2005 Annual Report Julius Baer Holding Ltd. - GAM Holding AG

A hedge is regarded as highly effective if actual
results are within a range of 80% to 125%.
Changes in the fair value of derivatives that are designated
and qualify as fair value hedges and that
prove to be highly effective in relation to hedged risk
are recorded in the income statement, along with the
corresponding change in the fair value of the hedged
asset or liability that is attributable to that specific
hedged risk.
If the hedge no longer meets the criteria for hedge
accounting, in the case of interest-bearing financial
instruments the difference between the carrying
amount of the hedged position at that time and the
value that this position would have exhibited without
hedging is amortized to net profit or loss over the
remaining period to maturity of the original hedge. In
the case of non-interest-bearing financial instruments,
on the other hand, this difference is immediately
recorded in the income statement.
Changes in the fair value of derivatives that have
been recorded as a cash flow hedge, that fulfill the
criteria mentioned above and that prove to be effective
in hedging risk are reported under the item
Reserves IAS 39 in shareholders’ equity. If a future
financial transaction or an obligation results in a balance
sheet item, the gains or losses previously
recorded in shareholder’s equity are derecognized
and set off against the cost of this balance sheet
item. If the hedged cash flow or the obligation leads
to direct recognition in the income statement, the
hedging instrument’s cumulative gains or losses from
previous periods in shareholders’ equity are included
in the income statement in the same period as the
hedged transaction.
Certain derivative transactions represent financial
hedging transactions and are in line with the risk
management principles of the Group. However, in
view of the strict and specific guidelines of IFRS, they
do not fulfill the criteria to be treated as hedging
Notes
transactions for accounting purposes. They are therefore
reported as trading positions. Changes in value
are recorded in the income statement in the corresponding
period.
The fair values of derivative instruments held for trading
and hedging purposes are disclosed in Note 29.
Financial investments
Security positions acquired with long-term investment
objective are reported under this item.
In accordance with IAS 39, there are two categories
of financial investments:
1. Debt securities categorized as “held-to-maturity”
are initially recorded at cost and subsequently
stated at amortized cost in the balance sheet. The
effective interest rate method is used to amortize
the difference between the cost and the repayment
value over the life of the securities.
A held-to-maturity financial investment is deemed
impaired if it is likely that the amount due according
to the contractual terms cannot be entirely
collected. The reasons for impairment are specific
to the relevant counterparties or countries. When
impairment occurs, the corresponding reduction
in the carrying amount to the recoverable amount
is recognized in the income statement.
Interest is accrued in the period incurred using
the effective interest rate method and recognized
in the item net interest income.
2. Available-for-sale debt securities are stated at fair
value. Unrealized gains and losses are reported
under the item Reserves IAS 39 in shareholders’
equity until the financial asset is sold, or until a
drop in value is recognized, at which point the
cumulative gain or loss previously recorded in
shareholders’ equity is recognized in the income
statement under the item other ordinary results.
JULIUS BAER GROUP 73