Chrysler 2005 Annual Report Download - page 81

80 Fiat Group Consolidated Financial Statements at December 31, 2005 - N otes to the Consolidated Financial Statements
02 Fiat Group
N otes to the Consolidated
Financial Statements
PRIN CIPAL ACTIVITIES
Fiat S.p.A. is a corporation organised under the laws of the
Republic of Italy. Fiat S.p.A. and its subsidiaries (the “Group”) operate
in more than 190 countries.The Group is engaged principally in the
manufacture and sale of automobiles, agricultural and construction
equipment and commercial vehicles. It also manufactures other
products and systems, principally automotive-related components,
metallurgical products and production systems. In addition, it is
involved in certain other sectors, including publishing and
communications and service operations, which represent a
marginal portion of its activities.The head office of the Group
is located in Turin, Italy.
The consolidated financial statements are presented in euros, the
Group’s functional currency.
SIGN IFICAN T ACCO UN TIN G PO LICIES
Basis of preparation
The 2005 consolidated financial statements have been prepared in
accordance with the International Financial Reporting Standards (the
“IFRS”) issued by the International Accounting Standards Board
(“IASB”) and endorsed by the European Union.The designation
“IFRS” also includes all valid International Accounting Standards
(“IAS”), as well as all interpretations of the International Financial
Reporting Interpretations Committee (“IFRIC”), formerly the
Standing Interpretations Committee (“SIC”).
The Fiat Group adopted IFRS on January 1, 2005 on the coming into
effect of European Union Regulation N o. 1606 of July 19, 2002. In
this context, the accounting policies applied in these financial
statements are consistent with those adopted in preparing the IFRS
opening consolidated balance sheet at January 1, 2004, as well the
consolidated financial statements at December 31, 2004, as restated
in accordance with IFRS and presented in the Appendix attached
to these notes to which reference should be made. Reconciliations
between profit or loss and equity under previous GAAP (Italian
GAAP) to profit or loss and equity under IFRS for the periods shown
as comparatives, as required by IFRS 1 - First-time Adoption of IFRS,
together with related explanatory notes, are included in this Appendix.
Certain changes, however, have been made to the classification of the
figures reported in the Appendix to the Q uarterly Report at March
31, 2005, and the comparative data for prior periods have been
reclassified accordingly.These changes have no effect on Trading
profit, O perating result, N et result or Consolidated stockholders’
equity and regard in particular:
Vehicles sold with a buy-back commitment are accounted for
as Inventory if they regard the Fiat Auto business (agreements
with normally a short-term buy-back commitment) and as
Property, plant and equipment if they regard the Commercial
Vehicles business (agreements with normally a long-term
buy-back commitment). In the balance sheet included in
the Appendix to the Q uarterly Report at March 31, 2005,
these vehicles were accounted for as either Inventory
or Property, plant and equipment depending on the term of
the buy-back commitment (less or more than twelve months,
respectively).
In order to achieve a better presentation, more consistent
between the various Sectors, certain costs, previously classified by
some Sectors as O ther income (expenses) and by others as Cost
of sales or Selling, general and administrative costs, have been
recorded in the same manner by all Sectors.
The item Accrued income and prepaid expenses is included in
Current assets.
The financial statements are prepared under the historical cost
convention, modified as required for the valuation of certain financial
instruments.
Format of the financial statements
The Fiat Group presents an income statement using a
classification based on the function of expenses within the Group
(otherwise known as the “cost of sales” method), rather than based
on their nature, as this is believed to provide information that is
more relevant.The format selected is that used for managing the
business and for management reporting purposes and is coherent
with international practice in the automotive sector.
For the balance sheet, a mixed format has been selected to present
current and non-current assets and liabilities, as permitted by
paragraph 51 and following of IAS 1. In more detail, both companies
carrying out industrial activities and those carrying out financial
activities are consolidated in the Group’s financial statements,
including certain entities performing banking activities.The investment