Download 2004 Annual Report - Polymetal

The Group’s 100% interest in avariable interest entity is consoli−dated (see Note 3).Changes in the Group structureand voting and ownership interestin major production subsidiariesin 2003 and 2004 are discussedNotes 25 through 28.The company has the followingsignificant mining licenses: Vo−rontsovskoye field (Sverdlovsk re−gion), Lunnoye field and Dukat field(Magadan region), Khakandjinskoyefield (Khabarovsk region), Urjevs−koe field (Khabarovsk region).NOTE 2Summary of Significant Ac−counting PoliciesBasis of PresentationThe consolidated financial state−ments are presented in accor−dance with accounting principlesgenerally accepted in the UnitedStates of America (“U.S. GAAP”).ReclassificationsCertain reclassifications havebeen made to previously reportedbalances to conform to the cur−rent year’s presentation; suchreclassifications have no effecton net result of shareholders’ eq−uity.Use of estimatesThe preparation of consolidatedfinancial statements in confor−mity with U.S. GAAP requiresmanagement to make estimatesand assumptions that affect thereported amounts of assets, li−abilities, revenues and expenses,including discussion and disclo−sure of contingent liabilities. Man−agement’s estimates are made inaccordance with mining industrypractice. Significant areas requir−ing the use of management es−timates relate to determinationof mineral reserves, reclamationand environmental obligations,impairment of assets and valua−tion allowances for deferred taxassets. Actual results could differfrom such estimates.Reporting and functionalcurrencyThe Company’s functional cur−rency is the Russian Ruble. Themost of the Company’s sales rev−enues and purchases and certainfinancing agreements are settledin Russian Rubles. The U.S. Dollaris the reporting currency select−ed by the Group for purposes offinancial reporting in accordancewith U.S. GAAP.In November 2002, the Inter−national Practices Task Force(IPTF) concluded that the Rus−sian Federation ceased to be ahighly inflationary economy as ofJanuary 1, 2003. As a result, theCompany has determined thatits functional currency manage−ment uses the Russian Ruble tomanage the financial risks andexposures, and to measure itsperformance.Under FAS No. 52,revenues, costs, assets and li−abilities had been remeasured athistorical exchange rates prevail−ing on the transaction dates up toDecember 31, 2002. On January1, 2003, all non−monetary assetsand liabilities, monetary assetsand liabilities, equity items weretranslated into Rubles at the ex−change rate prevailing at thatdate. In accordance with the pro−visions of Emergency Issue TaskForce 92−8 consensus, Account−ing for the Income Tax Effects Un−der the FASB Statement No. 109of a Change in Functional Curren−cy When an Economy Ceases toBe Considered Highly Inflationary,deferred tax associated with thetemporary differences that arisefrom a change in functional cur−rency when an economy ceasesto be considered highly inflation−ary was reflected in translationadjustment within shareholders’equity at January 1, 2003.Starting from January 1, 2003,all non−monetary and monetaryassets and liabilities are trans−lated at exchange rates prevail−ing on the balance sheet date.Revenues, expenses, gains andlosses are translated into the re−porting currency using exchangerates prevailing at the respectivetransaction dates. Equity itemsare translated at historic ex−change rates. Translation adjust−ment, net of tax, is accounted foras part of cumulative translationadjustment component of share−holders’ equity.The exchange rates for one dollarwere Ruble 27.75 at December31, 2004, and Ruble 29.45 at De−cember 31, 2003 and January 1,2004.The Russian Ruble is not a convert−ible currency outside of the Rus−sian Federation and material ex−change restrictions and controlsexist relating to converting Rus−sian Rubles into other currencies.Appendix #1: Consolidated financial statements55