Securitas AB Annual Report 2005

Recognition and subsequent measurement
Purchases and sales of fi nancial instruments are recognised on trade-date – the
date on which the Group commits to purchase or sell the instrument.
Financial instruments are initially recognized at fair value plus transaction
costs for all fi nancial assets or fi nancial liabilities not carried at fair value through
profi t or loss.
Financial assets are derecognized when the rights to receive cash fl ows from
the instruments have expired or have been transferred and the Group has transferred
substantially all risks and rewards of ownership. Financial liabilities are
removed when the obligation is discharged, cancelled or expired.
Financial assets or fi nancial liabilities at fair value through profi t or loss and
available-for-sale fi nancial assets are subsequently carried at fair value. Loans and
receivables and held-to-maturity investments are carried at amortized cost using
the effective interest method. Realised and unrealised gains and losses arising
from changes in the fair value of the fi nancial assets or liabilities at fair value
through profi t or loss category are included in the income statement in the period
in which they arise. Financial liabilities with the exception of fi nancial liabilities at
fair value through profi t or loss and fi nancial liabilities designated for hedging are
subsequently carried at amortized cost. Financial liabilities designated for hedging
that qualify for fair value hedge accounting are subsequently carried at fair value.
Changes in the fair value are included in the income statement in the period in
which they arise. The corresponding gain or loss from re-measuring the hedging
instrument at fair value is also included in the income statement in the same period
as that in which the gain or loss on the hedged item arises. Cash fl ow hedging
instruments are carried at fair value in the balance sheet and the gain or loss from
re-measuring the hedging instrument at fair value are recognized in the hedging
reserve in equity with a reversal from the hedging reserve to the statement of
income in the period of which the cash fl ow of the hedged item impacts the statement
of income. Exchange rate gains and losses on derivatives that are part of a
net investment hedge relationship are recognized in equity.
Actual cash fl ows that arise from derivative instruments are recognized as
interest income and/or interest expense in the period to which they relate. Changes in
fair value for both the hedged instrument and the hedging instrument (derivative) is
recognized separately as Revaluation of fi nancial instruments. The line Revaluation
of fi nancial instruments is included within Financial income and/or Financial
expense. The separation of the result in interest and revaluation effects increases
the ability to compare the effects with the effects under Swedish GAAP as well as
separating unrealized changes in fair value from the actual cash fl ows that forms
the basis for recognition of both interest income and interest expense.
The fair values of quoted fi nancial instruments are based on current bid prices.
If the market for a fi nancial instrument is not active (and for unlisted securities),
the Group establishes fair value by using valuation techniques. These include the
use of recent arm’s length transactions, reference to other instruments that are
substantially the same, discounted cash fl ow analysis, and option pricing models
refi ned to refl ect the issuer’s specifi c circumstances.
Impairment of fi nancial assets
The Group assesses at each balance sheet date whether there is objective evidence
that a fi nancial asset or a group of fi nancial assets is impaired.
Financial Instruments: Recognition and Measurement (IFRS 2004 and
Swedish GAAP 2004) – to December 31, 2004
Financial Instruments: Disclosure and Presentation
IAS 32 (and according to Swedish GAAP, RR 27) Financial Instruments: Disclosure
and Presentation stipulates the balance sheet classifi cation of fi nancial instruments
and the disclosures to facilitate understanding of how fi nancial instruments
infl uence income, fi nancial position and cash fl ow. The recommendation does not
stipulate when fi nancial instruments should be recognized, or de-recognized from
the balance sheet, nor does it indicate how such fi nancial instruments should be
valued.
Short-term investments
Short-term investments are accounted according to the lower of cost or market
principle if they pertain to transferable securities, and at acquisition value for bank
deposits.
Convertible debenture loans
Convertible debenture loans are compound fi nancial instruments whose fi nancial
liability (the loan) and the shareholders’ equity-related instrument (the issued put)
should be accounted separately at the time of issue. Because the convertible debenture
loan 2002/2007 series 1–4 was issued at market interest, the related shareholders’
equity-related instrument constituted an insignifi cant portion of the issue
proceeds, whereupon the convertible debenture loan was classifi ed as a fi nancial
liability in its entirety.
