Annual Report - EFG Bank Group

20
Notes to the Consolidated Financial Statements (continued)
and any goodwill identified on acquisition net of
any accumulated impairment losses. If the
Group’s share of losses of an associate equals or
exceeds its interest in the associate, the Group
discontinues recognising its share of further
losses, unless it has incurred obligations or made
payments on behalf of the associate. Where
necessary, the accounting policies used by the
associate have been changed to ensure
consistency with the policies of the Group.
A listing of the Group’s associated undertakings,
which are accounted for using the equity method,
is shown in note 25.
(d) Joint ventures
The Group’s interest in jointly controlled entities
are accounted for by the equity method of
accounting in the consolidated financial
statements and are treated as associates.
A listing of the Group’s joint ventures, is shown
in note 25.
(e) Foreign currencies
i) Functional and presentation currency
Items included in the financial statements of each
of the Group’s entities are measured using the
currency of the primary economic environment in
which the entity operates. The consolidated
financial statements are presented in CHF which
is the Group’s functional and presentation
currency.
Assets and liabilities of foreign subsidiaries are
translated using the closing exchange rate and
statement of income items at the average
exchange rate for the period reported. All
resulting exchange differences are recognised as a
separate component of equity (cumulative
translation adjustment).
Exchange differences arising from the
retranslation of the net investment in foreign
subsidiaries are taken to shareholders’ equity
until disposal of net investments and then
released to the statement of income.
(ii) Transactions and balances
Foreign currency transactions are translated into
the functional currency using the exchange rates
prevailing at the dates of the transactions.
Foreign exchange gains and losses resulting from
the settlement of such transactions and from the
translation at year-end exchange rates of
monetary assets and liabilities denominated in
foreign currencies are recognised in the statement
of income, except when deferred in equity as
qualifying cash flow hedges and qualifying net
investment hedges.
Translation differences on non-monetary items,
such as other financial assets held at fair-valuethrough-profit-
or-loss, are reported as part of the
fair value gain or loss. Translation differences on
non-monetary items, such as other financial
assets classified as available-for-sale financial
assets, are included in the fair value reserve in
equity.
Main foreign exchange rates against CHF used
by the Group were as follows:
2006 2005
Year-end Average Year-end Average
EUR 1.6069 1.5760 1.5551 1.5480
USD 1.2201 1.2467 1.3182 1.2511
GBP 2.3930 2.3121 2.2692 2.2671
(f) Derivative financial instruments and
hedging
Derivative financial instruments, including
foreign exchange contracts, forward currency
agreements and interest rate options (both
written and purchased), currency and interest
rate swaps, and other derivative financial
instruments, are initially recognised in the
balance sheet at fair value on the date on which a
derivative contract is entered and subsequently
are re-measured at their fair value. Fair values are
obtained from quoted market prices, including
recent market transactions, discounted cash flow
models and options pricing models, as
appropriate. All derivatives are carried as assets
when fair value is positive and as liabilities when
fair value is negative.
The best evidence of the fair value of a derivative
at initial recognition is the transaction price (i.e.,
the fair value of the consideration given or
received) unless the fair value of that instrument
is evidenced by comparison with other observable
current market transactions in the same
EFG Group