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Notes to the consolidated financial statements

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5.4 Estimation uncertainty

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. The actual values recognized by the Group may differ from estimates.

Estimates and assumptions made by the Group are reviewed on an ongoing 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 consolidated statement of financial position 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 37.

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

Impairment of financial assets

As at the end of each reporting period, the Group evaluates whether there is an objective indication of impairment of a financial asset/ group of financial assets.

The following table presents estimated effects of changes in the current value of estimated cash flows on impairment losses on items included in “Loans and advances granted to customers” analyzed on an individual basis. 

Fair value of collateral on exposures granted

The 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 47.1 to these consolidated financial statements.

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

Every year the Group verifies the adopted useful lives of fixed assets and intangible assets based on the current estimates.  Useful lives of property, plant and equipment and intangible assets are presented in Notes 5.6.10. and 5.6.11.

When estimating the useful lives of each type of property, plant and equipment and intangible assets, the following factors are included: 

• former average projected useful lives reflecting actual wear and tear, intensity of use, etc.;
• technological obsolescence; 
• period of control over the asset, legal and other limitations on period in use;
• useful lives of certain assets being dependent on useful lives of other assets;
• other factors that may affect expected average useful life of a given type of non-current assets.

The expected average 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, the asset is depreciated/amortized over its useful life.

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 costs of the Capital Group has been presented below.