B. Summary of Significant Accounting Policies
The principal accounting policies adopted in preparing the financial statements of Andritz are as follows:
a. General
The financial statements are prepared in accordance with Standards formulated by the International Accounting Standards Board (IASB) that are accepted by the European Union as well as the Interpretations formulated by the International Financial Reporting Interpretations Committee (IFRIC). In the current year Andritz has adopted all of the new Standards and Interpretations that are relevant to its operations and that are effective for accounting periods beginning on 1 January 2006. The amendment to IAS 19 ("Employee Benefits") has been applied in the fiscal year.
In August 2005, IFRS 7, „Financial Instruments: Disclosures” was issued and is effective for annual periods beginning on or after January 1, 2007. The standard supersedes IAS 32, “Financial Instruments, Disclosure and Presentation”, and IAS 30, “Disclosure in the Financial Statements of Banks and Similar Financial Institutions”. The Company is currently evaluating the impact of the standard on its consolidated financial statement disclosures.
For these financial statements prepared in accordance with IFRS based on § 245a of Austrian Commercial Code the legal requirements are met for the exemption from 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 sheet and income statement, 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.
Inter-company balances and transactions, including inter-company profits and unrealized profits and losses have been eliminated. The consolidated financial statements have been prepared using uniform accounting policies for like transactions and other events in similar circumstances.
d. Major Differences between Austrian and IFRS Accounting Principles
Goodwill: Goodwill from capital consolidation as well as any goodwill arising from business will be treated in accordance with IFRS 3. 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 realized 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 realization. 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 assets and liabilities 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.
Provisions for pensions: Differences may arise at application of the so called corridor method or at initial recognition of actuarial gains or losses with equity. Basically Austrian Commercial law allows the application of the principles of IAS 19.
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 changes in the fair value are recognized directly in equity.
Foreign currency transactions: These two accounting systems require 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: According to the rules of IFRS derivatives are recognized at fair value through profit or loss. This also applies to embeded derivatives.
