2006 Annual Report - Fiat SpA
2006 Annual Report - Fiat SpA
2006 Annual Report - Fiat SpA
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Notes to the Financial Statements<br />
Principal activities<br />
<strong>Fiat</strong> S.p.A. (the “Company”) is a corporation organised under<br />
the laws of the Republic of Italy and is the Parent Company<br />
of the <strong>Fiat</strong> Group, holding investments, either directly or<br />
indirectly through subholdings, in the capital of the parent<br />
companies of business Sectors in which the <strong>Fiat</strong> Group<br />
operates.<br />
The head office of the company is in Turin, Italy.<br />
The financial statements of <strong>Fiat</strong> S.p.A. are prepared in euros<br />
which is the currency of the economic environment in which<br />
the company operates.<br />
The Balance Sheet and Income Statement are presented<br />
in euros, while the Statement of Cash Flows, the Statement<br />
of Changes in Stockholders’ Equity, the Statement of Total<br />
Recognised Income and Expenses and the amounts stated<br />
in the Notes are presented in thousands of euros, unless<br />
otherwise stated.<br />
As the Parent Company, <strong>Fiat</strong> S.p.A. has additionally prepared<br />
the consolidated financial statements of the <strong>Fiat</strong> Group at<br />
December 31, <strong>2006</strong>.<br />
Significant accounting policies<br />
Basis of preparation<br />
The <strong>2006</strong> financial statements are the separate financial<br />
statements of the Parent Company, <strong>Fiat</strong> S.p.A., and have<br />
been prepared in accordance with the International Financial<br />
<strong>Report</strong>ing Standards (“IFRS”) issued by the International<br />
Accounting Standards Board (“IASB”) and adopted by the<br />
European Union. The designation “IFRS” also includes all<br />
the revised International Accounting Standards (“IAS”) and<br />
all the interpretations of the International Financial <strong>Report</strong>ing<br />
Interpretations Committee (“IFRIC”), previously known as<br />
the Standing Interpretations Committee (“SIC”).<br />
In compliance with European Regulation no. 1606 of July 19,<br />
2002, starting from 2005 the <strong>Fiat</strong> Group has adopted the<br />
International Financial <strong>Report</strong>ing Standards (“IFRS”) issued by<br />
the International Accounting Standards Board (“IASB”) for the<br />
preparation of its consolidated financial statements. On the<br />
244 <strong>Fiat</strong> S.p.A. Financial Statements at December 31, <strong>2006</strong> - Notes to the Financial Statements<br />
basis of national legislation implementing that Regulation,<br />
the annual statutory accounts of the Parent Company <strong>Fiat</strong><br />
S.p.A. as of December 31, <strong>2006</strong> have been prepared for the first<br />
time also using those accounting standards. As a consequence<br />
the Parent Company <strong>Fiat</strong> S.p.A. is presenting its financial<br />
statements for <strong>2006</strong> and its comparative figures for the prior<br />
year in accordance with IFRS. The accounting principles<br />
applied are the same as those used in the preparation of the<br />
Company’s Balance Sheets at January 1, 2005 and<br />
December 31, 2005 and its 2005 Income Statement in<br />
accordance with IFRS; these statements are provided in the<br />
Appendix attached to these Notes, to which reference should<br />
be made. The Appendix provides reconciliations of the<br />
Company’s equity and Income Statement reported under its<br />
previous accounting principles (Italian accounting principles)<br />
and IFRS, together with Notes, as required by IFRS 1 – Firsttime<br />
adoption of IFRS.<br />
Certain reclassifications have been made with respect to the<br />
figures published in the Appendix to the <strong>2006</strong> First-half <strong>Report</strong>.<br />
The comparative figures for the previous period were<br />
consequently reclassified. These reclassifications have no<br />
effect on the net result or stockholders’ equity.<br />
The financial statements have been prepared on a historical<br />
cost basis, modified as required for measuring certain financial<br />
instruments.<br />
Format of the financial statements<br />
<strong>Fiat</strong> S.p.A. presents an Income Statement using a classification<br />
based on the nature of its revenues and expenses given the<br />
type of business it performs. The <strong>Fiat</strong> Group presents a<br />
Consolidated Income Statement using a classification based<br />
on function, as this is believed to be more representative of<br />
the format selected for managing the business sectors and<br />
for internal reporting purposes and is coherent with<br />
international practice in the automotive sector.<br />
