to download Telecom Italia Annual Report 2011 - Company Reporting

Starting from January 1, 2007, Italian Law provides that employees may choose the destination of their
accruing employee severance indemnity either to supplementary pension funds or to the company.
Companies that employ at least 50 employees are obliged to transfer the employee severance indemnity
to the “Treasury fund” managed by INPS. Consequently, the Company’s obligation to INPS and the
contributions to supplementary pension funds take the form, under IAS 19, of “Defined contribution
plans” whereas the amounts recorded in the provision for employee severance indemnities retain the
nature of “Defined benefit plans”.
Equity compensation plans
Telecom Italia S.p.A. provides additional benefits to certain managers and employees of the companies
of the Group through equity compensation plans (stock options, long-term incentive plans and broadbased
employee share ownership plan). The above plans are recognized in accordance with IFRS 2
(Share-Based Payment).
In accordance with IFRS 2, such plans represent a component of the beneficiaries’ compensation.
Therefore, for the plans that provide for compensation in equity instruments, the cost is represented by
the fair value of such instruments at the grant date, and is recognized in the separate income statement
in “Employee benefits expenses”, in the case of employees of the Company, and in “Investments”, in the
case of employees of subsidiaries, over the period between the grant date and vesting date, with a
contra-entry to an equity reserve denominated “Other equity instruments”. Changes in the fair value
subsequent to the grant date do not affect the initial measurement. At the end of each year,
adjustments are made to the estimate of the number of rights that will vest up to expiry. The impact of
the change in estimate is deducted from “Other equity instruments” with a contra-entry to “Employee
benefits expenses” or “Investments”.
For the plans subject to vesting conditions, when such conditions are not met, the amount recognized in
“Other equity instruments” must be reclassified to “Other reserves”.
For the portion of the plans that provide for the payment of compensation in cash, the amount is
recognized in liabilities as a contra-entry to “Employee benefits expenses” in the case of employees of
the Company, and to “Investments”, in the case of employees of subsidiaries; at the end of each year
such liability is measured at fair value.
Provisions
The Company records provisions for risks and charges when it has a present obligation, legal or
constructive, to a third party, as a result of a past event, when it is probable that an outflow of Company
resources will be required to satisfy the obligation and when the amount of the obligation can be
estimated reliably.
If the effect of the time value is material, and the payment date of the obligations can be reasonably
estimated, provisions to be accrued are the present value of the expected cash flows, taking into
account the risks associated with the obligation. The increase in the provision due to the passage of
time is recognized as “Finance expenses”.
Treasury shares
Treasury shares are recognized as a deduction from equity. In particular, the nominal amount of treasury
shares is reported as a deduction from the share capital issued while the excess cost of acquisition over
the nominal amount is presented as a deduction from “Other reserves and retained earnings
(accumulated losses), including profit (loss) for the year”.
Foreign currency transactions
Transactions in foreign currencies are recorded at the foreign exchange rate prevailing at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the
foreign exchange rate prevailing at the balance sheet date. Exchange differences arising from the
Telecom Italia S.p.A. Separate Financial Statements Note 2 – Accounting policies 321