

	Balance as at 1 January 2012			Balance as at 1 January 2012
	before restatement	Adjustments related to changes in accounting principles		restated data
	PLN '000	PLN '000		PLN '000
Assets
Cash and balances in the Central Bank	74,043	0		74,043
Receivables from other banks	29,161	0		29,161
Financial assets held for trading	10,014	0		10,014
Loans and advances to customers	3,679,382	(6,513)	6)	3,672,869
Investments in financial assets	1,324,712	0		1,324,712
- available for sale	921,192	0		921,192
- held to maturity	403,520	0		403,520
Property, plant and equipment	47,703	0		47,703
Intangible assets	24,801	0		24,801
Current income tax receivables	2,937	0		2,937
Net deferred tax assets	11,403	1,237	7)	12,640
Other assets	11,645	0		11,645
Total assets	5,215,801	(5,276)		5,210,525
Liabilities and equity
Liabilities to the Central Bank	10	0		10
Liabilities to other banks	1,859	0		1,859
Financial liabilities held for trading	307	0		307
Liabilities to customers	4,685,735	0		4,685,735
Provisions	4,827	0		4,827
Other liabilities	109,471	0		109,471
Subordinated liabilities	92,197	0		92,197
Total liabilities	4,894,406	0		4,894,406
Equity
Share capital	97,290	0		97,290
Supplementary capital	33,301	0		33,301
Revaluation reserve	(2,158)	137	8)	(2,021)
Other reserve capitals	163,944	0		163,944
Retained earnings	29,018	(5,413)	9)	23,605
Total equity	321,395	(5,276)		316,119
Total liabilities and equity	5,215,801	(5,276)		5,210,525

 

Impact on the consolidated income statement for the financial year

		period from 1 January 2013 to 31 December 2013
		PLN '000
Increase in interest income	1)	9,364
Decrease in fee and commission income	2)	(23,408)
Decrease in fee and commission expense	11)	3,453
Increase in general and administrative expenses	3)	(34)
Increase in net impairment losses	4)	598
Decrease in tax charges	5)	1,905
Decrease in consolidated profit for the financial year		(8,122)
Decrease in consolidated profit for the financial year distributable to:
Shareholders of the parent		(8,122)

 

Impact on consolidated other comprehensive income for the financial year

		period from 1 January 2013 to 31 December 2013
		PLN '000
Increase due to measurement of defined benefit plans	3)	34
Increase in income tax related to other comprehensive income	5)	(7)
Increase in other comprehensive income for the financial year		27
Decrease in consolidated other comprehensive income for the financial year		(8,095)
Decrease in consolidated total income for the financial year distributable to:
Shareholders of the parent		(8,095)

 

Impact on consolidated net assets and equity as at 31 December 2013

		Adjustments related to changes in accounting principles
		PLN '000
Increase in revaluation reserve	8)	223
Decrease in retained earnings	9)	(19,971)
Total impact on equity		(19,748)
Decrease in originated loans and advances to customers	6)	(31,217)
Increase in net deferred income tax assets	7)	4,634
Decrease in other assets	11)	(219)
Decrease in other liabilities	10)	7,054
Total impact on consolidated net assets		(19,748)

Adjustments resulting from changes in the accounting policy:

1. Adjustment of interest income due to change in the recognition principles applied to revenue and related expenses of the Group due to the sale of insurance products, as a result of accounting for a portion of revenue using the effective interest method;
    
2. Adjustment of fee and commission income due to the change in the recognition principles applied to the Bank’s revenue due to the sale of bancassurance products, as a result of accounting for a portion of revenue using the effective interest method;
    
3. Adjustment of general and administrative expense related to reclassification of actuarial gains (losses) arising from measurement of defined benefit plans to other comprehensive income;
    
4. Adjustment of net impairment loss due to impairment of originated loans and advances to customers, resulting from a change in the recognition principles applied to revenue of the Group due to the sale of bancassurance products, as a result of deferring recognition of a portion of revenue and accounting for this amount as an integral element of the effective interest rate of loans and advances;
    
5. Recognition of income tax due to the adjustments in question, related to changes in accounting for revenue of the Group due to sale of bancassurance products and changes in the method of recognizing actuarial gains (losses) due to measurement of defined benefit plans;
    
6. Adjustment of originated loans and advances to customers related to changes in the recognition principles applied to revenue of the Group due to the sale of bancassurance products, resulting from deferring recognition of a portion of revenue accounted for using the effective interest method;
    
7. Recognition of deferred tax asset related to a portion of the Group's revenue due to the sale of bancassurance products, which is deferred in time;
    
8. Adjustment of revaluation reserve related to the change in the method of recognizing actuarial gains and losses on measurement of defined benefit plans;
    
9. Adjustment of prior years’ undistributed profit related to changes in accounting for revenue of the Group due to sale of bancassurance products and changes in the method of recognizing actuarial gains (losses) due to measurement of defined benefit plans and related to retrospective impact of the changes on financial profit or loss of prior periods.
    
10. Adjustment of other liabilities due to the change in recognition of the provision for risk of potential returns of the Group’s fee for the sale of bancassurance products.
     
11. Adjustment due to the change in recognition of the cost due to the sale of bancassurance products.

Impact of the changes in the accounting principles (policy) on earnings per share

The impact of the changes in accounting principles on the basic and diluted earnings per share has been presented below:

	Increase (decrease) in profit attributable to shareholders		Increase (decrease) in basic earnings per share
	period from 1 January 2013 to 31 December 2013	period from 1 January 2012 to 31 December 2012 (restated)	period from 1 January 2013 to 31 December 2013	period from 1 January 2012 to 31 December 2012 (restated)
Changes in accounting principles concerning:
accounting for revenue due to sale of insurance products	(19,748)	(6,378)	(2.03)	(0.66)
actuarial gains/losses arising from measurement of defined benefit plans	(27)	(59)	0	(0.01)
	(19,775)	(6,437)	(2.03)	(0.67)