Audi 2014 Annual Report Download - page 236

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
RECOGNITION AND MEASUREMENT PRINCIPLES
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The Audi Group is integrated into the Volkswagen Group’s
financial management. As part of cash pooling arrangements,
balances are settled on a daily basis and transformed into
amounts owed to or from Volkswagen AG, Wolfsburg. This
promotes efficiency of both intra-Group and external transac-
tions and also reduces transaction costs. The cash pool receiv-
ables are allocated to cash and cash equivalents on the basis of
their character as cash equivalents.
/ PROVISIONS FOR PENSIONS
Actuarial measurement of provisions for pensions is based on
the projected unit credit method for defined retirement bene-
fit plans as specified in IAS 19. This method takes account of
pensions and entitlements to future pensions known at the
balance sheet date as well as anticipated future pay and pension
increases. The actuarial interest rate continues to be determined
on the basis of profits realized on the capital market for prime-
rated corporate bonds. The individual parameters used to
measure provisions for pensions are described in Note 30. Any
effects resulting from the new measurement are reported in
equity as retained earnings taking account of deferred taxes
and with no effect on profit or loss.
/ INCOME TAX OBLIGATIONS
Income tax liabilities comprise current income tax obligations.
Deferred taxes are reported under separate balance sheet and
income statement items. Provisions are created for potential
tax risks based on the best estimate.
/ OTHER PROVISIONS
In accordance with IAS 37, provisions are recognized if a current
obligation existing toward third parties on the basis of a past
event is likely to lead to cash outflows and where the amount
of the obligation can reliably be estimated. Provisions are not
offset against recourse entitlements. Provisions with a remain-
ing term of over one year are measured at their discounted
settlement value as of the balance sheet date. Market rates
are used as the discount rates. A nominal interest rate of
0.4 (1.0) percent was applied within the eurozone. The settle-
ment value also includes the expected cost increases. The non-
current portions of provisions for service anniversary awards
were discounted at 2.3 (3.7) percent.
Other provisions include bonus contributions relating to partial
retirement agreements that are accrued on a pro rata basis in
accordance with the block model.
The Audi Group is also confronted with various court proceed-
ings and entitlements related to such issues as product liability
and patent infringements, among others. Other provisions
take account of such risks to the extent that an outflow of
resources is likely to occur in the future and can be reliably
estimated. Legal disputes frequently involve complex legal
issues. Consequently, assumptions must be made regarding
the likelihood of an outflow of resources, the amount of any
such outflow and the duration of the case. This means that the
recognition and measurement of provisions to cover legal risks
involve uncertainty.
/ LIABILITIES
Non-current liabilities are reported in the Balance Sheet at
amortized cost. Any differences between the historical costs of
purchase and the repayment value are taken into account using
the effective interest method. Liabilities from finance leases are
reported in the Balance Sheet at the present value of the leasing
installments. Current liabilities are recognized at the repayment
value or settlement amounts.
/ GOVERNMENT GRANTS
Government grants related to assets are deducted from the
cost of purchase or cost of goods sold and thus recognized in
profit or loss as a reduced depreciation charge over the life of
the depreciable asset. Government grants paid to compensate
the Group for expenses are recognized in profit or loss during
the period in which the corresponding expenses were incurred.
If a claim to an allocation arises retrospectively, the amount of
the allocation that relates to earlier periods is recognized in
income. Grants in the form of non-monetary assets (e.g. free
use of land and premises or use of resources for free) are
shown in a separate noted item.
/ MANAGEMENT’S ESTIMATES AND ASSESSMENTS
To some degree, the preparation of the Consolidated Financial
Statements entails assumptions and estimates with regard to
the level and disclosure of the recognized assets and liabilities,
income and expense, and disclosures with regard to contingent
obligations and liabilities for the reporting period. The assump-
tions and estimates relate principally to the following contents: