Annual Report 2010 - Enel.com

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Accounting policies and
measurement criteria
Use of estimates
Preparing the consolidated financial statements under
IFRS-EU requires the use of estimates and assumptions
that impact the carrying amount of assets and liabilities
and the related information on the items involved as well
as contingent assets and liabilities at the balance sheet
date. The estimates and the related assumptions are
based on previous experience and other factors considered
reasonable in the circumstances. They are formulated
when the carrying amount of assets and liabilities is not
easily determined from other sources. The actual results
may therefore differ from these estimates. The estimates
and assumptions are periodically revised and the effects
of any changes are reflected in the consolidated income
statement if they only involve that period. If the revision
involves both the current and future periods, the change is
recognized in the period in which the revision is made and
in the related future periods.
A number of accounting policies are felt to be especially
important for understanding the financial statements. To
this end, the following section examines the main items
affected by the use of estimates, as well as the main assumptions
used by management in measuring these
items in compliance with the IFRS-EU. The critical element
of such estimates is the use of assumptions and professional
judgments concerning issues that are by their very
nature uncertain.
Changes in the conditions underlying the assumptions
and judgments could have a substantial impact on future
results.
Revenue recognition
Revenues from sales to customers are recognized on an
accruals basis. Revenues from sales of electricity and gas
to retail customers are recognized at the time the electricity
or gas is supplied and include, in addition to amounts
invoiced on the basis of periodic (and pertaining to the
year) meter readings, an estimate of the value of electricity
and gas distributed during the period but not yet
154 Enel Annual Report 2010 Consolidated financial statements
invoiced, equal to the difference between the amount of
electricity and gas delivered to the distribution network
and that invoiced in the period, taking account of any
network losses. Revenues between the date of the meter
reading and the end of the year are based on estimates of
the daily consumption of individual customers calculated
on the basis of their consumption record, adjusted to take
account of weather conditions and other factors that may
affect estimated consumption.
Pensions and other post-employment benefits
Part of the Group’s employees participate in pension plans
offering benefits based on their wage history and years of
service.
Certain employees are also eligible for other post-employment
benefit schemes.
The expenses and liabilities of such plans are calculated
on the basis of estimates carried out by consulting actuaries,
who use a combination of statistical and actuarial
elements in their calculations, including statistical data on
past years and forecasts of future costs.
Other components of the estimation that are considered
include mortality and withdrawal rates as well as assumptions
concerning future developments in discount rates,
the rate of wage increases, the inflation rate and trends in
the cost of medical care.
These estimates can differ significantly from actual developments
owing to changes in economic and market conditions,
increases or decreases in withdrawal rates and the
lifespan of participants, as well as changes in the effective
cost of medical care.
Such differences can have a substantial impact on the
quantification of pension costs and other related expenses.
Recoverability of non-current assets
The carrying amount of non-current assets and assets
held for sale is reviewed periodically and wherever circumstances
or events suggest that more frequent review
is necessary.
Where the value of a group of non-current assets is considered
to be impaired, it is written down to its recoverable
value, as estimated on the basis of the use of the
assets and their future disposal, in accordance with the
company’s most recent plans.
The estimates of such recoverable values are considered
reasonable. Nevertheless, possible changes in the estimation
factors on which the calculation of such values is