SEC Form 20-F - Deutsche Bank Annual Report 2012

Deutsche Bank Notes to the Consolidated Financial Statements F-44
Annual Report 2010 on Form 20-F 02 – Critical Accounting Estimates
The provision for credit losses totaled € 1,273 million, € 2,630 million and € 1,075 million for the years ended
December 31, 2010, 2009 and 2008.
The determination of the impairment allowance required for loans which are deemed to be individually significant
often requires the use of considerable management judgment concerning such matters as local economic
conditions, the financial performance of the counterparty and the value of any collateral held, for which there
may not be a readily accessible market. In certain situations, such as for certain leveraged loans, the Group may
assess the enterprise value of the borrower to assess impairment. This requires use of considerable management
judgment regarding timing of exit and the market value of the borrowing entity. The actual amount of the future
cash flows and their timing may differ from the estimates used by management and consequently may cause
actual losses to differ from the reported allowances.
The impairment allowance for portfolios of smaller-balance homogenous loans, such as those to individuals
and small business customers of the private and retail business, and for those loans which are individually
significant but for which no objective evidence of impairment exists, is determined on a collective basis. The
collective impairment allowance is calculated on a portfolio basis using statistical models which incorporate
numerous estimates and judgments. The Group performs a regular review of the models and underlying data
and assumptions. The probability of defaults, loss recovery rates, and judgments concerning the ability of
borrowers in foreign countries to transfer the foreign currency necessary to comply with debt repayments,
among other things, are all taken into account during this review. For further discussion of the methodologies
used to determine the Group’s allowance for credit losses, see Note 01 “Significant Accounting Policies”.
Impairment of Other Financial Assets
Equity method investments, and financial assets classified as AFS are evaluated for impairment on a quarterly
basis, or more frequently if events or changes in circumstances indicate that these assets are impaired. If there
is objective evidence of an impairment of an associate or jointly-controlled entity, an impairment test is performed
by comparing the investments’ recoverable amount, which is the higher of its value in use and fair value
less costs to sell, with its carrying amount. In the case of equity investments classified as AFS, objective evidence
of impairment would include a significant or prolonged decline in fair value of the investment below cost. It
could also include specific conditions in an industry or geographical area or specific information regarding the
financial condition of the company, such as a downgrade in credit rating. In the case of debt securities classified
as AFS, impairment is assessed based on the same criteria as for loans. If information becomes available after
the Group makes its evaluation, the Group may be required to recognize impairment in the future. Because the
estimate for impairment could change from period to period based upon future events that may or may not occur,
the Group considers this to be a critical accounting estimate. The impairment reviews for equity method investments
and financial assets AFS resulted in net impairment charges of € 2,588 million in 2010, € 1,125 million in
2009 and € 970 million in 2008. For additional information see Note 08 “Net Gains (Losses) on Financial Assets
Available for Sale” and Note 17 “Equity Method Investments”.