Chrysler 2005 Annual Report Download - page 210

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Transition to International Financial Reporting Standards (IFRS) by Fiat S.p.A.
Under IFRS, IAS 39 permits the derecognition from assets of a
financial asset when, and only when, the risks and rewards of the
ownership of the assets are substantially transferred:consequently,
all portfolios sold with recourse, and part of those sold without
recourse, will be reinstated in the IFRS balance sheet.
6. Employee benefits
Under IFRS, employee severance indemnities (TFR), which are
accounted for pursuant to specific statutory rules under Italian GAAP,
are considered defined benefit obligations pursuant to IAS 19 –
Employee Benefits. As a result, they are recalculated using the
“Projected Unit Credit Method” under IFRS.
Fiat S.p.A. also grants employees and former employees various
forms of benefits (retirement incentives, compensation, bonuses)
under past or current supplemental company or individual agreements
that are qualified as defined benefit pension plans, just like other long-
term benefits. Although these benefits are accrued in the statutory
financial statements in a manner that is consistent with Italian GAAP,
under IFRS they will need to be accounted for in accordance with
IAS 19.
For IFRS purposes, Fiat S.p.A. has elected to recognise all accumulated
actuarial gains and losses at January 1, 2005, and this will have a net
positive impact on stockholders’ equity.
7. Stock options
N o obligations or compensation expenses are recognised for share-
based payment transactions under Italian GAAP.
In accordance with IFRS 2 – Share-based Payment, the full fair value
amount of stock options at the grant date is reflected in the income
statement on a straight-line basis over the period from the grant
date to the vesting date, with the offsetting credit recognised directly
in equity. Changes in fair value after the grant date have no impact
on the initial measurement.
Fiat S.p.A. will apply the transitional provisions stated in IFRS 2 and
therefore will apply this standard to all stock options granted after
N ovember 7, 2002 and not yet vested at January 1, 2005, the effective
date of IFRS 2. N o compensation expense is required to be recognised
for stock options granted prior to N ovember 7, 2002.
8. Recognition and measurement of financial receivables
and financial debt
Financial receivables consist of short-term financing granted to the
subsidiary Fiat Ge.Va. S.p.A., as well as cash deposited on its cash
management account. These receivables can be immediately
converted into cash and are subject to an insignificant risk of change
in value. The transition to IFRS will not impact their amount.
Financial debt at January 1, 2005 principally reflected the Mandatory
Convertible Facility. Under Italian GAAP, the gross amount received
is recognised.The various fees owed to the lending banks (for the
organisation of the facility, for the share subscription commitment,
etc.) at different dates (at the beginning, over the years, and upon
maturity) are charged against income over the term of the facility
(on a pro-rated basis).
Under IFRS, financial debt is recognised at the amounts received
stated net of transaction costs and is subsequently measured at its
amortised cost using the effective interest method. Adoption of IFRS
will thus entail recomputation of the expenses charged to income for
the various years affected, with a net positive effect on stockholders’
equity at January 1, 2005.
Furthermore, the Mandatory Convertible Facility agreement envisaged
that the facility would either be reimbursed in cash or converted into
shares subscribed for by the lending banks and through subsequent
rights offerings to the stockholders. In the statutory financial
statements of Fiat S.p.A. prepared in accordance with Italian GAAP,
the conversion of the facility led to an entry for the increase in capital
stock and in additional paid-in capital at subscription price, with
the counter entry extinguishing the debt.
In the statutory financial statements of Fiat S.p.A. prepared in
accordance with IFRS, the increase in capital and in additional paid-in
capital is recorded in equity at its current value, in line with the
accounting treatment in the consolidated financial statements, with the
difference between the subscription price of the new shares (10.28
euros per share) and their current value at the time of subscription
(7.337 euros per share) then recognised in the income statement as
unusual financial income (858 million euros net of expenses).