annual-and-sustainability-report-2014

Notes to the consolidated accountsNote 1 Company informationThe year-end report for Vattenfall AB for 2014 was approved for publicationon 4 February 2015 in accordance with a decision by the Board of Directors.The Annual Report was approved in accordance with a decision by the Board ofDirectors on 17 March 2015.The Parent Company, Vattenfall AB (publ) with corporate identity number556036-2138, is a limited liability company with its registered office in Solna,Sweden and with the mailing address SE-169 92 Stockholm, Sweden.The consolidated balance sheet and income statement included in the AnnualReport will be submitted at the Annual General Meeting (AGM) on 27 April 2015.The main activities of the Group are described in Note 8 to the consolidatedaccounts, Operating segments.Note 2 Important changes in the financial statementscompared with the preceding yearRecalculation of financial statements for 2013As shown in Note 3 to the consolidated accounts, Accounting policies, newaccounting rules apply as from 2014 in accordance with IFRS 11 – Joint Arrangementswith respect to reporting of joint arrangements, i.e., arrangements in whichtwo or more parties have joint control. Under IFRS 11 the Krümmel nuclear powerplant in Germany is to be classified as a joint operation. This leads to a changefrom application of the equity method to recognition of Vattenfall’s share in theassets, liabilities as well as revenues and expenses in Krümmel. As a result of theamendments in IFRS 11, the consolidated financial statements for the comparisonyear 2013 have been recalculated. The effects of this recalculation are reported inNote 27 to the consolidated accounts, Participations in associated companies andjoint arrangements.Changed depreciation period for the Swedish nuclear power plantsDuring the 3rd quarter of 2014 the estimated useful life for the nuclear powerplants Ringhals 3 and 4, and Forsmark 1, 2 and 3, was extended to 60 years fromthe previous 50 years. As a result, lower depreciation is reported as from the 3rdquarter. During the second half of 2014 this entails lower depreciation by approximatelySEK 290 million. The full-year effect for 2015 will be lower depreciation byapproximately SEK 570 million. As previously, certain components within nuclearpower plants have a shorter useful life.Note 3 Accounting policiesConformity with standards and regulationsThe consolidated accounts have been prepared in accordance with the InternationalFinancial Reporting Standards (IFRS) issued by the InternationalAccounting Standards Board (IASB) as well as the interpretations issued by theIFRS Interpretations Committee (IFRIC) as endorsed by the European Commissionfor application within the EU.In addition, recommendation RFR 1 – Supplementary Accounting Policies forGroups, issued by the Swedish Financial Reporting Board (RFR), has been applied.RFR 1 specifies the additions to the IFRS disclosure requirements that arerequired by the Swedish Annual Accounts Act.Basis of measurementAssets and liabilities are reported at cost or amortised cost, with the exception ofcertain financial assets and liabilities and inventories held for trading, which aremeasured at fair value. Fair value is defined as the price that would be receivedto sell an asset or paid to transfer a liability in an orderly transaction betweenmarket participants at the measurement date. Financial assets and liabilitiesmeasured at fair value consist of holdings in the categories financial assets andliabilities recognised at fair value through profit or loss, holdings in the categoryavailable-for-sale financial assets, and all derivatives.Vattenfall uses valuation methods that reflect the fair value of an asset or liabilityappropriately. Financial assets and liabilities that are measured at fair value aredescribed below according to the fair value hierarchy (levels), which in IFRS 13 isdefined as follows:• Level 1: Quoted prices (unadjusted) in active markets for identical assets orliabilities.• Level 2: Inputs other than quoted prices included in Level 1 that are observablefor the asset or liability, either directly (that is, as prices) or indirectly (that is,derived from prices). In Level 2 Vattenfall reports mainly commodity derivatives,currency-forward contracts and interest rate swaps.