SEC Form 20-F - Deutsche Bank Annual Report 2012

Deutsche Bank Notes to the Consolidated Financial Statements F-20
Annual Report 2010 on Form 20-F 01 – Significant Accounting Policies
Financial liabilities include long-term and short-term debt issued which are initially measured at fair value, which
is the consideration received, net of transaction costs incurred. Repurchases of issued debt in the market are
treated as extinguishments and any related gain or loss is recorded in the consolidated statement of income.
A subsequent sale of own bonds in the market is treated as a reissuance of debt.
Reclassification of Financial Assets
The Group may reclassify certain financial assets out of the financial assets at fair value through profit or loss
classification (trading assets) and the AFS classification into the loans classification. For assets to be reclassi-
fied there must be a clear change in management intent with respect to the assets since initial recognition and
the financial asset must meet the definition of a loan at the reclassification date. Additionally, there must be an
intent and ability to hold the asset for the foreseeable future at the reclassification date. There is no single specific
period that defines foreseeable future. Rather, it is a matter requiring management judgment. In exercising this
judgment, the Group established the following minimum requirements for what constitutes foreseeable future.
At the time of reclassification,
— there must be no intent to dispose of the asset through sale or securitization within one year and no internal
or external requirement that would restrict the Group’s ability to hold or require sale; and
— the business plan going forward should not be to profit from short-term movements in price.
Financial assets proposed for reclassification which meet these criteria are considered based on the facts and
circumstances of each financial asset under consideration. A positive management assertion is required after
taking into account the ability and plausibility to execute the strategy to hold.
In addition to the above criteria the Group also requires that persuasive evidence exists to assert that the
expected repayment of the asset exceeds the estimated fair value and the returns on the asset will be
optimized by holding it for the foreseeable future.
Financial assets are reclassified at their fair value at the reclassification date. Any gain or loss already recognized
in the consolidated statement of income is not reversed. The fair value of the instrument at reclassification date
becomes the new amortized cost of the instrument. The expected cash flows on the financial instruments are
estimated at the reclassification date and these estimates are used to calculate a new effective interest rate for
the instruments. If there is a subsequent increase in expected future cash flows on reclassified assets as a result
of increased recoverability, the effect of that increase is recognized as an adjustment to the effective interest rate
from the date of the change in estimate rather than as an adjustment to the carrying amount of the asset at the
date of the change in estimate. If there is a subsequent decrease in expected future cash flows the asset would
be assessed for impairment as discussed in the section entitled “Impairment of Loans and Provision for Off-Balance
Sheet Positions”. Any change in the timing of the cash flows of reclassified assets which are not deemed impaired
are recorded as an adjustment to the carrying amount of the asset.
For instruments reclassified from AFS to loans any unrealized gain or loss recognized in other comprehensive
income is subsequently amortized into interest income using the effective interest rate of the instrument. If the
instrument is subsequently impaired any unrealized loss which is held in accumulated other comprehensive
income for that instrument at that date is immediately recognized in the consolidated statement of income as a
loan loss provision.