Principles of accounting and valuation, disclosures on risk management Art. 24e Par. 1 Point 2 FL-BankO
Principles of accounting and valuation
Accounting and valuation principles follow the prescriptions of the Liechtenstein Persons and Companies Act, as well as the Liechtenstein Banking Act and its related Ordinance.
Recording of transactions
In accordance with the valuation policies laid down, all business transactions are recorded in the Bank’s accounts as of their trading date. Forward contracts are recorded under off-balance-sheet transactions as of their settlement or value date.
Income and expenditure in foreign currencies are translated into Swiss francs at their respective daily rates; assets and liabilities are translated at the rates prevailing at year-end. Foreign-exchange gains and losses resulting from translation are recorded in the income statement.
Financial statements of foreign branches expressed in a foreign currency are translated at the exchange rate prevailing at the balance-sheet date (balance-sheet positions) or at an annual average exchange rate (income-statement positions). Translation differences are recorded in the income statement.
Cash balances, public-sector debt securities and bills of exchange which are eligible for refinancing with central banks, amounts due from banks, liabilities
Recording is made at nominal values minus any applicable unearned discount in the case of money-market paper. Valuation allowances are established to cover identifiable risks following the principle of prudence. Individual and lump-sum valuation allowances are deducted directly from the related balance-sheet positions.
Interest overdue for more than 90 days is provided for and recorded in the income statement as and when received.
Amounts due from clients
Receivables from clients are recorded in the balance sheet at their nominal values minus any applicable valuation allowances. A receivable is considered as being value-impaired when there is a probability that the total contractually owed amount is no longer recoverable.
A valuation allowance is recorded in the balance sheet as a reduction of the carrying value of the receivable to its probable realisable value. On the other hand, provisions for credit risks are established for off-balance-sheet positions. In addition to individual valuation allowances, VP Bank Ltd creates lump-sum individual valuation allowances as well as general lump-sum valuation allowances to cover latent credit risks.
A review of collectability is undertaken at least annually for all non-performing loans.
Debentures and other interest-bearing securities, equity shares and other non-interest-bearing securities
Trading portfolios of securities and precious metals are valued at the quoted market price as of the balance-sheet date.
Portfolios of securities and precious metals are valued at the lower of cost or market and interest-bearing securities, in part, also in accordance with the accrual method. In accordance with the accrual method, the premium or discount on acquisition is deferred and accreted or amortised, respectively, over the term of the security until maturity. The interest portion of realised gains or losses from premature disposal or redemptions are deferred and released to income over the remaining term (i.e. until the original final maturity). Interest income arising on interest-bearing securities is reflected in the caption “interest income“, and dividend income in the caption “current income from securities“. Price gains/losses are reported in the caption “income from finance transactions“.
Equity shareholdings in companies owned by the Bank representing a non-controlling interest held on a long-term basis are recorded as participations. Participations are valued at acquisition cost minus economically required valuation allowances.
Shares in affiliated companies
The existing majority shareholdings of VP Bank Ltd are recorded as shares in affiliated companies. Shares in affiliated companies are valued at acquisition cost minus economically required valuation allowances.
These affiliated companies are fully consolidated for the purposes of the published consolidated financial statements.
Value-enhancing expenditures in connection with the acquisition and installation of software are capitalised and amortised on a straight-line basis over the estimated useful life of three to seven years. Self-developed intangible assets are not capitalised. Minor purchases are charged directly to general and administrative expenses.
Property, plant and equipment
Property, plant and equipment encompasses buildings used by the Bank, other real estate, furniture and equipment as well as IT installations. Investments in new and existing property, plant and equipment are capitalised and valued at acquisition cost. Minor purchases are charged directly to general and administrative expenses.
In subsequent valuations, property and equipment is recorded at acquisition cost, minus accumulated depreciation and amortisation. Depreciation and amortisation is charged on a systematic basis over the estimated useful lives (bank buildings and other real estate: 25 years; furniture and equipment: 8 years; IT installations: 3 years; software: 3 to 7 years). The property, plant and equipment is reviewed annually for impairment in value.
Other assets, other liabilities
Other assets and liabilities include the positive and negative replacement values, respectively, of all financial derivative instruments open at the balance-sheet date arising from nostro transactions as well as over-the-counter contracts (OTC) arising from transactions on behalf of clients. In addition, these positions include balances of various settlement and clearing accounts.
Valuation allowances and provisions
Valuation allowances and provisions are established to reflect identifiable risks, as dictated by the principle of prudence. Individual and lump-sum valuation allow- ances for receivables from banks and clients as well as for mortgage receivables are deducted directly from the corresponding asset position. Provisions can be raised for receivables subject to a country risk as dictated by the principle of prudence.
Provisions for general banking risks
Provisions for general banking risks are prudently established reserves to cover latent risks arising from the normal course of business of the Bank. As required by the prescriptions governing financial statement reporting, they are shown as a separate item in the balance sheet. Changes thereto are disclosed separately in the income statement.
Contingent liabilities, irrevocable facilities granted, capital subscription and margin obligations
Amounts disclosed as off-balance-sheet items are stated at nominal values. Lump-sum provisions exist in the balance sheet for latent default risks.
Statement of cash flow
VP Bank Ltd is exempted from drawing up a statement of cash flow as a result of the obligation to prepare consolidated financial statements (Art. 24l FL-BankO). The consolidated statement of cash flow of VP Bank Group is a part of the consolidated financial statements.
There were no material occurrences having an impact on the balance sheet and income statement to be reported for the 2019 financial year.
Commentaries on risk management
Appropriate risk management is the basic prerequisite for the sustainable development and continuing success of VP Bank Ltd, Vaduz. By “appropriate” it is to be understood that VP Bank Ltd, as a value-oriented enterprise, although it takes on financial, operational and business risks in a conscious manner, does not hinder growth through innovation and initiatives, but realistically evaluates and realises profit opportunities.
The principles for identifying, evaluating, controlling and monitoring financial, operational and business risks apply to VP Bank Ltd to the same extent as to the subsidiary companies and exactly mirror the risk management and control framework of VP Bank Group, for which reason reference is made at this point to the commentaries on risk management of VP Bank Group (➔ page 119 ff.).