• Level 3: Inputs for the asset or liability that is not based on observable marketdata (that is, unobservable inputs).Classification into a level is determined by the lowest level input that is significantfor the measurement of the fair value at the end of a reporting period.Vattenfall assesses whether reclassifications between the levels are necessary.Observable input data are used whenever possible and relevant. For assets andliabilities included in Level 3, fair value is modelled either on the basis of marketprices with adjustments that consider specific terms of a contract, or on thebasis of unobservable inputs such as future cash flows. The assumptions for theestimated cash flows are monitored on a regular basis and adjusted if necessary.Functional and presentation currenciesThe functional currency is the currency of the primary economic environment inwhich each Group entity operates.The Parent Company’s functional currency is Swedish kronor (SEK), which isalso the presentation currency of both the Parent Company and the Group. Thismeans that the financial statements are presented in Swedish kronor. Unlessotherwise stated, all figures are rounded off to the nearest million Swedish kronor(SEK million).Estimations and assessmentsPreparation of the financial statements in accordance with IFRS requires thecompany’s executive management and Board of Directors to make estimationsand assessments as well as to make assumptions that affect the application ofthe accounting policies and the reported amounts of assets, liabilities, incomeand expenses.Assessments made by the company’s executive management and Board ofDirectors, when applying IFRS, that have a material effect on the financial statements,and estimations that may result in substantial adjustments to the followingyear’s financial statements, are described in greater detail in Note 4 to the consolidatedaccounts, Important estimations and assessments in the preparation of thefinancial statements.Accounting policiesThe accounting policies of the Group described below, with the exception ofwhat is stated under the heading New IFRSs and interpretations effective as of2014, have been applied consistently for all periods presented in the consolidatedfinancial statements.New IFRSs and interpretations effective as of 2014The following new standards and amendments to standards and interpretationsdescribed below, and endorsed by the EU, are effective as of the 2014 financialyear.IFRS 10 – Consolidated Financial Statements. The standard contains uniformrules for determining which units are to be consolidated and supersedes largeparts of IAS 27 – Consolidated and Separate Financial Statements and SIC 12, whichaddresses Special Purpose Entities. The rules in IFRS 10 on consolidation and onwhen consolidated financial statements are to be prepared, have been transferredunchanged from IAS 27. The new standard has not had any effect on Vattenfall’sfinancial statements.IFRS 11 – Joint Arrangements. The standard addresses the reporting of jointarrangements, that is, arrangements in which two or more parties have jointcontrol, and supersedes IAS 31 – Interests in Joint Ventures and SIC 13 – JointlyControlled Entities – Non-monetary Contributions by Ventures. Under IFRS 11 theKrümmel nuclear power plant in Germany should be classified as a “joint operation”.This leads to a change from application of the equity method to recognitionof Vattenfall’s share in the assets, liabilities as well as revenues and expenses inKrümmel. The effects of this changed accounting on the comparison year 2013are shown in Note 27 to the consolidated accounts.IFRS 12 – Disclosures of Interests in Other Entities. Expanded disclosurerequirements regarding subsidiaries, joint arrangements and associates havebeen gathered in a single standard. The disclosures address the effects of holdingson the financial statements and risks associated with the current holdings.The scope of the disclosures has increased to some extent as a result of IFRS 12.Amendment and change of name for IAS 27 – Separate Financial Statements,where the requirements concerning separate financial statements are unchanged,while other parts of IAS 27 are superseded by IFRS 10. The amendments have notaffected Vattenfall’s financial statements.Amendment of IAS 28 – Investments in Associates and Joint Ventures, which hasbeen adapted to IFRS 10, IFRS 11 and IFRS 12. The amendments have not affectedVattenfall’s financial statements.Amendments in IAS 32 – Financial Instruments: Presentation and amendmentsin IFRS 7 – Financial Instruments: Disclosures clarifying some of the requirementsfor offsetting financial assets and financial liabilities on the balance sheet. Theamendments have not affected Vattenfall’s financial statements.Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) providesan exception to the consolidation requirements for companies that meet thedefinition of an investment entity. Vattenfall has not been affected by theseamendments.Amendments to IAS 39 – Novation of Derivatives and Continuation of HedgeAccounting. The amendment provides relief by allowing continuing hedge accountingwhen novation, or transferral, to a central counterparty of a derivative designatedas a hedging instrument meets certain criteria, including a requirement bylaw or regulation, such as EMIR. The amendment is not applicable for transactionswhere derivatives are voluntarily transferred to a central counterparty. Vattenfallhas not been affected by these amendments.New IFRSs and interpretations not yet adoptedNew standards, amendments to standards and interpretations endorsed by theEU as per 31 December 2014, which are effective as of the 2014 financial yearand which have not been applied prospectively:Vattenfall Annual and sustainability report 2014 85