Review of 2012 – EUR - Skanska

Note01Continuedwere an independent derivative. This is the case, for example, when a constructioncontract is expressed in a currency which is a foreign currency for both parties. Ifit is customary for the foreign currency to be used for this type of contract, theembedded derivative will not be separated. A reassessment of whether embeddedderivatives shall be separated from the host contract is carried out only if the hostcontract is changed.A financial asset or financial liability is recognized in the statement of financialposition when the Group becomes a party to the contractual provisions of the instrument.Trade accounts receivable are recognized in the statement of financial positionwhen an invoice has been sent. A liability is recognized when the counterparty hasperformed and there is a contractual obligation to pay, even if the invoice has not yetbeen received. Trade accounts payable are recognized when an invoice hasbeen received.A financial asset is derecognized from the statement of financial position whenthe contractual rights are realized or expire or the Group loses control of them. Thesame applies to a portion of a financial asset. A financial liability is derecognizedfrom the statement of financial position when the contractual obligation is fulfilledor otherwise extinguished. The same applies to a portion of a financial liability.Acquisitions and divestments of financial assets are recognized on the transactiondate, which is the date that the Company undertakes to acquire or divest the asset.Financial instruments are initially recognized at cost, equivalent to the instrument’sfair value plus transaction costs, except instruments in the category “assets atfair value through profit or loss,” which are recognized exclusive of transaction costs.Recognition then occurs depending on how they are classified as described below.Financial assets, including derivatives, are classified as “assets at fair valuethrough profit or loss,” “held-to-maturity investments,” “loans and receivables” and“available-for-sale assets.” An asset is classified among “available-for-sale assets” ifthe asset is not a derivative and the asset has not been classified in any of the othercategories. Equity instruments with unlimited useful lives are classified either as“assets at fair value through profit and loss” or “available-for-sale assets.”“Assets at fair value through profit or loss,” and “available-for-sale assets” aremeasured at fair value in the statement of financial position. Change in value of“assets at fair value through profit or loss” is recognized in the income statement,while change in value of “available-for-sale assets” is recognized under “Other comprehensiveincome.” When the latter assets are divested, accumulated gains or lossesare transferred to the income statement. Investments in holdings of companies otherthan Group companies, joint ventures and associated companies are included in“available-for-sale assets,” but are measured at cost, unless the fair value is lower.Impairment losses on “available-for-sale assets,” as well as changes in exchangerates, interest and dividends on instruments in this category are recognized directlyin the income statement. “Held-to-maturity investments” and “loans andreceivables” are measured at amortized cost. Impairment losses on “held-tomaturityinvestments,” “loans and receivables” and “available-for-sale assets”occur when the expected discounted cash flow from the financial asset is less thanthe carrying amount.Financial liabilities including derivatives are classified as “liabilities at fair valuethrough profit or loss” and “other financial liabilities.”“Liabilities at fair value through profit or loss” are measured at fair value in thestatement of financial position, with change of value recognized in the incomestatement. “Other financial liabilities” are measured at amortized cost.In reporting both financial assets and financial liabilities in Note 6, Skanska haschosen to separately report “Hedge accounted derivatives,” which are included in“assets (or liabilities) at fair value through profit or loss.”Skanska uses currency derivatives and foreign currency loans to hedge againstfluctuations in exchange rates.Recognition of derivatives varies depending onwhether hedge accounting in compliance with IAS 39 is applied or not.Unrealized gains and losses on currency derivatives related to hedging of operationaltransaction exposure (cash-flow hedging) are measured in market terms andrecognized at fair value in the statement of financial position. The entire change invalue is recognized directly in operating income, except in those cases that hedgeaccounting is applied. In hedge accounting, unrealized gain or loss is recognizedunder “Other comprehensive income.”When the hedged transaction occurs and isrecognized in the income statement, accumulated changes in value are transferredfrom other comprehensive income to operating income.Unrealized gains and losses on embedded currency derivatives in commercialcontracts are measured and recognized at fair value in the statement of financialposition. Changes in fair value are recognized in operating income.Currency derivatives and foreign currency loans for hedging translation exposureare carried at fair value in the statement of financial position. Due to the applicationof hedge accounting, exchange-rate differences after taking into account tax effectare recognized under “Other comprehensive income.” If a foreign operation witha functional currency other than euro is divested, accumulated exchange-rate differencesattributable to that operation are transferred from other comprehensiveincome to the income statement. The interest component and changes in the valueof the interest component of currency derivatives are recognized as financial incomeor expenses.In Infrastructure Development projects, interest-rate derivatives are used in orderto achieve fixed interest on long-term financing. Hedge accounting is applied tothese interest-rate derivatives.Skanska also uses interest-rate derivatives to hedge against fluctuations ininterest rates.Hedge accounting in compliance with IAS 39 is applied to some of these derivatives.Unrealized gains and losses on interest-rate derivatives are recognized at fairvalue in the statement of financial position. In cases where hedge accounting is notapplied, changes in value are directly recognized as financial income or expenses inthe income statement. The operating current-interest coupon portion is recognizedas interest income or an interest expense.IFRS 7, “Financial Instruments: Disclosures”The Company provides disclosures that enable the evaluation of the significance offinancial instruments for its financial position and performance. The disclosures alsoenable an evaluation of the nature and extent of risks arising from financial instrumentsto which the Company is exposed during the period and at the end of thereport period. These disclosures must also provide a basis for assessing how theserisks are managed by the Company. This standard supplements the principles forrecognizing, measuring and classifying financial assets and liabilities in IAS 32and IAS 39.The standard applies to all types of financial instruments, with the primary exceptionof holdings in subsidiaries, associated companies and joint ventures as well as employers’rights and obligations under post-employment benefit plans in compliancewith IAS 19. The disclosures that are provided thus include accrued interest income,deposits and interest expenses. Accrued income from customers for contract workis not a financial instrument.The disclosures provided are supplemented by a reconciliation with other items inthe income statement and in the statement of financial position.Disclosures in compliance with this accounting standard are presented in Note 6.IAS 20, “Accounting for Government Grants and Disclosure ofGovernment Assistance”“Government assistance” refers to action by government designed to provide aneconomic benefit specific to one company or a range of companies that qualifyunder certain criteria. Government grants are assistance by government in the formof transfers of resources to a company in return for past or future compliance withcertain conditions relating to its operations.Government grants are recognized in the statement of financial position as prepaidincome or reduction in the investment when there is reasonable assurance that thegrants will be received and that the Group will meet the conditions associated withthe grant.The Swedish Financial Reporting Board’s recommendation RFR 1,“Supplementary Accounting Regulations for Groups”The recommendation specifies what further disclosures must be provided in order forthe annual accounts to conform with Sweden’s Annual Accounts Act. The additionalinformation mainly concerns personnel-related disclosures.Disclosure on the number of employees, allocated between women and men aswell as among countries, is provided in Note 36. The number of employees duringthe year was calculated as an average of the average number of employees during thequarters included in the year. In this calculation, part-time employment is equivalentto 60 percent of full-time employment. Operations divested during the year arenot included.Disclosure on the allocation between women and men for senior executivesspecifies the situation on the closing day. “Senior executives” in the various Groupcompanies refers to the members of the management team of the respective businessunits. The information is provided in Notes 36 and 37.In addition to Board members and the President and CEO, all other persons in theGroup’s Senior Executive Team must be included in the group for which a separateaccount shall be provided of the total amounts of salaries and other remuneration as112 Notes, including accounting and valuation principles Skanska Review of 2012 – EUR version