Annual report 2011 - VTB

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)5. Summary of Principal Accounting Policies (continued)Staff costs and related contributionsThe Group’s contributions to the State and Group’s social insurance, and obligatory medical insurance funds inrespect of its employees are expensed as incurred and included in staff costs within staff costs and administrativeexpenses. The Group’s contributions to the State and Group pension schemes are included in defined contributionpension expense within staff costs and administrative expenses. Non-used vacations accrued amounts are alsoincluded in staff costs within staff costs and administrative expenses.The Group recognizes all actuarial gains and losses related to defined benefit plan directly in other comprehensiveincome.Inflation accountingIf an economy in which a Group’s subsidiary operates is considered to be hyperinflationary as defined by IAS 29Financial Reporting in Hyperinflationary Economies than this subsidiary applies IAS 29. The standard requires thatthe financial statements prepared in the currency of a hyperinflationary economy be stated in terms of the measuringunit current at the reporting date.Foreign currency translationEach Group member determines its own functional currency and items included in the financial statements of eachentity are measured using that functional currency. Transactions in foreign currencies are initially recorded in thefunctional currency equivalent, translated at the rate of exchange ruling at the date of the transaction. Monetaryassets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchangeruling at the reporting date. Gains and losses resulting from the translation of foreign currency transactions arerecognized in the income statement as foreign exchange translation gains less losses. Non-monetary items that aremeasured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates ofthe initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using theexchange rates at the date when the fair value was determined.These financial statements are presented in Russian Roubles (RUR), the national currency of the RussianFederation, where the Bank is domiciled. As at the reporting date, the assets and liabilities of the entities, whosefunctional currency is different from the presentation currency of the Group and is not a currency of hyperinflationaryeconomy, are translated into RUR at the closing rate of exchange at the reporting date and, their income statementsare translated into RUR at the average exchange rates for the reporting period. The exchange differences arising onthe translation are recognized in other comprehensive income in a separate component of equity (“Currencytranslation difference”). If the entity’s functional is a currency of hyperinflationary economy, all amounts (assets,liabilities, equity items, income and expenses) of these entities are translated into RUR at the closing rate ofexchange at the reporting date; and, before applying this translation method, the entity restates its financialstatements in accordance with IAS 29 (see above “Inflation accounting”), except for comparative amounts that aretranslated into RUR. Differences which arise each period between the closing equity items of the previous year andthe opening equity items of the current year presented in RUR, are recognized as an “Effect of translation, net of tax”in other comprehensive income, as to the related equity items. The remaining exchange differences arising on theconsolidation are recognized in other comprehensive income in a separate component of equity (“Currencytranslation difference”).On disposal of a subsidiary or an associate or joint venture, whose functional currency is different from thepresentation currency of the Group, the deferred cumulative amount recognized in equity relating to that particularentity is reclassified to the income statement.As at 31 December 2011, the principal closing rate of exchange used for translating balances in USD to RussianRoubles was USD 1 to RUR 32.1961 (at 31 December 2010: USD 1 to RUR 30.4769), and the principal closing rateof exchange used for translating balances in Euro was EUR 1 to RUR 41.6714 (at 31 December 2010: EUR 1 toRUR 40.3331).Fiduciary assetsAssets held by the Group in its own name, but for the account of third parties, are not reported in the statement offinancial position. Commissions received from such operations are shown within fee and commission income in theincome statement.24