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➔ Note 1 - Accounting policies
The consolidated financial statements are presented in accordance with
French generally accepted accounting principles.
The impact on the consolidated financial statements of adopting
standard CRC 2000-06 concerning liabilities, effective from 2002, was
not material.
Group accounting policies, described in notes 1(a) to 1(s) below, are
consistent, in all material respects, with accounting principles generally
accepted in the United States of America (US GAAP) except as
explained in note 2.
a) Consolidation
The financial statements of significant subsidiaries in which Peugeot S.A.
holds directly or indirectly a majority interest are fully consolidated.
Companies in which Peugeot S.A. holds directly or indirectly an
interest of 20% to 50% and exercises significant influence over
operating and financial policies are included in the consolidated
financial statements on an equity basis.
Certain companies meeting the above criteria have not been
consolidated as they are considered not material in relation to the
Group as a whole. Investments in these companies are recorded under
“Shares in non-consolidated companies” (note 19).
All significant intercompany transactions are eliminated.
Newly-acquired subsidiaries are consolidated as from the date of
acquisition.
b) Translation of foreign currencies
Foreign currency amounts are translated as follows:
- transactions in foreign currency are translated at the hedging rate,
except for the limited number of transactions that are not hedged;
- at the balance sheet date, monetary assets and liabilities denominated
in foreign currency which are not hedged are translated at the yearend
exchange rate;
- gains and losses resulting from the translation of foreign currency
transactions are included in earnings, with the exception of those
related to transactions representing an investment of a permanent
nature in a subsidiary, which are included in stockholders’ equity
under “Retained earnings”;
- balance sheets of foreign subsidiaries are translated at the year-end
exchange rate;
- income statements of foreign subsidiaries are translated on a monthly
basis at the average rates of each month;
- gains and losses resulting from the translation of financial statements
of foreign subsidiaries are recorded in stockholders’ equity under
“Cumulative translation adjustment”.
c) Use of estimates
The preparation of financial statements and related disclosures in
accordance with generally accepted accounting principles requires
management to make estimates and assumptions that affect amounts
reported therein.
d) Sales and revenues
1. Manufacturing and sales companies
Sales of the manufacturing and sales companies include revenues from
the sale of vehicles and other goods and services.
Vehicle sales
New vehicle sales are recognized on the date of transfer of the risks and
rewards of ownership. This corresponds generally to the date when the
vehicles are made available to non-group dealers or the delivery date,
in the case of direct sales. The amount recognized is stated net of the
cost of certain sales incentive programs.
New vehicle sales with a buyback commitment expiring within a
maximum of three years are not recognized at the time of delivery but
accounted for as operating leases. The difference between the sale price
and the buyback price is recognized over the leasing period. The profit
corresponding to the difference between the resale value of the vehicle
on the used car market and the cost of the new vehicle is recognized in
the period when the vehicle is sold. If the difference is a loss, an
allowance is booked when the buyback contract is signed.
2. Finance companies
Finance company revenues correspond to interest income, mainly from
sales financing, and financing-related service revenues.
Sales financing revenue
The activity of finance companies is to provide wholesale financing to
Group dealer networks and to finance sales of vehicles to customers.
Financing may take the form of conventional loans, finance leases,
buyback contracts or long-term leasing and is treated in the same way
as loans. Outstanding principal is recorded in the balance sheet,
together with interest due up to the loan repayment date (note 23-b).
Income from the financing of sales is recognized on an actuarial basis
at a constant rate of interest over the life of the loan.
Revenues from retained interests in asset-backed securities issued by
funds set up in connection with the securitization of automobile loans
are included in sales financing revenue.
Commissions and other fees paid to referral agents are included in cost
of sales over the loan period.
Other business acquisition and loan administration costs are expensed
when incurred.
e) Sales incentive programs
The cost of sales incentive programs is charged against earnings for the
period in which the corresponding sales are recognized. It is accrued on
the basis of historical costs for the previous three months, determined
country by country.
Effective from 2001, in cases where the cost of the program varies
based on sales volume, it is deducted from sales (note 4-a)2).
Incentive programs established by the Group include the granting of
retail financing at rates significantly below market rates. The
corresponding cost is recognized at the time of the sale.
f) Product warranty costs
A reserve is recorded to cover the estimated cost of vehicle warranties
at the time of sale to dealer networks or to the end customer. Revenues
from the sale of extended warranties and maintenance contracts are
recognized over the period during which the service is to be provided.
g) Research and development costs
All research and development costs, including research into production
methods, are expensed as incurred. Automotive Equipment development
PSA PEUGEOT CITROËN - APPENDICES TO THE MANAGING BOARD REPORT 139