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VimpelCom / Annual Report 2007
liabilities were either priced, incurred, payable or otherwise measured
in US dollars.
During the second quarter of 2006 VimpelCom announced the introduction
of a fixed exchange rate for customers’ payments which are denominated in
US Dollars or unit equivalents. The exchange rate was fixed at 28.7 Russian
roubles to 1 unit. The change to a fixed exchange rate was effective for
prepaid customers from June 1, 2006 and for other customers from July 1,
2006. VimpelCom retained the right to amend the fixed exchange rate at its
discretion. While this change was partially implemented during the second
quarter of 2006, the primary economic impact from this policy change was
realized in the third quarter of 2006. Accordingly, VimpelCom changed its
functional currency from US Dollars to Russian roubles beginning July 1,
2006. Pursuant to the provisions of US Statement of Financial Accounting
Standards («SFAS») No. 52, Foreign Currency Translation, previously issued
financial statements should not be restated, and the change in functional
currency should be reported prospectively. The impact of the change in
functional currency on the financial statements was an increase in the
opening translated carrying values of the following non-monetary assets
and liabilities as of July 1, 2006:
Property and equipment, net $242,169
Software, net 30,350
Telecommunications licenses and allocations
of frequencies, net 21,206
Goodwill 11,856
Other non-current assets 4,862
Other 7,786
Deferred taxes (12,529)
Total $305,700
This increase in the opening carrying amount of non-monetary assets
and liabilities has been reflected in shareholder’s equity as part of other
comprehensive income.
VimpelCom has retained the US dollar as its reporting currency.
Therefore, the accompanying financial statements, after the change
of the functional currency date, were translated into the reporting
currency in accordance with SFAS No. 52 using the current rate method.
Domestic and certain foreign subsidiaries of VimpelCom have their local
currencies as their functional currency, and use the current rate method
for translating their financial statements to US dollars.
Under SFAS No. 52 the current rate method assumes that assets and
liabilities measured in the functional currency are translated into US
dollars at exchange rates prevailing on the balance sheet date; whereas
revenues, expenses, gains and losses are translated into US dollars at
historical exchange rates prevailing on the transaction dates. VimpelCom
translates income statement amounts using the average exchange rates
for the period. Translation adjustments resulting from the process of
translating financial statements into US dollars are reported in other
comprehensive income, a separate component of shareholders’ equity.
Within the countries that VimpelCom operates, official exchange rates are
determined daily by the respective countries’ central bank. Market rates
may differ from the official rates but the differences are, generally, within
narrow parameters monitored by the respective countries’ central bank.
Local currencies of certain of VimpelCom’s foreign subsidiaries are not
fully convertible currencies outside the territories of countries of their
operations. The translation of rouble-, tenge-, hryvnia-, somoni-, som-,
dram- and lari-denominated assets and liabilities into US dollars for the
purposes of these financial statements does not indicate that VimpelCom
could realize or settle the reported values of these assets and liabilities
in US dollars. Likewise, it does not indicate that VimpelCom could return
or distribute the reported US dollar value of capital to its shareholders.
Use of Estimates
The preparation of consolidated financial statements in conformity with
US GAAP requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements
and accompanying notes. Actual results may differ from those estimates.
Accounting polices such as the valuation of stock based compensation,
business combinations, assessing tangible and intangible asset
impairments, and revenue recognition include estimates and assumptions
that may have a material impact on the financial statements.
Cash and Cash Equivalents
VimpelCom considers all highly liquid investments with an original maturity
of 90 days or less at the time of purchase to be cash equivalents. Cash
equivalents are carried at cost which approximates fair value. Restricted
cash is primarily related to cash held in escrow at a financial institution for
the collateralization of certain payment obligations that the Company has
agreed to assume in the future.
Short-Term Investments
Short-term investments represent investments in time deposits, which
have original maturities in excess of three months but less than twelve
months. These investments are accounted for at cost.
Accounts Receivable and Doubtful Accounts
Accounts receivable are shown at their net realizable value which
approximates their fair value. VimpelCom reviews the valuation of
accounts receivable on a monthly basis. The allowance for doubtful
accounts is estimated based on the historical experience of cash
collections and future expectations of conditions that might impact the
collectibility of accounts.
Inventory
Inventory consists of SIM and scratch cards, telephone handsets and
accessories for resale and is stated at the lower of cost or market. Cost is
computed using the average cost method.
Input Value Added Tax
Value Added Tax («VAT») related to revenues is payable to the tax
authorities on an accrual basis based upon invoices issued to customers
or cash received. VAT incurred on purchases may be offset, subject to