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 were prepared in accordance with Standards formulated by the International Accounting Standards Board (IASB) endorsed by the European Union and whose application is mandatory for 2007. All interpretations formulated by the International Financial Reporting Interpretations Committee (IFRIC), whose application is also mandatory for 2007, have been taken into account. In the year under review 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 2007.
In the current year, the Group has adopted IFRS 7 Financial Instruments: Disclosures which is effective for annual reporting periods beginning on or after 1 January 2007, and the consequential amendments to IAS 1 Presentation of Financial Statements.
The adoption of IFRS 7 and the changes to IAS 1 have led to an increase of the disclosures provided in these consolidated financial statements regarding the Group’s financial instruments and management of capital.
Four Interpretations issued by the International Financial Reporting Interpretations Committee are effective for the current period. These are:
- IFRIC 7 Applying the Restatement Approach under IAS 29, Financial Reporting in Hyperinflationary Economies;
- IFRIC 8 Scope of IFRS 2;
- IFRIC 9 Reassessment of Embedded Derivatives; and
- IFRIC 10 Interim Financial Reporting and Impairment.
The adoption of these Interpretations had no impact on the enclosed consolidated financial statements.
At the date of authorization of these consolidated financial statements, the following Standards and Interpretations were issued but not yet effective:
- IAS 23 (Revised) Borrowing Costs (effective for accounting periods beginning on or after 1 January 2009);
- IFRS 3 (Revised) Business Combinations and consecutive amendments in other Standards (effective for accounting periods beginning on or after 1 January 2009);
- IFRS 8 Operating Segments (effective for accounting periods beginning on or after 1 January 2009);
- IFRIC 11 IFRS 2 Group and Treasury Share Transactions (effective for accounting periods beginning on or after 1 March 2007);
- IFRIC 12 Service Concession Arrangements (effective for accounting periods beginning on or after 1 January 2008);
- IFRIC 13 Customer Loyalty Programs (effective for accounting periods beginning on or after 1 July 2008); and
- IFRIC 14 IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction (effective for accounting periods beginning on or after 1 January 2008).
The effects of the revised IAS 23 are currently analyzed by the Executive Board. The Executive Board believes at present, that no significant effects will impact the enclosed consolidated financial statements. The principal change to the Standard is to eliminate the previously available option to expense all borrowing costs when incurred.
IFRS 8 is a disclosure Standard which may result in a redesignation of the Group’s reportable segments, but has no impact on the reported results or financial position of the Group.
The Executive Board intends first-time application of the Standards and Interpretations mentioned above for that period in which they come into force. The application of the Standards and Interpretations will have no essential impact on the equity and reported results of the consolidated financial statements in the year they are adopted for the first time.
The changes in IFRS 3 (including consecutive amendments in other Standards) could have an effect on future transactions which can not be estimated comprehensively at this time.
b. Reporting Currency
The consolidated 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 basically exists where 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 statements, respectively. The purchase method of accounting is used for acquired businesses. Companies acquired or disposed of during the year are included or excluded in the consolidated financial statements from the date of acquisition or 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 mergers 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 for using the percentage of completion method in accordance with progress and pro rata profit realization. To complete each contract ('cost-to-contract method'), the extent of completion is established by considering the ratio of accumulated costs to estimated total costs.
Deferred taxes: If a tax liability is expected to arise when these differences are reversed, the Austrian Commercial Code requires the creation of deferred tax assets and liabilities for temporary differences. IFRS require the creation of deferred taxes for all temporary differences that 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 that 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 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 embedded derivatives if the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristicsand risks of the host contract