Chrysler 2005 Annual Report Download - page 169

168 Appendix 1 Transition to International Financial Reporting Standards (IFRS)
02 Fiat Group
In the IFRS restatement, the above mentioned positive fair value at
December 31, 2003 has been recognized in opening equity, while,
following the unwinding of the swap, a negative adjustment of the
same amount has been recorded in the 2004 income statement.
N .Treasury stock
In accordance with Italian GAAP, the Group accounted for treasury
stock as an asset and recorded related valuation adjustments and
gains or losses on disposal in the income statement.
Under IFRS, treasury stock is deducted from stockholders’ equity and
all movements in treasury stock are recognised in stockholders’
equity rather than in the income statement.
O. Stock options
Under Italian GAAP, with reference to share-based payment
transactions, no obligations or compensation expenses were
recognised.
In accordance with IFRS 2 – Share-based Payment, the full amount fair
value of stock options on the date of grant must be expensed.
Changes in fair value after the grant date have no impact on the
initial measurement.The compensation expense corresponding to
the option’s fair value is recognised in payroll costs on a straight-line
basis over the period from the grant date to the vesting date, with
the offsetting credit recognised directly in equity.
The Group applied the transitional provision provided by IFRS 2 and
therefore applied this standard to all stock options granted after
N ovember 7, 2002 and not yet vested at the effective date of IFRS 2
(January 1, 2005). N o compensation expense is required to be
recognised for stock options granted prior to N ovember 7, 2002,
in accordance with transitional provision of IFRS 2.
P. Adjustments to the valuation of investments in associates
These items represent the effect of the IFRS adjustments on the
Group portion of the net equity of associates accounted for using
the equity method.
Q. Sales of receivables
The Fiat Group sells a significant part of its finance, trade and tax
receivables through either securitisation programs or factoring
transactions.
A securitisation transaction entails the sale without recourse of a
portfolio of receivables to a securitisation vehicle (special purpose
entity).This special purpose entity finances the purchase of the
receivables by issuing asset-backed securities (i.e. securities whose
repayment and interest flow depend upon the cash flow generated by
the portfolio).Asset-backed securities are divided into classes
according to their degree of seniority and rating:the most senior
classes are placed with investors on the market;the junior class, whose
repayment is subordinated to the senior classes, is normally subscribed
for by the seller.The residual interest in the receivables retained by the
seller is therefore limited to the junior securities it has subscribed for.
Factoring transactions may be with or without recourse on the
seller; certain factoring agreements without recourse include
deferred purchase price clauses (i.e. the payment of a minority
portion of the purchase price is conditional upon the full collection
of the receivables), require a first loss guarantee of the seller up to
a limited amount or imply a continuing significant exposure to the
receivables cash flow.
Under Italian GAAP, all receivables sold through either securitisation
or factoring transactions (both with and without recourse) had been
derecognized. Furthermore, with specific reference to the
securitisation of retail loans and leases originated by the financial
services companies, the net present value of the interest flow implicit
in the instalments, net of related costs, had been recognised in the
income statement.
Under IFRS:
As mentioned above, SIC 12 - Consolidation - Special Purpose
Entities states that an SPE shall be consolidated when the substance
of the relationship between the entity and the SPE indicates that
the SPE is controlled by that entity;therefore all securitisation
transactions have been reversed.
IAS 39 allows for the derecognition of a financial asset when, and
only when, the risks and rewards of the ownership of the assets