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The principal accounting policies adopted in preparing the financial statements of Andritz are as follows:
a. General
The accompanying financial statements are prepared in accordance with the standards formulated by the International Accounting Standards Board (IASB). The accompanying financial statements have been prepared under the historical cost convention, except for marketable securities which are stated at their fair values. For these financial statements prepared in accordance with IFRS based on §245a of Austrian Commercial Code the legal requirements are met for the exemption of the obligation of preparing group financial statements.
b. Reporting Currency
The Group financial statements are prepared in EURO.
c. Principles of Consolidation
The consolidated financial statements of the Group include Andritz and the companies that it controls. This control is normally evidenced when Andritz owns, either directly or indirectly, more than 50% of the voting rights of a company’s share capital and is able to govern the financial and operating policies of an enterprise so as to benefit from its activities. The equity and net income attributable to minority shareholders’ interests are shown separately in the balance sheets and income statements, respectively.
The purchase method of accounting is used for acquired businesses. Companies acquired or disposed of during the year are included or excluded, accordingly, in the consolidated financial statements from the date of acquisition or from the date of disposal. Joint Ventures with equal voting rights are consolidated on a proportionate basis.
d. Major Differences between Austrian and IFRS Accounting Principles
Goodwill: In accordance with IAS 22, goodwill from capital consolidation is capitalised and amortised over the useful life. The Austrian Commercial Code allows a credit to reserves, with no effect on the income statement.
Construction contracts: According to Austrian accounting regulations, sales and profits are first realised upon takeover by the customer (completed contract method). Under IAS 11, order completion is accounted using the percentage of completion method in accordance with progress and pro rata profit realisation. The extent of completion is established by considering the ratio of accumulated costs to estimated total costs to complete each contract (cost-to-cost method).
Deferred taxes: The Austrian Commercial Code requires the creation of deferred tax provisions for temporary differences if a tax liability is expected to arise when these differences are reversed. IFRS require the creation of deferred taxes for all temporary differences which arise between financial statements prepared for tax purposes and IFRS financial statements, measured at actual or enacted tax rates. Deferred tax assets must also be recorded for unused loss carry forwards and unused tax credits which are expected to be offset against taxable profits in the future.
Other provisions: In contrast to the Austrian Commercial Code, IFRS interprets the principle of prudence differently with respect to provisions. IFRS tends to place stricter requirements on the probability of an event occurring and on estimating the amount of the provisions. According to Austrian Commercial Code certain amounts reported as liabilities under IFRS would be normally shown as provisions.
Provisions for pensions: In keeping with the Austrian Commercial Code, provisions for pensions are calculated by an actuary. Under IFRS, provisions for pensions are calculated using the projected unit credit method, based on a discount rate determined by reference to market yields on high quality corporate bonds and an expected compensation increase.
Marketable securities: Austrian accounting principles require securities to be recorded at the lower of acquisition costs or market value. Under IFRS marketable securities available for sale are to be valued at fair values, and there is a choice for the treatment of changes in the fair value.
Foreign currency transactions: These two accounting systems required different treatments for unrealized profits arising from the valuation of foreign exchange items as of the balance sheet date. According to Austrian law, only unrealized losses are recorded, whereas IFRS also requires the recognition of unrealized profits of monetary items.
Non-current securities: In accordance with IFRS non-current securities of the Group are classified as "available for sale" and are valued at their quoted market price at the balance sheet date. The Austrian Commercial Code requires a valuation at acquisition costs or a lower market value if there is a sustainable decrease of monetary items.
Hedging: With the adoption of IAS 39, the Group has designated its forward exchange contracts as cash flow hedges and carries them at fair value. Changes in the fair value of a hedging instrument that qualifies as a highly effective cash-flow hedge are recognised directly in the hedging reserve in shareholders' equity. The Austrian Commercial Code does not require a valuation of hedging contracts at fair value as of the balance sheet date.
e. Changes in Presentation of Balance Sheet Items
Provisions concerning order related costs have been reclassified from provisions to other liabilities in 2003. For comparison reasons prior year figures have been adopted accordingly.
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