Chrysler 2003 Annual Report Download - page 153

152 Fiat S.p.A. Financial Statements at December 31, 2003
Notes to the Financial Statements
Receivables and payables denominated in currencies of non-
EMU countries are converted into euros using the exchange
rate prevailing at the time when booked. These receivables
and payables are adjusted at year-end exchange rates only in
the case where balances translated at year-end exchange rates
produce a material net exchange loss.
Accruals and deferrals
Accruals and deferrals are determined by the accrual method,
in accordance with the general principle of assigning revenues
and expenses to the accounting period in which they are earned
or incurred.
Reserves for risks and charges
Reserves for risks and charges are established to cover costs
or liabilities that have already been incurred or the occurrence
of which was probable or definite at the end of the fiscal year,
but were undetermined either as to amount or time of probable
occurrence.
Reserve for employee severance indemnities
The reserve for employee severance indemnities represents the
actual liability toward employees accrued as of the end of the
fiscal year and is adjusted each year in accordance with current
laws and collective bargaining agreements.
❚MEMORANDUM ACCOUNTS
Suretyships and other unsecured guarantees
The suretyships and other unsecured guarantees granted
on behalf of subsidiaries and others are posted under
memorandum accounts.
The suretyships granted against payment of the leases
of subsidiaries are posted in the amount of the provided
guarantee; the suretyships for the Sava Notes are posted in
the amount of the outstanding notes; the suretyships and other
unsecured guarantees granted for financing, bonds, credit
facilities, and commercial paper of subsidiaries and others are
posted for the value of these notes at December 31.
The Other unsecured guarantees include the amount of
the risk of withdrawal on sales of receivables with recourse.
The receivables sold with recourse are eliminated from
the balance sheet; the risk of withdrawal is reported under
memorandum accounts and described in the notes to the
financial statements.
The suretyships granted by others for enterprise debts, in
particular those granted by the Consortia participating in the
High-Speed Railway Project to guarantee the successful conclusion
of work and the advances posted on the balance sheet under
“Advances,” are not reported under memorandum accounts
but described instead in the notes to the financial statements.
Commitments
The Group’s commitments are posted under memorandum
accounts in their amount at December 31. In particular, the
supply commitments for the High-Speed Railway Project include
the amount of supply commitments envisaged in the original
agreements made with Treno Alta Velocità – T.A.V. S.p.A., the
amounts envisaged in agreements for alterations during
construction, and relative monetary adjustments.
If the amount of a commitment cannot be quantified,
the commitment is not posted under memorandum
accounts but described instead in the notes to the financial
statements.
Derivative financial instruments
Derivative financial instruments are recorded at inception in
the memorandum accounts at their notional contract amount.
More specifically, derivative financial instruments classified
as trading instruments insofar as they do not satisfy the
requirements for hedge accounting treatment (e.g. equity
swaps), are valued at their market value and the differential,
if negative compared to the contractual value, is recorded in
the statement of operations, in Financial income and expenses
in accordance with the principle of prudence.
❚STATEMENT OF OPERATIONS
Dividends
Dividends are recorded in the year when declared by the
disbursing companies.
The respective tax credits are booked when the dividends
are collected.
Financial income and expenses
Financial income and expenses are recorded on the accrual
basis.
Costs relating to the sale of receivables of any type (with and
without recourse) and nature (trade, financial, other) are charged
to the statement of operations on an accrual basis.
Income taxes
Liability for corporate income taxes due for the fiscal year
is determined in accordance with the current legislation.
Deferred tax assets and liabilities are determined on the basis
of the temporary differences that arise between asset and
liability items and the corresponding tax items.
In particular, deferred tax assets are recognized only when it
is reasonably certain that they will be recovered. Conversely,
deferred tax liabilities are not recognized if it is unlikely that
the corresponding obligations will in fact arise.