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Annual report 2011
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EIF’s investments, made for its own account or on behalf
of its mandate providers, are executed in line with the
aforementioned industry practice, ensuring that EIF nei -
ther controls nor exercises any form of significant influ-
ence within the meaning of IAS 27 and IAS 28 over any
of these investments, including those investments in which
EIF holds over 20 % of the voting rights either on its own
account or on behalf of any of its mandates.
2.4 Guarantee operations
Financial guarantee contracts are contracts that require EIF to
make specified payments to reimburse the holder for a loss
it incurs because a specified debtor fails to make payments
when due in accordance with the terms of a debt instrument.
Financial guarantees are initially recognised at fair value
plus transaction costs that are directly attributable to the
issuance of the Financial guarantees. At initial recognition,
the fair value of the obligation to pay corresponds to the
Net Present Value (NPV) of expected premium inflows.
EIF has developed a model to estimate the NPV. This
calculation is performed at the starting date of each
transaction.
Subsequent to initial recognition, Financial guarantees are
measured at the higher of:
■
the amount determined in accordance with IAS 37
Provisions, Contingent Liabilities and Contingent
Assets; and
■
the amount initially recognised i.e. NPV less, where
appropriate, cumulative amortisation recognised in
accordance with IAS 18 Revenue.
EIF’s amortisation of the amount initially recognised is in
line with the risk profile of the transactions, namely a slow
linear amortisation over the first two-thirds of the Weight-
ed Average Life (WAL) of the transaction, followed by a
linear amortisation down to a minimum floor calculated as
a one-year expected loss. The transaction is totally amor-
tised following full repayment of a securitisation tranche.
The best estimate of expenditure is determined in accord-
ance with IAS 37. Guarantee provisions correspond to the
cost of settling the obligation, the expected loss, which is
estimated on the basis of all relevant factors and informa-
tion existing at the statement of financial position date.
Any increase or decrease in the liability relating to Finan-
cial guarantees is recognised in the profit or loss under
“Net result from guarantee operations”.
2.5 Other assets
Other assets include the funds designated to cover the
pension liability, accrued commission income and debtors
and are accounted for at amortised cost.
2.6 Intangible assets, Equipment and Investment
property
2.6.1 Intangible assets
Intangible assets are composed of internally generated
software and purchased computer software, and are ac-
counted for at cost net of accumulated amortisation and
impairment losses.
Direct costs associated with the development of software
are capitalised provided that these costs are separately
identifiable, the software provides a future benefit to the
Fund and the cost can be reliably measured. Mainte-
nance costs are recognised as expenses during the year
in which they occur. However costs to develop additional
functionalities are recognised as separate intangible as-
sets. Intangible assets are reviewed for indicators of im-
pairment at the date of the statement of financial position.
Intangible assets are amortised using the straight - line
method over the following estimated useful lives:
Internally generated software:
3 years
Purchased software:
2 to 5 years
2.6.2 Equipment
Equipment is stated at cost less accumulated deprecia-
tion and impairment losses. Equipment is reviewed for
indications of impairment at the date of the statement of
financial position.