AstraZeneca Annual Report and Form 20-F Information 2011

Other interest-bearing loans are initially measured at fair value (includingdirect transaction costs) and are subsequently remeasured to amortisedcost using the effective interest rate method at each reporting date.Changes in carrying value are recognised in profit.DerivativesDerivatives are initially measured at fair value (with direct transactioncosts being included in profit as an expense) and are subsequentlyremeasured to fair value at each reporting date. Changes in carryingvalue are recognised in profit.Foreign currenciesForeign currency transactions, being transactions denominated ina currency other than an individual Group entity’s functional currency,are translated into the relevant functional currencies of individual Groupentities at average rates for the relevant monthly accounting periods,which approximate to actual rates.Monetary assets, arising from foreign currency transactions, areretranslated at exchange rates prevailing at the reporting date.Exchange gains and losses on loans and on short-term foreigncurrency borrowings and deposits are included within financeexpense. Exchange differences on all other foreign currencytransactions are taken to operating profit in the individual Groupentity’s accounting records.Non-monetary items arising from foreign currency transactions arenot retranslated in the individual Group entity’s accounting records.In the Consolidated Financial Statements, income and expense itemsfor Group entities with a functional currency other than US dollars aretranslated into US dollars at average exchange rates, which approximateto actual rates, for the relevant accounting periods. Assets and liabilitiesare translated at the US exchange rates prevailing at the reportingdate. Exchange differences arising on consolidation are taken in othercomprehensive income.Exchange differences arising on retranslation of net investmentsin subsidiaries and of foreign currency loans which are designated inan effective hedge relationship are taken in other comprehensiveincome in the Consolidated Financial Statements. Gains and lossesaccumulated in the translation reserve will be recycled to profit whenthe foreign operation is sold.Litigation and environmental liabilitiesThrough the normal course of business, AstraZeneca is involved inlegal disputes, the settlement of which may involve cost to the Group.Provision is made where an adverse outcome is probable andassociated costs, including related legal costs, can be estimatedreliably. In other cases, appropriate disclosures are included.Where it is considered that the Group is more likely than not to prevail,or in the rare circumstances where the amount of the legal liabilitycannot be estimated reliably, legal costs involved in defending theclaim are charged to profit as they are incurred.Where it is considered that the Group has a valid contract whichprovides the right to reimbursement (from insurance or otherwise)of legal costs and/or all or part of any loss incurred or for whicha provision has been established, the best estimate of the amountexpected to be received is recognised as an asset only when it isvirtually certain.AstraZeneca is exposed to environmental liabilities relating to its pastoperations, principally in respect of soil and groundwater remediationcosts. Provisions for these costs are made when there is a presentobligation and where it is probable that expenditure on remedial workwill be required and a reliable estimate can be made of the cost.Provisions are discounted where the effect is material.ImpairmentThe carrying values of non-financial assets, other than inventories anddeferred tax assets, are reviewed at least annually to determine whetherthere is any indication of impairment. For goodwill, intangible assetsunder development and for any other assets where such indicationexists, the asset’s recoverable amount is estimated based on thegreater of its value in use and its fair value less cost to sell. In assessingvalue in use, the estimated future cash flows, adjusted for the risksspecific to each asset, are discounted to their present value usinga discount rate that reflects current market assessments of the timevalue of money and the general risks affecting the pharmaceuticalindustry. For the purpose of impairment testing, assets are groupedtogether into the smallest group of assets that generates cash inflowsfrom continuing use that are largely independent of the cash flows ofother assets. Impairment losses are recognised in profit.International accounting transitionOn transition to using adopted IFRSs in the year ended 31 December2005, the Company took advantage of several optional exemptionsavailable in IFRS 1 ‘First-time Adoption of International FinancialReporting Standards’. The major impacts which are of continuingimportance are detailed below:> > Business combinations – IFRS 3 ‘Business Combinations’ has beenapplied from 1 January 2003, the date of transition, rather than beingapplied fully retrospectively. As a result, the combination of Astraand Zeneca is still accounted for as a merger, rather than throughpurchase accounting. If purchase accounting had been adopted,Zeneca would have been deemed to have acquired Astra.> > Cumulative exchange differences – the Group chose to set thecumulative exchange difference reserve at 1 January 2003 to zero.Applicable accounting standards and interpretations issuedbut not yet adoptedIFRS 9 ‘Financial Instruments’ was reissued in October 2010. It isapplicable to financial assets and financial liabilities. For financial assetsit requires classification and measurement in either the amortised costor the fair value category. For a company’s own debt held at fair value,the standard requires the movement in the fair value as a result ofchanges in the company’s own credit risk to be included in othercomprehensive income. It is effective for accounting periods beginningon or after 1 January 2015. The standard has not yet been endorsedby the EU. The adoption of IFRS 9 is not expected to have a significantimpact upon the Group’s net results or net assets.IFRS 10 ‘Consolidated Financial Statements’, IFRS 11 ‘JointArrangements’, IFRS 12 ‘Disclosures of Interests in Other Entities’and IFRS 13 ‘Fair Value Measurement’ were issued in May 2011,along with consequential amendments to IAS 27 ‘Separate FinancialStatements’ and IAS 28 ‘Investments in Associates and Joint Ventures’.They are all effective for accounting periods beginning on or after1 January 2013. The new and revised standards have yet to beendorsed by the EU and are not expected to have a significant impactupon the Group’s net results, net assets or disclosures.The amendments to IFRS 7 ‘Disclosures – Transfer of FinancialAssets’, IAS 12 ‘Deferred Tax: Recovery of Underlying Assets’,IAS 1 ‘Presentation of Items in Other Comprehensive Income’,IAS 19 ‘Employee Benefits’ and amendments to IAS 32 and IFRS 7on offsetting financial assets and liabilities are effective for accountingperiods beginning on or after 1 July 2011, 1 January 2012, 1 July 2012,1 January 2013 and 1 January 2014 (IAS 32) and 1 January 2013(IFRS 7) respectively. They are not expected to have a significantimpact upon the Group’s net results, net assets or disclosures. Withthe exception of IFRS 7 ‘Disclosures – Transfer of Financial Assets’,these amendments have yet to be endorsed by the EU.Financial StatementsAstraZeneca Annual Report and Form 20-F Information 2011 Financial Statements 149