IBERSOL Annual Report 2018

ANNUAL REPORT 2018 Impairment IFRS 9 establishes a new “Expected Credit Losses (ECL)” impairment model, which replaces the previous “losses incurred” model under IAS 39, which is the basis for the recognition of impairment losses on financial instruments measured at amor- tized cost or at fair value through other comprehensive income. Once the loss event (which is known as the “objective proof of impairment”) has been verified, the accumulated impairment is directly affected by the financial in- strument in question, and its accounting treatment is similar to that provided for in IAS 39, including the treatment of the respective impairment swear. One of the main changes arising from the adoption of this standard is the recogni- tion of impairment on the exposure to securities, bank deposits and other financial investments, which was not required under IAS 39, provided there were no objective evidence of impairment. Customers Considering the typology of customer balances arising from the activity of the Ib- ersol Group, we consider that the impact of the adoption of the impairment model recommended in IFRS 9 is not relevant. Debt securities In respect of investments in securities and in deposits and short-term financial in- vestments, impairments are calculated by attributing (i) a Default Probability (PD) that derives from the issuer’s or counterparty’s rating, and (ii) a Loss Given Default (LGD) market parameters. Impairment is calculated at 12 months for these assets, provided that credit risk has not increased significantly since its initial recogni- tion. Since the PDs available on the market correspond to expected losses over the 12-month period. The application of the new standard had a negative impact on total equity at 1 January 2018 amounting to € 1,052,331 (pre-tax). At 31 December 2018, the Group revalued its exposure to securities and to deposits and financial investments, with a reversal of impairment amounting to € 111,569, with an accumulated impairment of € 940,762 (see note 11). 2.2.3 IFRIC 22 - Transactions in foreign currency and payment of advances The interpretation IFRIC 22 was issued on December 8, 2016, with a mandatory ap- plication date for periods beginning on or after 1 January 2018. The new IFRIC 22 provides that, in the event that there have been advances in foreign currency for the purposes of asset acquisition, expense support or income genera- tion, in applying paragraphs 21 to 22 of IAS 21, the date considered as a transaction for the purpose of determining the exchange rate to be used for recognition of the inherent asset, expense or income (or part thereof) is the date on which the entity 215