Review of 2010 – USD version - Skanska

Note
03
Effects of changes in accounting principles
New segment reporting and new accounting principles for the
Skanska Group
Starting in 2010, changes in the accounting rules in the International Financial Reporting
Standards (IFRSs) affect the Residential Development (IFRIC 15), Commercial Property
Development (IFRIC 15) and Infrastructure Development (IFRIC 12) segments.
Under the new rules, capital gains in Residential and Commercial Property Development
are recognized only when the purchaser takes possession of the property, which
is generally later than the date when a binding contract is signed. In the accounting
method applied to date, capital gains have been recognized successively after the signing
of the sales contract and according to the percentage of completion.
Since the new accounting method (IFRIC 15) does not reflect the way that the Senior
Executive Team and the Board of Directors monitor operations, a new segment reporting
method has been presented, in which recognition of capital gains is based on the
date when a binding sales contract is signed. The previous percentage of completion
method for these two business streams will thus disappear entirely in the future.
As a result of the new accounting rules, cooperative housing associations are also
included in their entirety in Skanska’s accounts, implying an increase in current-asset
properties and financial current liabilities compared to earlier.
To further increase the transparency of its accounting, Skanska has transferred residential
development and commercial property development operations that have been
carried out as part of Construction in the Nordic countries to the Residential and Com-
mercial Property Development segments. These two segments now include all of the
Group’s operations in these segments.
As for Infrastructure Development, the new IFRIC 12-compliant accounting method
means that income from joint ventures and associated companies is reported earlier
than previously, with the added result that the carrying amount of these investments
increases. The difference compared to market value thus decreases.
Since the new IFRIC 12-compliant accounting method reflects the way that the
Senior Executive Team and the Board of Directors monitor operations, the previous
accounting method has disappeared entirely. Estimated market value figures are presented
in Note 20.
The new accounting rules do not change the way that Skanska reports its Construction
operations. The effects of the new rules on cash flow and financial position are
marginal, which means that these reports follow the new rules.
To summarize, Skanska presents two income statements: one in which capital gains
are recognized according to the segment reporting method in Residential and Commercial
Property Development, and one in compliance with the new IFRS rules. The income
statement based on segment reporting is primarily used by the Board of Directors and
the Senior Executive Team to monitor operations. The Group’s incentive programs are
also primarily based on segment reporting and provide guidance for the Board’s dividend
decisions.
The Group’s financial reports for 2009 have been restated. The effects on the Group’s
financial statements for the full year 2009 and the opening balance for 2009 are presented
in the following tables. Segment reporting for 2009 is also presented in Note 4.
For more detailed accounting principles according to IFRIC 12 and 15, see Note 1.
Effect on consolidated financial statements, January–December 2009
Change
Income statement, January–December 2009, USD M Before change IFRIC 12 IFRIC 15 Total change After change
Revenue 17,875.7 303.3 303.3 18,179.0
Cost of sales –16,156.5 12.2 –243.6 –231.4 –16,388.0
Gross income 1,719.2 12.2 59.7 71.9 1,791.1
Selling and administrative expenses –1,055.5 0.0 –1,055.5
Income from joint ventures and
associated companies 18.7 34.1 34.1 52.8
Operating income 682.3 46.3 59.7 106.0 788.3
Interest income 37.1 –4.2 –4.2 32.9
Pension interest –4.7 0.0 –4.7
Interest expenses –41.7 –12.8 –12.8 –54.5
Capitalized interest expenses 11.8 12.8 12.8 24.6
Net interest income 2.5 0.0 –4.2 –4.2 –1.7
Change in fair value –11.8 0.0 –11.8
Other financial items –17.0 0.0 –17.0
Net financial items –26.3 0.0 –4.2 –4.2 –30.4
Income after financial items 656.1 46.3 55.5 101.8 757.9
Taxes –182.0 –10.3 –13.9 –24.3 –206.3
Profit for the year 474.1 35.9 41.6 77.5 551.5
Profit for the year attributable to
Equity holders 473.4 35.9 41.6 77.5 550.9
Non–controlling interests 0.7 0.0 0.0 0.0 0.7
100 Notes, including accounting and valuation principles Skanska Review of 2010 – USD version