<strong>Fiat</strong> S.p.A. has elected to present current and non-current<br />
assets and liabilities as separate classifications on the face<br />
of the Balance Sheet. A mixed format has been selected by<br />
the <strong>Fiat</strong> Group for the Consolidated Balance Sheet, as<br />
permitted by IAS 1, presenting only current and non-current<br />
assets separately. This decision has been taken in view of the<br />
fact that both companies carrying out industrial activities and<br />
those carrying out financial activities are consolidated in the<br />
Group’s financial statements. The investment portfolios of<br />
financial services companies are included in current assets<br />
in the Consolidated Balance Sheet, as the investments will<br />
be realised in their normal operating cycle. Financial services<br />
companies, though, obtain funds only partially from the<br />
market: the remaining are obtained through the Group’s<br />
treasury companies (included in industrial companies), which<br />
lend funds both to industrial Group companies and to financial<br />
services companies as the need arises. This financial service<br />
structure within the Group means that any attempt to separate<br />
current and non-current debt in the Consolidated Balance<br />
Sheet cannot be meaningful. This has no effect on the<br />
presentation of the liabilities of <strong>Fiat</strong> S.p.A.<br />
The statement of cash flows has been prepared using the<br />
indirect method.<br />
In connection with the requirements of the Consob Resolution<br />
No. 15519 of July 27, <strong>2006</strong> as to the format of the financial<br />
statements, specific supplementary Income Statement and<br />
Balance Sheet formats have been added for related party<br />
transactions, so as not to compromise the overall reading<br />
of the statements.<br />
Intangible assets<br />
Purchased and internally-generated intangible assets are<br />
recognised as assets in accordance with IAS 38 - Intangible<br />
Assets, where it is probable that the use of the asset will<br />
generate future economic benefits and where the cost of the<br />
asset can be determined reliably.<br />
Intangible assets with finite useful lives are measured at<br />
purchase or manufacturing cost, net of amortisation charged<br />
on a straight-line basis over their estimated useful lives and<br />
net of any impairment losses.<br />
Property, plant and equipment<br />
Cost<br />
Property, plant and equipment is measured at purchase or<br />
manufacturing cost, net of accumulated depreciation and any<br />
impairment losses, and is not revalued.<br />
Subsequent expenditures are capitalised only if they increase<br />
the future economic benefits embodied in the asset to which<br />
they relate. All other expenditures are expensed as incurred.<br />
Assets are depreciated using the policies and rates described<br />
below.<br />
Lease arrangements in which the lessor maintains substantially<br />
all the risks and rewards incidental to the ownership of an<br />
asset are classified as operating leases. Lease payments under<br />
an operating lease are recognised as an expense on a straightline<br />
basis over the lease term.<br />
Depreciation<br />
Depreciation is charged on a straight-line basis over the<br />
estimated useful lives of assets as follows:<br />
<strong>Annual</strong> depreciation rate<br />
Buildings 3%<br />
Plant 10%<br />
Furniture 12%<br />
Fixtures 20%<br />
Vehicles 25%<br />
Land is not depreciated.<br />
Impairment of assets<br />
The company reviews at least annually the recoverability of<br />
the carrying amount of intangible assets, property, plant and<br />
equipment and investments in subsidiaries and associates, in<br />
order to determine whether there is any indication that those<br />
assets have suffered an impairment loss. If any such indication<br />
exists, the carrying amount of an asset is written down to its<br />
recoverable amount.<br />
The recoverable amount of an asset is the higher of fair value<br />
less costs to sell and its value in use.<br />
In particular, in assessing whether investments in subsidiaries<br />
and associated companies have been impaired, their<br />
recoverable amount has been taken as their value in use, as<br />
the investments are not listed and a market value (fair value<br />
less costs to sell) cannot be reliably measured. The value in<br />
use of an investment is determined by estimating the present<br />
value of the estimated cash flows expected to arise from the<br />
results of the investment and from the estimated value of its<br />
ultimate disposal, in line with the requirements of paragraph<br />
33 of IAS 28.<br />
<strong>Fiat</strong> S.p.A. Financial Statements at December 31, <strong>2006</strong> - Notes to the Financial Statements 245