| a) | Presentation of Consolidated Financial Statements |
The consolidated financial statements are prepared as follows:
| · | The consolidated statement of financial position presents assets and liabilities based on liquidity since it provides reliable and more relevant information, than separate current and non-current classifications. |
| · | The consolidated statements of income and other comprehensive income are presented separately. The statement of income is presented by nature, as it provides reliable and more relevant information. |
| · | The consolidated statements of cash flows are presented using the indirect method, accordingly, net cash flows from operating activities are determined by reconciling profit before taxes, due to the effects of the non-cash items, net changes in assets and liabilities from operating activities, and for any other effects that are not classified as investing or financing activities. Revenue and expenses due to interest received and paid are part of operating activities. |
| b) | Consolidated financial statements |
Grupo Aval prepares its consolidated financial statements with controlled entities. Grupo Aval controls an investee if it is exposed to, or has rights to, variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Grupo Aval reassesses whether it has control if there are changes to one or more of the elements of control.
The financial statements of subsidiaries are consolidated in the financial statements of Grupo Aval since the date Grupo Aval acquires control until the date control is lost.
During the consolidation process, Grupo Aval combines the assets, liabilities and profits or losses of those entities under control, previously aligning the accounting policies in all the subsidiaries. Such process includes eliminating intragroup balances and transactions and any unrealized and realized income and expense (except for foreign currency translation gains or losses) arising from intra-group transactions. Unrealized and realized losses are eliminated in the same way as unrealized and realized gains but only to the extent that there is no evidence of impairment. Non-controlling interest is presented in the consolidated statement of financial position of Grupo Aval separate from that attributable to equity holders of Grupo Aval.
For consolidation purposes, the statements of financial position and income of Grupo Aval´s foreign subsidiaries are translated to Colombian pesos, as follows:
| · | Assets and liabilities are translated at the closing exchange rate at the reporting date; |
| · | Income and expense of foreign operations are translated at monthly average exchange rates since those averages approximate the exchange rates of each specific transaction; |
| · | All resulting exchange differences are recognized in other comprehensive income and accumulated in the foreign currency translation reserve except to the extent that the translation difference is allocated to non-controlling interests. |
| c) | Investments in associates |
Associates are companies in which Grupo Aval has significant influence but not control. Investments in associates are accounted for under the equity method. They are presented in the statement of financial position as ”Investments in associates and joint ventures” (additionally see Note 2.1.d) “Joint arrangements”). Grupo Aval exercises significant influence over another entity if it owns, directly or indirectly, 20% or more of the voting power of the investee, unless it is clearly evidenced that such influence does not exist. Under the equity method, investments in associates are initially recognized at cost and subsequently adjusted by Grupo Aval´s share in the associates income and other comprehensive income with credit or charge to Grupo Aval’s profit or loss account and other comprehensive income, respectively of the net income, and other comprehensive income of the investee.
Dividends received or receivable from associates and joint ventures are recognized as a reduction in the carrying amount of the investment.
When the group’s share of losses in an equity-accounted investment equals or exceeds its interest in the entity, including any other unsecured long-term receivables, Grupo Aval does not recognize further losses, unless it has incurred obligations or made payments on behalf of the other entity.
Unrealized gains on transactions between Grupo Aval and its associates are eliminated to the extent of Grupo Aval’s interest in these entities. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
Accounting policies of equity accounted investees have been changed where necessary to ensure consistency with the policies adopted by Grupo Aval.
The carrying amount of equity-accounted investments is tested for impairment
A joint arrangement is one in which two or more parties have joint control of the arrangement. Joint arrangements are divided into joint operations, in which the parties having joint control of the agreement have rights to the assets and obligations with respect to the liabilities relating to the agreement, and joint ventures, wherein the parties having joint control are entitled to the net assets of the agreement.
Grupo Aval recognizes joint operations in the consolidated financial statements based on their proportional and contractual participation in each of the assets, liabilities and profit or loss of the contract or entity wherein the agreement is held. In addition, Grupo Aval recognizes joint ventures by the equity method, in the same manner as investments in associates.
