ANNUAL REPORT 2002 - Skanska

Accounting and valuation principles
Annual Accounts Act, new
developments, principles of
consolidation etc.
Annual Accounts Act
The Annual Report has been prepared in
compliance with the provisions of the
Swedish Annual Accounts Act, taking into
consideration the existing recommendations
of the Swedish Financial Accounting
Standards Council.
New developments
During 2002, the following recommendations
from the Swedish Financial Accounting
Standards Council have gone into force:
• No. 1:00 Business Combination
• No. 15 Intangible Assets
• No. 16 Provisions, Contingent Liabilities
and Contingent Assets
• No. 17 Impairment of Assets
• No. 19 Discontinuing Operations
• No. 21 Borrowing Costs
• No. 23 Related Party Disclosure
The new recommendations did not result in
any change in comparative figures.
The Swedish Industry and Commerce
Stock Exchange Committee issued a recommendation
concerning benefits of key executives.
Information in accordance with this
recommendation is provided in a note to
the income statement.
Skanska previously reported as currentasset
properties only properties that it
intended to divest in connection with contracting
projects. Due to the strategic shift
toward faster turnover in the Group’s property
portfolio, properties that belong to real
estate operations have also been reported
since January 2002 as current assets, which
means that no depreciation is carried out. In
a note to the balance sheet, current-asset
properties are divided into the main categories
“Properties in real estate operations”
and “Other current-asset properties,” which
are both divided into “Completed properties,”“Properties
under construction” and
“Development properties.”
Effective from January 1, 2002, borrowing
costs during the construction of a building
are included in acquisition cost and are thus
no longer reported as a financial expense in
the income statement. The new principle is
stated as a permitted alternative principle in
Recommendation No. 21, “Borrowing Costs,”
of the Swedish Financial Accounting Standards
Council and is standard industry practice.
Capitalization of borrowing costs is limited
to assets that require a considerable period
for completion, which in the case of the
Skanska Group means that the change of
principle will only have an effect on the valuation
of current-asset properties and properties
used in the Group’s own operations
(business properties). According to the transitional
rules of the recommendation, only
borrowing costs that arise after it goes into
force (January 1, 2002) may be capitalized as
an acquisition cost. Thus no change in comparative
figures has occurred.
Principles of consolidation
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. This normally
requires ownership of more than 50 percent
of the voting power of all participations. In
cases where holdings are intended for
divestment within a short time after acquisition,
the company is not consolidated.
Skanska has applied Recommendation
No. 1:00 of the Swedish Financial Accounting
Standards Council in drawing up its
consolidated financial statements. Shareholdings
in Group companies have been
eliminated according to the purchase
method of accounting. Acquired and divested
companies have been consolidated or
deconsolidated, respectively, from the date
of the acquisition/divestment.
The principles for translation between
currencies comply with Recommendation
No. 8 of the Swedish Financial Accounting
Standards Council, “Reporting of Effects of
Changes in Foreign Exchange Rates.” The
current method has been used in translating
the income statements and balance
sheets of independent foreign businesses.
As for independent foreign businesses in
countries with high inflation, first an inflation
adjustment occurs, followed by a
translation according to the current
method. The change in initial shareholders’
equity that is due to the change in exchange
rate from prior years is reported as an
exchange rate difference directly under
shareholders’ equity. Skanska has applied
the transition rule in the recommendation
on accumulated exchange rate differences
reported before 1999.
The accounting principles of the Group
and the Parent Company coincide, except
for the reporting of untaxed reserves and
allocations. In the consolidated financial
statements these are removed, while the tax
portion is reported among deferred taxes.
Discontinuing operations
In reporting operations that are being discontinued,
the term “discontinued operations”
refers to a clearly delimited portion of
the Group’s operations that has been discontinued
or closed in accordance with a single
coherent plan. These operations make up a
sizable organizational unit and can be separated
for business and reporting purposes.
Associated companies
In compliance with the equity method of
accounting, associated companies are
defined as companies in which the Skanska
Group’s share of voting power amounts to a
minimum of 20 percent and a maximum of
50 percent, provided that this ownership is
one element of a long-term connection and
that the holding shall not be reported as a
joint venture. When profits arise from transactions
between the Group and an associated
company, the portion equivalent to the
Group’s share of ownership is eliminated.
Joint ventures (consortia and
jointly owned companies)
Companies operated jointly with other
companies, and in which control is exercised
jointly according to agreement, are
reported as joint ventures. Joint ventures
that carry out contracting operations are
44 Skanska Annual Report 2002 – Accounting and valuation principles