Scania annual report 2004

and equipment. However, the recommendation
allows two alternative methods for appraising
these assets. Either the revaluation model, which
means that assets can be carried at regularly
revalued amounts, or the cost model, which states
that the assets shall be carried at acquisition
value. Scania has chosen to use the cost model
in appraising its fixed assets.
IAS 17 Leases
Scania applied IAS 17 during earlier financial
years and reports, and discloses all lease obligations
in accordance with the requirements of
IFRS rules.
IAS 19 Employee Benefits
Scania applied IAS 19 during the financial year
2004, since Swedish accounting rules have coincided
with IFRS via RR 29 since January 2004.
As a consequence of the changes in accounting
rules, Note 15 has been changed compared to
prior years.
IAS 27 Consolidated and Separate Financial
Statements
According to IAS 27, minority interests shall be
reported in the consolidated balance sheet separately
from the parent company’s shareholders’
equity. A separate disclosure shall be provided of
the minority’s share of earnings. Scania has
implemented these changes in presentation in
the quantified information on the IFRS transition
in Note 33.
IAS 32 Financial Instruments: Disclosure and
Presentation
IAS 32 enters into force on 1 January 2005 and
requires no retroactive application. In all essential
respects, the disclosure requirements in IAS 32
coincide with RR 27. The requirements for reporting
financial assets and liabilities on a net basis
(offsetting) are changing. As a result, Scania will
apply reporting on a gross basis of certain financial
assets and liabilities that were previously
reported on a net basis.
IAS 36 Impairment of Assets
The recommendation concerns all tangible and
intangible fixed assets. Goodwill as well as
intangible assets with an indefinite useful life
shall be tested annually for any need to report
an impairment loss. When there are indications
that an impairment may exist, impairment testing
shall occur. This applies to all tangible and
intangible fixed assets. Scania performed impairment
testing during 2004 for all goodwill items.
No impairment loss was identified as a consequence
of the impairment tests that was performed.
There were no indications leading Scania
to carry out any impairment testing of tangible
fixed assets.
IAS 39 Financial Instruments:
Recognition and Measurement:
IAS 39 enters into force on 1 January 2005 and
requires no retroactive application. IAS 39 is
resulting in changes in the reporting and valuation
of financial assets and liabilities, of which
reporting of derivatives has the largest effect on
Scania. According to the standard, all derivatives
shall be recognised in the balance sheet at fair
value and any changes in their fair value shall, as
a main rule, be reported in the income statement.
If the derivative is part of a hedging transaction,
the rules for hedge accounting may be
applied, provided that the strict conditions for
applying hedge accounting have been met.
Hedging of cash flows
Derivatives carried for the purpose of hedging
expected future commercial payments in foreign
currencies against currency risks will be recognised
according to the rules for hedge accounting of
cash flow hedges. As a result, all derivatives are
carried in the balance sheet at fair value and
changes in their value are recognised as part
of fair value reserve in shareholders’ equity. When
the hedged item is recognised in the balance
sheet, a change in value related to the derivative
is recognised to the income statement. If a derivative
does not meet the conditions for hedge
accounting, the change in fair value is reported
directly in the income statement.
Currency derivatives carried in order to
convert the borrowing that occurs in Scania’s
subsidiaries through the corporate treasury unit
into the appropriate currency are recognised at
fair value and as changes in fair value in the
income statement. Foreign currency borrowing
is revalued at the closing day exchange rate,
and exchange rate differences are recognised in
earnings and thereby meet the change in value
of the derivative.
Hedging of fair value
Scania’s external borrowing mainly occurs at
the corporate level in large sums. They are then
transferred to subsidiaries in the form of internal
loans. To convert this borrowing to the desired
interest rate refixing structure, interest rate
derivatives are used. Due to the strict requirements
that are imposed in order to apply hedge
accounting, for administrative reasons Scania
has chosen not to apply hedge accounting to
a number of small derivatives. As a result, the
derivatives are valued at fair value and the
change in value is recognised via the income
statement, while borrowing is valued at accrued
cost. Due to differences in the recognition of the
hedging instrument and the hedged item, the
accounts are subject to volatility. Financially,
however, Scania is hedged and risk management
complies with the Finance Policy approved by
the Board of Directors.
ACCOUNTING PRINCIPLES • SCANIA ANNUAL REPORT 2004 56