bold spirit - ArcelorMittal South Africa

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136 ArcelorMittal South Africa Annual Report 2010 Notes to the group and company annual financial statements continued for the year ended 31 December 2010 3. SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies applied in the preparation of the group and company financial statements are set out below. These policies have been consistently applied from the comparative years presented. 3.1 Statement of compliance The group and company financial statements are prepared in compliance with International Financial Reporting Standards (IFRS) and Interpretations issued respectively by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB and the AC500 standard as issued by the Accounting Practices Board that are relevant to its operations and effective for annual reporting periods beginning on or after 1 January 2010, and those Amendments and Interpretations early adopted. 3.2 Basis of preparation The group and company financial statements have been prepared under the historical cost convention, as modified by the revaluation of: • embedded derivative financial instruments bifurcated from their host contracts; and • investments in equity instruments classified as available-for-sale. The preparation of financial statements, in conformity with IFRS, requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the group and company accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in the respective notes to the annual financial statements. 3.3 Investments in subsidiaries, joint ventures and associates by the company The company accounts for all investments in subsidiaries, jointly controlled entities and associates at cost and not at fair value. Dividends received from subsidiaries, jointly controlled entities and associates are recognised in profit or loss when the company has the right to receive the dividend. 3.4 Basis of consolidation – subsidiaries The group financial statements incorporate financial statements of the company and its subsidiaries. Subsidiaries are all entities (including special purpose entities) over which the group has the power to govern the financial and operating policies so as to obtain benefits from the entities’ activities. Generally, control is accompanied with a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are de-consolidated from the date that control ceases. Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated but are considered an impairment indicator of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group. 3.5 Interests in joint ventures A joint venture is a contractual arrangement whereby the group and other parties undertake an economic activity that is subject to joint control. This is when the strategic financial and operating policy decisions relating to the activities require the unanimous consent of the parties sharing control. Joint venture arrangements that involve the establishment of a separate entity in which each venturer has an interest are referred to as jointly controlled entities. The assets and liabilities of jointly controlled entities are incorporated in the group’s financial statements using the equity method of accounting, except when the investment is classified as held-for-sale, in which case it is accounted for in accordance with IFRS 5, Non-current Assets Held for Sale and Discontinued Operations.
137 ArcelorMittal South Africa Annual Report 2010 3. SIGNIFICANT ACCOUNTING POLICIES continued 3.5 Interests in joint ventures continued The group’s share of its jointly control entities’ post-acquisition profits or losses is recognised in the statement of comprehensive income and its share of post-acquisition movements in reserves is recognised as reserves of the group. The cumulative post-acquisition movements are adjusted against the carrying amounts of the investment. Losses of a jointly controlled entity in excess of the group’s interest in that entity (which includes any longterm interests that, in substance, form part of the group’s net investment in the jointly controlled entity) are recognised only to the extent that the group has incurred legal or constructive obligations or made payments on behalf of the jointly controlled entity. Where a group entity transacts with a jointly controlled entity of the group, profits and losses are eliminated to the extent of the group’s interest in the relevant jointly controlled entity. 3.6 Investments in associates An associate is an entity over which the group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies. The results and assets and liabilities of associates are incorporated in the financial statements using the equity method of accounting, except when the investment is classified as held-for-sale, in which case it is accounted for in accordance with IFRS 5, Non-current Assets Held for Sale and Discontinued Operations. Under the equity method, investments in associates are carried in the consolidated statement of financial position at cost as adjusted for post-acquisition changes in the group’s share of the net assets of the associate, less any impairment in the value of individual investments. The group’s share of its associates’ post-acquisition profits or losses is recognised in the statement of comprehensive income and its share of post-acquisition movements in reserves is recognised as reserves of the group. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Losses of an associate in excess of the group’s interest in that associate (which includes any long-term interests that, in substance, form part of the group’s net investment in the associate) are recognised only to the extent that the group has incurred legal or constructive obligations or made payments on behalf of the associate. Where a group entity transacts with an associate of the group, profits and losses are eliminated to the extent of the group’s interest in the relevant associate. 3.7 Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Executive Committee of ArcelorMittal South Africa. 3.8 Foreign currency translation Functional and presentation currency Items included in the financial statements of each of the group’s entities are measured using the currency of the primary economic environment in which the entity operates (its functional currency). The group’s financial statements are presented in the South African Rand, which is the company’s functional and presentation currency. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised as gains or losses in the statement of comprehensive income, except when deferred in equity as qualifying cash flow hedges.
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bold spirit - ArcelorMittal South Africa

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