2006 Annual Report - Fiat SpA

Adjustments
(in millions of euros) 2005
Write-off of deferred costs (excluding the financial expenses costs regarding the “Mandatory Convertible Facility”) C (15)
Recognition and measurement of financial liabilities (the “Mandatory Convertible Facility”) G (8)
Other adjustments (1)
(24)
Income (expenses) from significant non-recurring transactions
Reclassifications
(in millions of euros) 2005
from “Extraordinary income” for changes in the format of the Income Statement 1,135
from “Extraordinary expenses” for changes in the format of the Income Statement (2)
1,133
Financial income (expenses)
Reclassifications
(in millions of euros) 2005
from “Interest and other financial expenses” for changes in the format of the Income Statement (169)
(169)
Adjustments
(in millions of euros) 2005
Measurement of derivative financial instruments E 8
Employee benefits B (1)
Recognition and measurement of financial liabilities (the “Mandatory Convertible Facility”) G (13)
Other adjustments (1)
(7)
Financial income from significant non-recurring transactions
Adjustments
(in millions of euros) 2005
Recognition of unusual income from the conversion of the “Mandatory Convertible Facility” H 858
858
312 Appendix Transition of the Parent Company Fiat S.p.A. to International Financial Reporting Standards (IFRS)
Description of the principal reconciling items
between Italian accounting principles and IFRS
The following paragraphs provide a description of the main
differences between Italian accounting principles and IFRS that
have had an effect on the financial statements of Fiat S.p.A.
In this respect the following clarifications are provided:
■ the differences are presented before any tax effect;
■ net deferred tax liabilities emerge from these differences;
the effect of these is set off by reducing the deferred tax assets
previously recognised in the Balance Sheet prepared in
accordance with Italian accounting principles.
Given the activities carried out by Fiat S.p.A. it is important
to note that IAS 27 – Consolidated and Separate Financial
Statements requires investments in subsidiaries to be measured
at cost or, alternatively, at fair value in accordance with IAS 39.
Fiat S.p.A. has adopted the cost method and as a result if there
are indications that the recoverability of cost, wholly or partially,
is in doubt, the carrying amount is reduced to the recoverable
amount in accordance with IAS 36 – Impairment of Assets. If,
subsequently, an impairment loss no longer exists or is
decreased, the carrying amount, which in any event cannot
exceed original cost, is increased to the new estimate of the
recoverable amount. This reversal of an impairment loss is
recognised immediately in the Income Statement.
In accordance with Italian accounting principles Fiat S.p.A.
formerly measured its investments in subsidiaries at cost
adjusted for permanent losses in value. Taking into account
the means by which investments were either established or
acquired and their subsequent performance, any write-downs
and reinstatements of value recognised in the financial
statements prepared in accordance with Italian accounting
principles are considered to be in line with the recognition
and measurement requirements of IFRS.
The principal difference with the previous set of accounting
principles arising on the adoption of IFRS and regarding the
presentation of the statement of cash flows is the different
composition of the item whose changes are being discussed.
Under IAS 7, this item consists only of cash and cash
equivalents, whereas previously it also included current
financial receivables. There are no substantial changes in the
presentation of the various cash flows other than the effect on
cash flows from (used in) financing activities as a result of the
matter just described.
A. Measurement of work in progress using
the percentage of completion method
As permitted by Italian accounting principles Fiat S.p.A.
previously measured work in progress on long-term
construction-type contracts (being the contracts entered into
by Fiat S.p.A. as general contractor with Treno Alta Velocità –
T.A.V. S.p.A.) at cost of production. Contract revenue,
therefore, was recognised when the work was delivered to
the customer and finally accepted, in this way deferring the
recognition of the margin to the completion of the contract.
Amounts received from the customer during contract activity
were considered as financial advances and recognised as a
liability under the item “Advances”, while amounts paid to
subcontractors as advances were recognised in assets as
inventory.
IAS 11 – Construction Contracts requires construction contracts
to be measured by reference to the stage of completion of the
contract, applied as a percentage to the sales price, in this way
recognising margins in relation to contract activity carried out
over the periods concerned. In addition, the legal aspects of
the means and timing by which the transfer of title is passed
are not relevant and accordingly progress payments received
for work performed on a contract are deducted from the
carrying amount of inventory for presentational purposes.
If the amount of progress payments received is greater than
that of inventory, the difference is presented as a liability
(item “Other payables) for “advances”.
The adoption of IAS 11 has therefore led to an increase in
stockholders’ equity at January 1, 2005, arising from the
cumulative margins on contracts in progress at the transition
date, and to an increase in the net result for 2005 deriving
from margins earned and recognised on contracts in progress
during the year.
Appendix Transition of the Parent Company Fiat S.p.A. to International Financial Reporting Standards (IFRS) 313