Page 75 - Annual Report 2010

73

Financial Statements

determined under IAS 39, then the aggregation of the NAVs of all funds will itself be equivalent to the fair value as determined under IAS 39. If IAS 39 rules have not been followed, other guidelines might be acceptable (for example the International Private Equity and Venture Capital valuat ion guidelines, IPEVC Guidelines, as published by the European Venture Capital Association “EVCA”) and more detailed monitoring and review will be required.

In accordance with this method, the PE funds are internally classified into three categories:

„„ Category I – funds that have adopted the fair value requirements of IAS 39 or IPEVC Guidelines.

„„ Categor y I I – funds that have adopted other valuation guidelines (such as the former 2001 EVCA) or standards that can be considered as in line with IAS 39.

„„ Category III –funds that have not adopted the fair value requirements of IAS 39 or any other valuation guidelines in line with IAS 39.

Although it is assumed for category I and II that the NAV is a reliable estimation of the fair value and specific review is performed, it must be stated that underlying investments have been estimated in the absence of readily ascertainable market values. Because of the inherent uncer taint y of valuation and current market conditions, actual results in the future could differ from the fund manager’s estimate of values and the difference may be material to the financial statements.

b) Impairment considerations:

Shares and other variable income securities are assessed for objective evidence of impairment. Impairment losses are incurred only i f there is object ive evidence of impairment as a result of one or more events that have occurred. On each official reporting date, EIF analyses unrealised losses so as to determine whether they should be recognised as impairment losses in the profit or loss or as changes in the fair value reserve.

In addi t ion EIF def ines quant i tat ive thresholds for assessing what is significant and what is prolonged which allows the classification of the funds as follows:

„„ funds with no indication of impairment;

„„ funds with an indication of potential impairment which are reviewed for impairment by the Invest -ment Risk Committee;

„„ funds showing objective evidence of impairment

Investments belonging to category III are valued at cost less impairment. When an investment falls under this cat-egory, the amount of impairment is calculated based on a matrix of fixed impairment percentages in tranches of 25% depending on the operational and performance grading of the respective funds.

The fair value is determined by applying either the Fund’s percentage ownership in the underlying vehicle to the net asset value reflected in the most recent report or, where available, the precise share value at the same date, sub-mitted by the respective Fund Manager. In order to bridge the interval between the last available NAV and the year-end reporting, a subsequent event review procedure is performed and if necessary the reported NAV is adjusted.

2.3.3 Debt securities and other fixed income

securities

Securities held by the Fund are all quoted on an active market. Consequently, the fair value of financial instru-ments is based on bid prices at the statement of financial position date.

Premiums paid over the maturity value, discounts received in comparison to the maturity value of securities and interests on securities are calculated using the effective interest method and are recognised in the profit or loss.

2.3.4 Interests in Joint Ventures and associates

EIF complies with conditions to use the private equity and similar entities exemption in IAS 28 and IAS 31 and does not use equity accounting on, or proportionately consoli-date investments in joint ventures. Upon initial recognition, holdings in the joint ventures or associates are designated as at fair value through the profit or loss, and measured subsequently at fair value in accordance with IAS 39, with changes in fair value recognised in the profit or loss during the year of the change.