Annual Report 2012

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Notes to the financial statements(Expressed in millions of RMB, unless otherwise stated)4 Significant accounting policies and accounting estimates (continued)(1) Consolidated financial statements (continued)(c)Special purpose entitiesThe Group has established a number of Special Purpose Entities (“SPEs”) for investment and securitisation purposes. TheGroup evaluates the substance of its relationship with the SPEs as well as the SPEs’ risks and rewards to determine whetherthe Group controls the SPEs. The following circumstances, which may indicate a relationship in which the Group controls aSPE are taken into account: (i) in substance, the activities of the SPE are being conducted on behalf of the Group accordingto its specific business needs so that the Group obtains benefits from the SPE’s operations; (ii) in substance, the Group hasthe decision-making powers to obtain the majority of the benefits of the activities of the SPE; (iii) in substance, the Group hasrights to obtain the majority of the benefits of the SPE and therefore may be exposed to risks incident to the activities of theSPE; and (iv) in substance, the Group retains the majority of the residual or ownership risks related to the SPE or its assets inorder to obtain benefits from its activities. Where the evaluation result indicates that control exists, the Group will consolidatethe SPE.(d) Associates and jointly controlled entitiesAn associate is an enterprise in which the Group has significant influence. Significant influence is the power to participate inthe financial and operating policy decisions of the investee but is not control or joint control over those policy decisions.A jointly controlled entity is an enterprise which operates under joint control between the Group and other parties. Jointcontrol is the contractually agreed sharing of control over an economic activity, and exists only when the strategic financial andoperating decisions relating to the activity require the unanimous consent of the parties sharing the control.Investments in associate or jointly controlled entity are accounted for using the equity method in the consolidated financialstatements and are initially recorded at acquisition cost, and adjusted thereafter for the post acquisition change in the Group’sshare of net assets of the associate or jointly controlled entity. The Group’s share of the post-acquisition, post-tax results ofthe associate or jointly controlled entity for the year is recognised in the consolidated statement of comprehensive income.The Group’s interest in associate or jointly controlled entity is included from the date that significant influence or joint controlcommences until the date that significant influence or joint control ceases.Profits and losses resulting from transactions between the Group and its associate or jointly controlled entity are eliminated tothe extent of the Group’s interest in the associate or jointly controlled entity.The Group discontinues recognising its share of net losses of the associate or jointly controlled entity after the carrying amountof investments in associate and jointly controlled entity together with any long-term interests that in substance form part of theGroup’s net investment in the associate or jointly controlled entity are reduced to zero, except to the extent that the Group hasincurred legal or constructive obligations to assume additional losses. Where the associate or jointly controlled entity makesnet profits subsequently, the Group resumes recognising its share of those profits only after its share of the profits equals theshare of losses not recognised.(2) Translation of foreign currencies(a) Translation of foreign currency transactionsForeign currency transactions are, on initial recognition, translated into the functional currency at the spot exchange ratesat the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currenciesare translated into the functional currency at the spot exchange rates at that date. The resulting exchange differences arerecognised in profit or loss. Non-monetary items denominated in foreign currencies that are measured at historical cost aretranslated into functional currency using the spot exchange rates at the transaction dates. Non-monetary items denominatedin foreign currencies that are measured at fair value are translated using the spot exchange rates at the dates the fair valuesare determined; exchange differences are recognised in profit or loss, except for the differences arising from the translation ofavailable-for-sale equity instruments, which are recognised in other comprehensive income.(b) Translation of financial statements denominated in foreign currenciesForeign currency financial statements of overseas branches and subsidiaries are translated into RMB for the preparation ofconsolidated financial statements. At the end of each reporting period, the assets and liabilities in the financial statementsdenominated in foreign currencies are translated into RMB at the spot exchange rates ruling at that date. The income andexpenses of foreign operations are translated into RMB at the spot exchange rates or the rates that approximate the spotexchange rates on the transaction dates. Foreign exchange differences arising from foreign operations are recognised as“exchange reserve” in the shareholders’ equity in the statement of financial position. The effect of exchange rate changes oncash is presented separately in the statement of cash flows.China Construction Bank Corporation annual report <strong>2012</strong>101
