Review of 2010 – USD version - Skanska

Assets that meet the requirements in IFRS 5 are accounted for as a separate item among
current assets.
Note 31 shows the allocation between interest-bearing and non-interest-bearing
assets.
In Note 32, assets are allocated between amounts for assets expected to be recovered
within twelve months from the closing day and assets expected to be recovered after twelve
months from the closing day. The division for non-financial non-current assets is based on
expected annual depreciation. The division for current-asset properties is mainly based on
outcomes during the past three years. This division is even more uncertain than for other
assets, since the outcome during the coming year is strongly influenced by the dates when
large individual properties are handed over.
Equity
The Group’s equity is allocated between “Share capital,” “Paid-in capital,” “Reserves,”
“Retained earnings” and “Non-controlling interests.”
Acquisitions of the Company’s own shares and other equity instruments are recognized
as a deduction from equity. Proceeds from the divestment of equity instruments are recognized
as an increase in equity. Any transaction costs are recognized directly in equity.
Dividends are recognized as a liability, once the Annual Shareholders’ Meeting has
approved the dividend.
A description of equity, the year’s changes and disclosures concerning capital management
are provided in Note 26.
Liabilities
Liabilities are allocated between current liabilities and non-current liabilities. Recognized
as current liabilities are liabilities that are either supposed to be paid within twelve
months from the closing day or, although only in the case of business-related liabilities,
are expected to be paid within the operating cycle. Since the operating cycle is thus taken
into account, no non-interest-bearing liabilities, for example trade accounts payable and
accrued employee expenses, are recognized as non-current. Liabilities that are recognized
as interest-bearing due to discounting are included among current liabilities, since they
are paid within the operating cycle. Interest-bearing liabilities can be recognized as noncurrent
even if they fall due for payment within twelve months from the closing day, if the
original maturity was longer than twelve months and the company has reached an agreement
to refinance the obligation long-term before the annual accounts are submitted.
Information on liabilities is provided in Notes 27 and 30.
In Note 32, liabilities are allocated between amounts for liabilities to be paid within
twelve months of the closing day and liabilities to be paid after twelve months from the
closing day. Note 31 also provides information about the allocation between interestbearing
and non-interest-bearing liabilities.
IAS 27, “Consolidated and Separate Financial Statements”
The consolidated financial statements encompass the accounts of the Parent Company
and those companies in which the Parent Company, directly or indirectly, has a controlling
influence. “Controlling influence” implies a direct or indirect right to shape a company’s
financial and operating strategies for the purpose of obtaining financial benefits. This
normally requires ownership of more than 50 percent of the voting power of all participations,
but a controlling influence also exists when there is a right to appoint a majority of
the Board of Directors. When judging whether a controlling influence exists, potential voting
shares that can be utilized or converted without delay must be taken into account. If,
on the acquisition date, a Group company meets the conditions to be classified as held for
sale in compliance with IFRS 5, it is reported according to that accounting standard.
The amendment of the standard has meant new principles. 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, any remaining holding shall be recognized at fair value. Non-controlling interests
may be recognized as a negative amount if a partly-owned subsidiary operates at a loss.
The new rules are being applied prospectively starting in 2010.
Acquired companies are consolidated from the quarter within which the acquisition
occurs. In a corresponding way, divested companies are consolidated up to and including
the final quarter before the divestment date.
Intra-Group receivables, liabilities, revenue and expenses are eliminated in their entirety
when preparing the consolidated financial statements.
Gains that arise from intra-Group transactions and that are unrealized from the standpoint
of the Group on the closing day are eliminated in their entirety. Unrealized losses on
intra-Group transactions are also eliminated in the same way as unrealized gains, to the
extent that the loss does not correspond to an impairment loss.
Goodwill attributable to operations abroad is expressed in local currency. Translation to
USD complies with IAS 21.
IFRS 3, “Business Combinations”
This accounting standard deals with business combinations, which refers to mergers
of separate companies or businesses. If an acquisition does not relate to a business,
which is normal when acquiring properties, IFRS 3 is not applied. In such cases, the cost
is instead allocated among the individual identifiable assets and liabilities based on
their relative fair values on the acquisition date, without recognizing goodwill and any
deferred tax assets/liability as a consequence of the acquisition.
Acquisitions of businesses, regardless of whether the acquisition concerns holdings in
another company or a direct acquisition of assets and liabilities, are reported according
to the purchase method of accounting. If the acquisition concerns holdings in a company,
the method implies that the acquisition is regarded as a transaction through which
the Group indirectly acquires the assets of a Group company and assumes its liabilities
and contingent liabilities. Cost in the consolidated accounts is determined by means of
an acquisition analysis in conjunction with the business combination. The analysis establishes
both the cost of the holdings or the business and the fair value of acquired identifiable
assets plus the liabilities and contingent liabilities assumed. The difference between
the cost of holdings in a Group company and the net fair value of acquired assets and
liabilities and contingent liabilities assumed is goodwill on consolidation. If non-controlling
interests remain after the acquisition, the calculation of goodwill is normally carried
out only on the basis of the Group’s stake in the acquired business.
The amendment to the standard has meant new principles. Transaction costs related
to business combinations 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. 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 effective from 2010.
Goodwill is carried at cost less accumulated impairment losses. Goodwill is allocated
among cash-generating units and subjected to annual impairment testing in compliance
with IAS 36.
In case of business combinations where the cost of acquisition is below the net value
of acquired assets and the liabilities and contingent liabilities assumed, the difference is
recognized directly in the income statement.
IAS 21, “The Effects of Changes in Foreign Exchange Rates”
Foreign currency transactions
Foreign currency transactions are translated into an entity’s functional currency at the
exchange rate prevailing on the transaction date. Monetary assets and liabilities in foreign
currency are translated to the functional currency at the exchange rate prevailing
on the closing day. Exchange rate differences that arise from translations are recognized
in the income statement. Non-monetary assets and liabilities recognized at historic cost
are translated at the exchange rate on the transaction date.
Functional currency is the currency of the primary economic environment where the
companies in the Group conduct their business.
Financial statements of foreign operations
Assets and liabilities in foreign operations, including goodwill and other consolidated
surpluses and deficits, are translated to US dollar at the exchange rate prevailing on the
closing day. Revenue and expenses in a foreign operation are translated to US dollar at
the average exchange rate. If a foreign operation is located in a country with hyperinflation,
revenue and expenses are to be translated in a special way if it is expected to have
a material effect on the Group. In the year’s financial statements, it has not been necessary
to do this. Translation differences that arise from currency translation of foreign
operations are recognized under “Other comprehensive income.”
Net investment in a foreign operation
Translation differences that arise in connection with translation to USD of a net investment
in another currency and accompanying effects of hedging of net investments are
recognized under “Other comprehensive income.” When divesting a foreign operation,
with a functional currency other than USD the accumulated translation differences
attributable to the operation are realized in the consolidated income statement after
subtracting any currency hedging.
Foreign currency loans and currency derivatives for hedging of translation exposure
(equity loans) are carried at the exchange rate on the closing day. Exchange rate differences
are recognized, taking into account the tax effect, under “Other comprehensive
income.” Hedging of translation exposure reduces the exchange rate effect when
translating the financial statements of foreign operations to the functional currency of
the respective unit. Any forward contract premium is accrued until maturity and is recognized
as interest income or an interest expense.
92 Notes, including accounting and valuation principles Skanska Review of 2010 – USD version