09-041334 Relatorio INGLES Vol 2 - BCP KOMORI 4 - Millennium bcp

Annual Report Volume II Financial Statements 2008 Banco Comercial Português 43
The existence of significant influence by the Group is usually evidenced in one or more of the following ways:
– representation on the Board of Directors or equivalent governing body of the investee;
– participation in policy-making processes, including participation in decisions about dividends or other distributions;
– material transactions between the Group and the investee;
– interchange of managerial personnel; or
– provision of essential technical information.
The consolidated financial statements include the attributable part of the total results and reserves of associated companies accounted on an equity basis. When the
Group’s share of losses exceeds its interest in an associate, the Group’s carrying amount is reduced to nil and recognition of further losses is discontinued except to
the extent that the Group has incurred in legal or constructive obligations or made payments on behalf of an associate.
Goodwill
Goodwill arising from business combinations occurred prior to 1 January 2004 was charged against reserves.
Business combinations occurred after 1 January 2004 are accounted for using the purchase method of accounting. The acquisition cost corresponds to the fair value
determined on the acquisition date of the assets given and liabilities incurred or assumed including the costs directly associated with the transaction. Goodwill arising
on the acquisition of subsidiaries and associates is defined as the difference between the cost of the investment and the corresponding share of the fair value of the
net assets acquired.
Since the transition date to IFRS, which was on 1 January, 2004, positive goodwill arising from acquisitions is recognized as an asset and carried at cost and is not
amortised. The value of recoverable goodwill is assessed annually to identify any impairment, regardless of the existence of any indication of any impairment. Impairment
losses are recognized in the income statement.
Negative goodwill arising on an acquisition is recognized directly to the income statement in the period when the business combination occurs.
Special Purpose Entities (‘SPE’)
The Group fully consolidates SPE’s resulting from securitization operation with Group companies (as refered in note 21), when the substance of the relation with
those entities indicates that the Group exercises control over its activities, independently of the percentage of the equity held. Besides from the above mentioned
SPE, there are no additional SPE subject to consolidation.
The evaluation of the existence of control is determined based on the criteria established by SIC 12, which can be analysed as follows:
– The activities of the SPE, in substance, are being conducted on behalf of the Group, in accordance with the specific needs of the Group’s business, so as to obtain
benefits from these activities;
– The Group has the decision-making powers to obtain the majority of the benefits of the activities of the SPE or, by setting up an "autopilot" mechanism, the Group
has delegated these decision-making powers;
– The Group has the rights to obtain the majority of the benefits of the SPE and therefore may be exposed to risks inherent to the activities of the SPE; or
– The Group retains the majority of the residual or ownership risks related to the SPE or its assets in order to obtain benefits from its activities.
Investment fund management
The Group manages and assets held by investment funds regarding which the participation units are held by third parties. The financial statements of these entities
are not consolidated by the Group, except when the Group has the control over these investment funds, namely when it holds more than 50% of the participation
units.
Investments in foreign operations
The financial statements of the foreign subsidiaries and associates of the Group are prepared in their functional currency, defined as the currency of the primary
economic environment in which they operate or the currency in which the subsidiaries obtain their income or finance them activity. On consolidation, assets and
liabilities of the foreign subsidiaries are translated into euros at the official exchange rate at the balance sheet date.
Regarding the investments in foreign operations that are consolidated in the Group accounts under the full consolidation, the proportional or the equity method of
consolidation, the exchange differences between the translation to Euros of the opening net assets and their value in Euros at the exchange rate ruling at balance
sheet date are changed against consolidated reserves.
The exchange differences from hedging instruments related with foreign operations are eliminated from profit and loss in the consolidation process against the
exchange differences booked in reserves from those instruments.
Whenever the hedge is not fully effective, the ineffective portion is accounted against profit and loss of the period.
The income and expenses of these subsidiaries are translated to Euros, at rates close to the rates ruling at the dates of the transactions. Exchange differences from
the translation of the profits and losses for the reporting period, arising from the difference between the exchange rate used in the income statement and the
exchange rate prevailing at the balance sheet date are recognised in reserves - exchange differences.
On disposal of a foreign operation, exchange differences related to investment in the the foreign operation and to the associated hedge transaction previously
recognised in reserves are accounted for in the income statement as part of the gains or loss arising from the disposal.
Investments in jointly controlled entities
Jointly controlled entities, consolidated under the proportional method, are entities where the Group has joint control, established by contractual agreement. The
consolidated financial statements include the Group’s proportional share of the entities’ assets, liabilities, revenue and expenses, with items of a similar nature on a
line by line basis, from the date that joint control started until the date that joint control ceases.