Notes to the financial statements(Expressed in millions of RMB, unless otherwise stated)4 Significant accounting policies and accounting estimates (continued)(3) Financial instruments(a)CategorisationThe Group classifies financial instruments into different categories at inception, depending on the purposes for which theassets were acquired or the liabilities were incurred. The categories are: financial assets and financial liabilities at fair valuethrough profit or loss, held-to-maturity investments, loans and receivables, available-for-sale financial assets and other financialliabilities.Financial assets and financial liabilities at fair value through profit or lossFinancial assets and financial liabilities at fair value through profit or loss include those classified as held for trading, and thosedesignated as at fair value through profit or loss.A financial asset or financial liability is classified as held for trading if it is: (i) acquired or incurred principally for the purpose ofselling or repurchasing it in the near term; (ii) part of a portfolio of identified financial instruments that are managed togetherand for which there is evidence of a recent actual pattern of short-term profit-taking; or (iii) a derivative (except for a derivativethat is a designated and effective hedging instrument or a financial guarantee contract).Financial assets or financial liabilities are designated at fair value through profit or loss upon initial recognition when: (i) thefinancial assets or financial liabilities are managed, evaluated and reported internally on a fair value basis; (ii) the designationeliminates or significantly reduces an accounting mismatch in the gain and loss recognition arising from the difference inmeasurement basis of the financial assets or financial liabilities; or (iii) if a contract contains one or more embedded derivatives,an entity may designate the entire hybrid (combined) contract as a financial asset or financial liability at fair value through profitor loss unless: the embedded derivative(s) does not significantly modify the cash flows that otherwise would be required by thecontract; or it is clear with little or no analysis when a similar hybrid (combined) instrument is first considered that separation ofthe embedded derivative(s) is prohibited.Held-to-maturity investmentsHeld-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity thatthe Group has the positive intention and ability to hold to maturity, other than: (i) those that the Group, upon initial recognition,designates as at fair value through profit or loss or as available-for-sale; or (ii) those that meet the definition of loans andreceivables.Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in anactive market, other than: (i) those that the Group intends to sell immediately or in the near term, which will be classifiedas held for trading; (ii) those that the Group, upon initial recognition, designates as at fair value through profit or loss or asavailable-for-sale; or (iii) those where the Group may not recover substantially all of its initial investment, other than because ofcredit deterioration, which will be classified as available-for-sale. Loans and receivables mainly comprise deposits with centralbanks, deposits and placements with banks and non-bank financial institutions, financial assets held under resale agreements,loans and advances to customers, and debt securities classified as receivables.Available-for-sale financial assetsAvailable-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale or are notclassified as: (i) financial assets at fair value through profit or loss; (ii) held-to-maturity investments; or (iii) loans and receivables.Other financial liabilitiesOther financial liabilities are financial liabilities other than those designated as at fair value through profit or loss and mainlycomprise borrowings from central banks, deposits and placements from banks and non-bank financial institutions, financialassets sold under repurchase agreements, deposits from customers and debt securities issued.Investment securities in the financial statements comprise the securities classified as held-to-maturity investments,available-for-sale financial assets and debt securities classified as receivables.102 China Construction Bank Corporation annual report <strong>2012</strong>
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Annual Report 2012China Constructio
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DEFINITIONSIn this annual report, u
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INTRODUCTIONHeadquartered in Beijin
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2 CORPORATE INFORMATIONLegal name a
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2 CORPORATE INFORMATIONForbes Ranke
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3 CHAIRMAN’S STATEMENTDear shareh
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4 PRESIDENT’S REPORTDear sharehol
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5 MANAGEMENT DISCUSSION AND ANALYSI
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14 UNAUDITED SUPPLEMENTARY FINANCIA
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15 ORGANISATIONAL STRUCTUREPublic R
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16 BRANCHES AND SUBSIDIARIESTier-on
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16 BRANCHES AND SUBSIDIARIESBranche
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16 BRANCHES AND SUBSIDIARIESChongqi
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16 BRANCHES AND SUBSIDIARIESZhejian
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Annual Report 2012

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