Chrysler 2005 Annual Report Download - page 211

210 Transition to International Financial Reporting Standards (IFRS) by Fiat S.p.A.
03 Fiat S.p.A.
9. Recognition and measurement of derivatives
Fiat S.p.A. adopted IAS 39 - Financial Instruments: Recognition and
M easurement on January 1, 2 0 0 1 to the extent that it is consistent
and not in contrast with the general principles set forth in the Italian
law governing financial statements. In particular, taking into account
the restrictions under Italian law, Fiat S.p.A. maintained that IAS 39
was applicable only in part and only in reference to the designation
of derivative financial instruments as “hedging” or “non-hedging
instruments” and with respect to the symmetrical accounting of
the result of the valuation of the hedging instruments and the
result attributable to the hedged items (“hedge accounting”).Those
transactions which, according to Fiat S.p.A.’s policy for risk management,
are able to satisfy the conditions stated by the accounting principle
for hedge accounting treatment, are designated as hedging transactions;
the others, although set up for the purpose of managing risk exposure
(inasmuch as speculative transactions are not permitted as a rule),
are designated as trading transactions.
The main differences between Italian GAAP and IFRS may be
summarised as follows:
Financial instruments designated as “hedging instruments” -
under Italian GAAP, the instrument is valued symmetrically with
the underlying hedged item.Therefore, where the hedged item
has not been adjusted to fair value in the financial statements,
the hedging instrument has also not been adjusted. Similarly,
where the hedged item has not yet been recorded in the
financial statements (hedging of future flows), the valuation
of the hedging instrument at fair value is deferred.
Under IFRS:
– In the case of a fair value hedge, the gain or loss from
remeasuring the hedging instrument at fair value is recognised
in the income statement and the gain or loss on the hedged
item attributable to the hedged risk adjusts the carrying amount
of the hedged item and is recognised in the income statement.
Consequently, no impact arises on net income (except for the
ineffective portion of the hedge, if any) or on stockholders’
equity, while adjustments impact the carrying values of hedging
instruments and hedged items.
– In the case of a cash flow hedge (hedging of future flows),
the portion of gain or loss on the hedging instrument that is
determined to be an effective hedge is recognised directly in
equity;the ineffective portion of the gain or loss is recognised
in the income statement. Consequently, with reference to the
effective portion, only a difference in stockholders’ equity will
arise between Italian GAAP and IFRS.
Instruments designated as “non-hedging instruments” (except
for foreign currency derivative instruments) - under Italian GAAP,
these instruments are valued at market value and the difference,
if negative compared to the contractual value, is recorded in the
income statement, in accordance with the concept of prudence.
Under IAS 39 any positive difference is also recorded.The
accounting treatment adopted for foreign currency derivative
instruments under Italian GAAP is, however, in line with IAS 39.