Annual and Sustainability Report 2011 - Teracom

No major changes will be made for financial liabilities compared to IAS 39.
The most significant change relates to liabilities identified at fair value. The
portion of the change in fair value that is attributable to the credit risk of the
liability should be reported in Other comprehensive income instead of profit
or loss as long as this does not create a recognition inconsistency (accounting
mismatch). The Group intends to apply the new standard no later than the
financial year starting 1 January 2013 and has not yet evaluated the effects.
The standard has not yet been adopted by the EU.
IFRS 10 Consolidated Financial Statements: This standard defines the term
"deciding influence" and builds on existing principles by identifying controls
as the determining factor in whether a company should be included in the
consolidated financial statements. The standard provides additional guidance
to assist in the determination of control where this is difficult to assess.
Given the current ownership structure of the Group, the new standard will
not affect the Group's reporting. IFRS 10 enters into force on 1 January 2013
but has not yet been adopted by the EU.
IFRS 12 Disclosures of Interests in Other Entities: The standard covers disclosure
requirements for subsidiaries, joint arrangements, associated companies
and unconsolidated structured entities. The Group intends to apply IFRS 12
to the financial year starting 1 January 2013 and has not yet evaluated the
full effect on the financial statements. IFRS 12 enters into force on 1 January
2013 but has not yet been adopted by the EU.
IFRS 13 Fair Value Measurement: The purpose of the standard is to make the
fair value measurements more consistent and less complicated by providing
an exact definition and a single source within IFRS for fair value measurements
and related disclosures. The requirements do not expand the area of
application for when fair value should be applied, but rather provide guidance
with regard to how it should be applied when other IFRS already require or
allow fair value measurements. The Group has not yet evaluated the full effect
of IFRS 13 on the financial statements. The Group intends to apply the new
standard to the financial year starting 1 January 2013. The standard has not
yet been adopted by the EU.
Use of estimated values
In the preparation of the annual report in accordance with IFRS, Group management
has used assumptions and estimates in the reporting of assets and
liabilities. Discussed below are those areas where there is the greatest risk for
changes in value during the following year due to a potential need to revise
prior assumptions or estimates.
Transactions with minority owners
The Teracom Group owns a majority of the shares in the Finnish pay TV operator,
Digi TV Plus Oy. In conjunction with the acquisition in 2009, Teracom also
issued a put option over the remaining minority shares and Teracom also has
a call option to acquire the same shares. The commitment related to the put
option is included in the total acquisition cost. The liability was reported at
fair value based on Teracom's best assessment of what it will have to pay for
the outstanding equity stake. The future payment of the outstanding equity
stake is based on the company's future results and it may be adjusted if the
assumptions underlying Teracom's assessment change. The option's interest
rate effect and currency effect are reported in the income statement on an
ongoing basis.
Impairment of assets
Non-current asset such as goodwill are reviewed each year to determined
the impairment requirement or when events and changes occur that indicate
the carrying amount of an asset cannot be recovered. Company management
regularly conducts a revaluation of the useful life of all tangible and
intangible assets. It is the opinion of the company's management team that
reasonable changes to the factors forming the basis for the estimation of the
assets' recoverable amounts would not result in the carrying amount exceeding
the recoverable amount.
Accounts receivable
Receivables are reported net after reserves for doubtful debts. The amount
is based on circumstances known at the balance sheet date. Changed conditions,
for example that payments in default increase in scope or the financial
position of a significant customer changes, can result in significant deviations
from the valuation.
Post-employment remuneration
The Teracom Group has both defined benefit pension plans and defined contribution
pension plans. The defined benefit plans entail actuarial risk and
investment risk for the Group. Actuarial calculations of pension commitments
and pension expenses are based on a number of assumptions, such as the
discount rate, anticipated salary increases, anticipated remaining periods of
employment and anticipated return on plan assets. A change in any of these
fundamental assumptions could have a significant impact on calculated pension
commitments, financing requirements and pension expenses.
Restructuring costs
Restructuring costs include required impairment of assets and other items
that do not affect the cash flow, such as estimated costs for notices of termination
and other direct costs related to the phasing out of operations. The
cost calculation is based on detailed action plans that are expected to improve
the Group's cost structure.
Accounting principles for the Parent Company
The Group’s and the Parent Company's financial statements and terminology
differ since the Group applies IAS 1 and the Parent Company applies RFR 2
September 2011 and the Annual Accounts Act (1995:1554). The Parent Company
is limited in its ability to fully apply IFRS. These limitations are associated
with the Parent Company's application of RFR 2, the Annual Accounts Act and
the Parent Company's tax regulations.
Participations in subsidiaries
Participations in subsidiaries are reported in accordance with the cost method.
The value of the participations is tested when there are indications that
the value has depreciated.
Anticipated dividends
Dividends from Group companies are reported in the income statement after
a decision regarding dividends is made at each subsidiary's Annual General
Meeting. Anticipated dividends are reported when the Parent Company unilaterally
has the right to decide on the size of the dividends and the Parent
Company has decided on the size of the dividends before it published its
annual report or quarterly reports.
Shareholder contributions and Group contributions
Group contributions paid from the Parent Company to subsidiaries are reported
in the Parent Company in the same manner as shareholder contributions.
Shareholder contributions are reported directly against the recipient's equity
with a corresponding increase in "Participations in Group companies" by the
contributor. Alternatively, the Group contribution may be reported as a cost in
the income statement. Group contributions received from subsidiaries should
always be reported in the Parent Company as financial income in the same
manner as a dividend.
Leases
All lease agreements are reported in the Parent Company according to the
rules that apply for operating leases.
Valuation of financial instruments
Unlike the Group, the Parent Company does not adjust financial instruments
to fair value.
Deferred taxes
The Teracom Group's deferred tax assets are primarily attributable to loss
deductions and temporary differences and these are reported if the tax assets
are expected to be recoverable via future taxable income. Changes to the
assumptions regarding future taxable income, or changes to tax rates, can
lead to significant changes in the valuation of deferred taxes.
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