Audi 2010 Annual Report Download - page 206

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The fluctuations in value of securities available for sale are initially accounted for within a sepa-
rate equity reserve with no effect on income, after taking deferred tax into account. Unless there
is evidence of lasting impairment, the financial result includes only capital gains or losses realized
through disposal. If there is evidence of a lasting decline in value, the cumulative loss is removed
from the equity reserve and recognized in the Income Statement. Impairments already recorded
in the Income Statement – to the extent that the securities concerned are equity instruments –
are not reversed with an effect on income. If, on the other hand, the securities concerned are
debt instruments, impairment losses are reversed with an effect on income if the increase in the
fair value, when viewed objectively, is based on an event that occurred after the impairment loss
was recorded with an effect on income.
As there is no active market for the other long-term investments, they are carried at amortized
cost. Where there is evidence that the fair value is lower, corresponding value adjustments are
carried out.
Derivative financial instruments and hedge accounting
Derivative financial instruments are used as a hedge against foreign exchange and commodity
price risks for items on the Balance Sheet and for future cash flows. Futures, as well as options
in the case of foreign exchange risks, are used for this purpose.
Additionally, under the rules of IAS 39, some contracts are classed as derivative financial
instruments:
– Rights to acquire shares in companies
– Agreements entered into by the Audi Group with approved dealers with a view to hedging
against potential losses from buy-back obligations for leased vehicles.
A requirement of hedge accounting is that a clear hedging relationship between the underlying
transaction and the hedge must be documented and its effectiveness demonstrated.
Recognition of the fair value changes in hedges depends on the nature of the hedging relation-
ship.
When hedging against exchange rate risks from future cash flows (cash flow hedges), the fluc-
tuations in the market value of the effective portion of a derivative financial instrument are
initially reported in a special reserve within equity, with no effect on income, and are only recog-
nized as income or expense once the hedged item is due. The ineffective portion of a hedge is
recognized immediately in income.
Derivative financial instruments that are used to hedge market risks according to commercial
criteria but that do not fully meet the requirements of IAS 39 with regard to effectiveness of
hedging relationships are classified as “financial instruments measured at fair value through
profit or loss.”
Rights to acquire shares in companies are also reported in accordance with the rules for
“financial instruments measured at fair value through profit or loss.”
OTHER RECEIVABLES AND FINANCIAL ASSETS
Other receivables and financial assets (except for derivatives) are recognized at amortized cost.
Provision is made for discernible non-recurring risks and general credit risks in the form of cor-
responding value adjustments.