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Notes to the consolidated financial statements

5.3. Estimation uncertainty

Download note 5.3 in XLS

Presented below are the main assumptions concerning the future and other key uncertainties as at the end of the reporting period posing the risk of material adjustment of the carrying amount of assets and liabilities in the next financial year.

Estimates and assumptions adopted by the Group are reviewed on a current basis. Estimate adjustments are recognized in the period when the estimates have been changed if the adjustments pertain to that period only. If the adjustments affect both the current and future periods, they are recognized both in the period when introduced and in future periods.

Fair value of financial instruments

Financial assets and liabilities carried at fair value in the balance sheet with no identifiable active market are measured using generally applied measurement models based to the maximum extent possible on variables observable in market environment and professional judgment. Relevant measurement methods and input data are verified on a regular basis.

The method of determining the fair value of each financial instrument and their carrying amounts has been presented in Note 36.

Effects of market interest rate changes by + 1 b.p./- 1 b.p. on the fair value of financial instruments recognized in the statement of financial position at fair value have been presented in the table below:
 

Impairment of financial assets

At each balance sheet date, the Group assesses whether there is any objective indication of impairment of a financial asset or a group of financial assets.
The estimated impact of changes in the present value of estimated cash flows on the change in impairment losses for individual items of “Loans and advances granted to clients" has been presented in the table below.
 

Fair value of collateral provided for exposures granted

Fair value of collateral provided for exposures granted is determined using measurement techniques and real estate
market analysis. The list of collateral accepted by the Group with the fair value specification (for mortgages) has been
presented in Note 46.1 hereto.

The Group has adopted the following key principles of measurement for most popular collateral types:
 

Useful life of property, plant and equipment and intangible assets

Useful life of property, plant and equipment and intangible assets is estimated taking into consideration the following
factors:

  • the so-far observed average useful lives, reflecting physical wear and tear, intensity of usage, etc.;
  • technological obsolescence;
  • period of control over the asset, legal and other limitations on period in use;
  • co-relation between the useful life of the asset in question and those of other assets;
  • other factors that may affect useful life of a given type of non-current assets.

The expected useful life of a given asset is equal to its period in use defined under terms of the appropriate contract. If, however, the expected useful life of an asset is shorter than its contractual period in use, than the asset is depreciated/amortized over its useful life.

Every year the Group verifies the adopted useful lives of fixed assets and intangible assets based on the current estimates. Detailed information on useful lives of property, plant and equipment and intangible assets has been presented in Note 5.5.9 and 5.5.10.

The impact of changes in useful lives of the key groups of property, plant and equipment and intangible assets items subject to depreciation/amortization by +/- year on the consolidated costs of the Capital Group has been presented below.
 


Provision for retirement and disability benefits (determined benefit plans)

The provision for retirement and disability benefits is calculated by an independent actuary in line with an actuarial method as the present value of future liabilities of the Group towards employees based on the number of employees and remuneration as at the date of revaluation. Provisions are calculated in accordance with a number of assumptions
concerning discount rates, projected remuneration increases, employee turnover, mortality rate and other factors. All assumptions are reviewed at each year-end.

Carrying amounts of provisions recognized have been presented in Note 33.

The effects of changes in the discount rate and pay growth rate on the provision for pension and disability benefits are presented in the following table.
 

 

Annual Report 2014 - Bank Pocztowy