Review of 2010 – USD version - Skanska

Note
01
Consolidated accounting and valuation principles
Conformity with laws and standards
In compliance with the ordinance approved by the European Union (EU) on the application
of international accounting standards, the consolidated financial statements have
been prepared in compliance with International Financial Reporting Standards (IFRSs)
and International Accounting Standards (IASs), issued by the International Accounting
Standards Board (IASB), as well as the interpretations by the IFRS Interpretations Committee
and its predecessor the Standing Interpretations Committee (SIC), to the extent
these standards and interpretations have been approved by the EU.
This financial report was approved for publication by the President and CEO on February
9, 2011. The statutory annual report will be adopted by the Annual Meeting on
April 5, 2011.
Conditions when preparing the Group’s financial reports
The functional currency of the Parent Company is Swedish crowns or kronor (SEK).
The Annual Report of the Parent Company and the Group is prepared with SEK as the
presentation currency. These financial statements were prepared with US dollars (USD)
as the presentation currency. All amounts are rounded off to the nearest million with
one decimal, unless otherwise stated.
Preparing the financial reports in compliance with IFRSs requires management to
make judgments and estimates as well as make assumptions that affect the application
of accounting principles and the recognized amounts of assets, liabilities, revenue and
expenses. Actual outcomes may diverge from these estimates and judgments.
Estimates and assumptions are reviewed regularly. Changes in estimates are recognized
in the period the change is made if the change only affects this period, or in the
period the change is made and future periods if the change affects both the period in
question and future periods.
Judgments made by management when applying IFRSs that have a substantial
impact on the financial reports and estimates that may lead to significant adjustments in
the financial reports of subsequent years are described in more detail in Note 2.
The accounting principles for the Group stated below have been applied consistently
for all periods that are presented in the consolidated financial reports, unless otherwise
indicated below. The accounting principles for the Group have been applied consistently
in reporting and consolidation of the Parent Company, Group companies, associated
companies and joint ventures.
New standards and interpretations
During 2010, Skanska began applying several amendments or improvements to
accounting standards in force and five interpretations. Of these, it was mainly IFRIC 12,
“Service Concession Arrangements,” IFRIC 15, “Agreements for the Construction of
Real Estate,” the revision of IFRS 3, “Business Combinations” and the amendments to
IAS 27, “Consolidated and Separate Financial Statements” that have been of significance
to the Group’s financial statements. The introduction of IFRIC 15 led to the establishment
of segment reporting for Residential Development and Commercial Property
Development based on a new method that diverges from IFRSs. IFRIC 12, IFRIC 15 and
the new segment reporting method led to changes in comparative figures.
IFRIC 12, “Service Concession Arrangements,” which affects Skanska Infrastructure
Development, deals with the question of how the operator of a service concession
agreement should account for the infrastructure as well as the rights it receives and the
obligations it undertakes under the agreement.
IFRIC 15, “Agreements for the Construction of Real Estate,” is to be applied to
accounting for revenue and expenses when a company undertakes the construction of
real estate. The interpretation addresses the issue of whether accounting for construction
of real estate should be in accordance with IAS 11 or IAS 18, and when the revenue
from the construction of real estate should be recognized.
The segment reporting method for Residential Development and Commercial Property
Development was changed and now differs from IFRSs. Segment reporting recognizes
the gain on a divestment on the date that a binding sales agreement is signed.
IFRS 3 has been revised. The change means that transaction costs related to business
combinations (acquisitions of business) are recognized as expenses immediately. In case
of step acquisitions, previous holdings are re-measured at fair value and recognized in
the income statement when a controlling interest is achieved. Contingent consideration
is recognized on the acquisition date at fair value. In calculating the amount of goodwill
that arises, a company may choose between including non-controlling interests (previously
known as minority interests) or not. If the amount of contingent consideration
changes in subsequent financial statements, the change is recognized in the income
statement. The new rules are applied only prospectively.
An amendment to IAS 27 will mean, among other things, that the sale of a portion
of a subsidiary is recognized as a separate equity transaction when the transaction does
not result in a loss of controlling interest. If control of a Group company engaged in
business ceases, the remaining holding shall be recognized at fair value. In addition,
non-controlling interests may be recognized as a negative amount if a partly-owned
subsidiary operates at a loss. In this case, too, application will occur only prospectively.
Application in advance of revised IFRSs and interpretations
New and amended IFRSs or interpretations have not been applied in advance.
Amendments of standards and new interpretations that have not yet
begun to be applied
A new standard, amendments to standards and new interpretations that were published
before the issuance of this Annual Report are not expected to have any material
effect on the Group’s financial statements.
IAS 1, “Presentation of Financial Statements”
Income statement
Reported as revenue are project revenue, compensation for other services performed,
divestment of current-asset properties, deliveries of materials and merchandise, rental
income and other operating revenue. Revenue from the sale of machinery, equipment,
noncurrent-asset properties and intangible assets are not included here, but are instead
recognized on a net basis among operating expenses against the carrying amounts of
the assets.
Reported as cost of sales are, among others, direct and indirect manufacturing
expenses, loss risk provisions, the carrying amounts of divested current-asset properties,
bad debt losses and warranty expenses. Also included is depreciation on property, plant
and equipment that is used for construction, manufacturing and property management.
Selling and administrative expenses include customary administrative expenses, technical
expenses and selling expenses, as well as depreciation of machinery and equipment
that have been used for selling and administration. Goodwill impairment losses
are also reported as a selling and administrative expense.
Income/loss from joint ventures and associated companies is recognized separately
in the income statement, allocated between operating income (share of income after
financial items) and taxes.
Financial income and expenses are recognized divided into two items: “Financial
income” and “Financial expenses.” Among items recognized under financial income
are interest income, dividends, gains on divestments of shares and other financial items.
Among financial expenses are interest expenses and other financial items. Changes
in the fair value of financial instruments, primarily derivatives connected to financial
activities, are recognized as a separate sub-item allocated between financial income and
expenses. The net amount of exchange rate differences is recognized either as financial
income or expenses. Financial income and expenses are described in more detail in
Note 6 and in Note 14.
Comprehensive income
Aside from profit for the year, the consolidated statement of comprehensive income
includes the items that are included under “Other comprehensive income.” These
include translation differences, hedging of exchange risks in foreign operations, actuarial
gains and losses on pensions, effects of cash flow hedges and tax on these items.
Statement of financial position
Assets
Assets are allocated between current assets and non-current assets. An asset is regarded
as a current asset if it is expected to be realized within twelve months from the closing
day or within the Company’s operating cycle. Operating cycle refers to the period from
the signing of a contract until the Company receives cash payment on the basis of a final
inspection or deliveries of goods (including properties). Since the Group performs large
contracting projects and project development, the operating cycle criterion means that
many more assets are labeled as current assets than if the only criterion were “within
twelve months.”
Cash and cash equivalents consist of cash and immediately available deposits at
banks and equivalent institutions plus short-term liquid investments with a maturity
from the acquisition date of less than three months, which are subject to only an insignificant
risk of fluctuations in value. Checks that have been issued reduce liquid assets
only when cashed. Cash and cash equivalents that cannot be used freely are reported
as current assets (current receivables) if the restriction will cease within twelve months
from the closing day. In other cases, cash and cash receivables are reported as noncurrent
assets. Cash and cash equivalents that belong to a construction consortium are
cash and cash equivalents with restrictions if they may only be used to pay the debts of
the consortium.
Skanska Review of 2010 – USD version Notes, including accounting and valuation principles 91