(35) Material differences between UGB and IFRS

Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS) differ from those prepared in accordance with the Austrian Enterprise Code (UGB) already in that each of the two has a fundamentally different objective. Financial statements prepared in accordance with IFRS have to provide information about the financial position, performance and changes in the financial position of an entity that is suitable for making economic decisions. The Austrian Enterprise Code only provides limited information about the financial position and credit risk policy of an entity.

The material differences of the accounting and assessment as well as reporting practices (listing may be incomplete) between the Austrian Enterprise Code / Banking Act (UGB / BWG) and IFRS that are of relevance to the Hypo Group Alpe Adria are explained below:

Scope of consolidation

Under IFRS, there are no restrictions on consolidation on the grounds of the dissimilarity of the business activities of the subsidiary. By contrast, under the Austrian accounting principles applicable to banks, the Enterprise Code and the Banking Act, other subsidiaries whose activities are not those of credit institutions or other financial institutions or of enterprises rendering ancillary services are excluded from consolidation.

Leasing

If substantially all risks and rewards incidental to ownership of an asset are transferred to lessee, the leasing relationship is a finance lease according to IAS 17, all other leases are operating leases. Due to the special rule of the Austrian Banking Act, the fixed assets subject to leasing shall be reported at the cash value of the discounted leasing debt, while pure hire agreements concluded in the form of leasing agreements (operating leasing) shall be reported at the carrying amount of the fixed asset in other financial investments.

However, there are differences between IFRS and previous financial statements in the treatment of initial direct costs. While according to IAS 17, they are spread (if material) over the term of the lease, they were recognized immediately as an expenditure under the Austrian Enterprise Code.

Fiduciary assets

Under IFRS, fiduciary assets are not recognized on the balance sheet. If they are significant, they are disclosed in the notes.

According to the Banking Act, it is a general rule that the trustee must treat them as assets. However, if there is a segregation right in favour of trustor in the event of a bankruptcy of trustee, it is possible to recognize the relevant fiduciary asset on the balance sheet.

Loans and receivables

Loans and receivables are recognized at amortized cost less impairments plus accrued interest. Under IFRS, fees charged to the customer upon conclusion of the contract are spread using the effective interest method. Under the Austrian Enterprise Code, these fees are recognized as fee income. Whereas the Austrian Enterprise Code recognizes this income in fee and commission income, in the income statement under IFRS they are reported in interest income.