Notes and comments to the consolidated fi nancial statements
Bond loans issued
Bond loans issued are accounted at amortized cost, which means the present value
of future payments calculated by the effective historical rate of interest at the time
of issue.
Commercial paper issued
Commercial paper has been issued as part of a short-term Swedish commercial
paper program and accounted under Other short-term loan liabilities at the original
settlement value. Accrued interest is accounted under Accrued interest expenses
using a linear valuation method. Due to the short tenor of issued commercial
paper, the difference between accrued interest estimated linearly and by discounting
is immaterial.
Derivatives
Loan receivables and loan liabilities hedged through forward currency contracts are
valued at the spot rate on the day the hedge was entered into. Forward premiums
and discounts, that is the difference between the forward rate and the spot rate,
are accounted as interest.
Interest rate derivatives are used for hedging purposes only and accounted
through the deferral of unrealized gains and losses, known as deferral hedge
accounting. As a result, the Group’s gains or losses from interest rate derivatives –
comprises only interest income and interest expenses based on actual cash fl ows
from interest rate derivatives. Option premiums paid are expensed over the term
of the hedged position and are accounted as interest expenses.
Employee Benefi ts (IAS 19)
The Group operates or participates in a number of defi ned benefi t and defi ned contribution
pension and other long-term employee benefi t plans. Other plans primarily
relates to healthcare benefi ts. Calculations for the defi ned benefi t plans that exist
within Securitas are carried out yearly by independent actuaries.
Costs for defi ned benefi t plans are estimated using the so-called Projected Unit
Credit method in a way that distributes the cost over the employee’s working life.
Obligations are valued at the present value of the expected future cash fl ows using
a discount interest rate corresponding to the interest rate on high quality corporate
bonds or government bonds with remaining term that is approximately the same as
the obligations. Plan assets are measured at fair value.
Gains and losses resulting from changes in actuarial assumptions, plan experience
and investment performance differing from that assumed are spread evenly in
the income statement over the future working life of the employees in the plan to
the extent that the accumulated gains and losses at the balance sheet date fall outside
the so called corridor at the start of the period. This corridor corresponds to
10 percent of the higher of the defi ned benefi t obligation and the value of plan
assets at the balance sheet date.
If accounting for a defi ned benefi t plan results in a balance sheet asset, this is
reported as a net asset in the consolidated balance sheet under Other long-term
receivables. Otherwise it is reported as a provision under Provisions for pensions
and similar commitments. Costs related to defi ned benefi t plans, including the
interest element, are accounted for in operating income. Provisions for pensions
and similar commitments are not included in net debt.
Payments under defi ned contribution plans are recognized in the period in
which the employees have rendered their services. The expense is taken as the
contributions payable during the period.
Share-based payments (IFRS 2)
IFRS 2 requires that the fair value of the equity settled schemes should be accounted
for as an expense in the statement of income with the corresponding entry accounted
for as equity. The expense should be accrued for on a linear basis over the vesting
period. For cash settled schemes IFRS 2 also requires that the fair value of the
scheme should be accounted for as an expense in the statement of income on a
linear basis over the vesting period, but with the corresponding entry recognized
as a liability rather than as equity. Furthermore if the incentive scheme lapses
without settlement this will result in a reversal of the accrued cost for cash settled
schemes only. For equity settled schemes no reversal will occur since no adjustment
to the net assets is required.
Securitas have no equity settled or cash settled schemes that would fall within
the scope of this standard.
Provisions (IAS 37)
Provisions are recognized when the Group has a present obligation as a result of
a past event and it is probable that an outfl ow of resources embodying economic
benefi ts will be required to settle the obligation and a reliable estimate can be
made of the amount of the obligation.
Claims reserves are calculated on the basis of a combination of case reserves,
which represent claims reported, and IBNR (incurred but not reported) reserves.
Actuarial calculations are performed quarterly to assess the adequacy of the
reserves based on open claims and historical IBNR. The provisions are recognized
in the balance sheet at the discounted value that has been established by the actuarial
calculations.
SECURITAS 2005 83