Chrysler 2006 Annual Report Download - page 127

Fiat S.p.A. Financial Statements at December 31, 2006 - Notes to the Financial Statements 251Fiat S.p.A. Financial Statements at December 31, 2006 - Notes to the Financial Statements250
Use of estimates
The preparation of financial statements and related disclosures
that conform to IFRS requires management to make estimates
and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements. Actual results
could differ from those estimates. Estimates are used in
accounting for depreciation and amortisation, impairment
losses and reversals of impairment losses on investments, the
margins earned on construction contracts, employee benefits,
taxes and provisions. Estimates and assumptions are reviewed
periodically and the effects of any changes are recognised in
the period in which the estimate is revised if the revision
affects only that period, or in the period of the revision and
future periods if the revision affects both current and future
periods.
New accounting principles
In August 2005, the IASB issued IFRS 7 – Financial Instruments:
Disclosures and a complementary amendment to IAS 1
Presentation of Financial Statements – Capital Disclosures.
IFRS 7 requires disclosures about the significance of financial
instruments for an entity’sfinancial position and performance.
These disclosures incorporate many of the requirements
previously included in IAS 32 – Financial Instruments:
Disclosure and Presentation.IFRS 7 also requires information
about the extent to which the entity is exposed to risks arising
from financial instruments, and a description of management’s
objectives, policies and processes for managing those risks.
The amendment to IAS 1 introduces requirements for
disclosures about an entity’s capital.
IFRS 7 and the amendment to IAS 1 are effective for annual
periods beginning on or after January 1, 2007. The Company
early adopted IFRS 7 for the annual period beginning January
1, 2006. Comparative data for the Notes envisaged in
paragraphs 31 and 42 of said standard are not provided, in
accordance with the transitional provisions of paragraph 44.
On November 2, 2006, the IFRIC issued an interpretation of
IFRS 2 (IFRIC Interpretation 11 – IFRS 2 – Group and Treasury
Share Transactions). This interpretation establishes that share-
based payment arrangements in which an entity receives
services as consideration for its own equity instruments must
be accounted for as equity-settled. IFRIC Interpretation 11 is
effective from January 1, 2008. The Company early adopted
this interpretation on January 1, 2006 and no significant effects
arose from this.
Risk management
The risks to which Fiat S.p.A. is exposed, either directly or
indirectly through its subsidiaries, are the same as those of the
companies of which it is the Parent. Reference should therefore
be made to the note on Risk Management included as part of
the Notes to the Consolidated Financial Statements of the Fiat
Group as well as to Note 29.
Provisions
The company recognises provisions when it has a legal or
constructive obligation to third parties, when it is probable
that the settlement of the obligation will require the outflow
of resources and when a reliable estimate can be made for
the amount of the obligation.
Changes in estimates are recognised in the Income Statement
for the period in which the change occurs.
Treasury stock
The cost of purchase of treasury stock is accounted for as a
reduction of equity. The effects of any subsequent transactions
with those shares are similarly recognised directly in equity.
Dividends received and receivable
Dividends received and receivable from investments are
recognised in the Income Statement when the right to receive
the payment of this income is established and only if declared
from post-acquisition net income.
If dividends are declared from pre-acquisition net income,
those dividends are deducted from the cost of the investment.
Revenue recognition
Revenue is recognised to the extent that it is probable that
economic benefits will flow to the company and when the
amount of revenue can be measured reliably.Revenue is
presented net of any adjusting items.
Revenue from services and revenue from construction
contracts is recognised by reference to the stage of completion
(the percentage of completion method). Revenues arising from
royalties are recognised on an accrual basis in accordance with
the terms of the relevant agreement.
Financial income and expenses
Financial income and expenses are recognised and measured
in the Income Statement on an accrual basis.
Taxes
The tax charge for the period is determined on the basis of
prevailing laws and regulations. Income taxes are recognised
in the Income Statement other than those relating to items
credited or charged directly to equity, in which case income
taxes are also recognised directly in equity.
Deferred tax assets and liabilities are determined on the basis
of all the temporary differences between the carrying amount
of an asset or liability in the Balance Sheet and its
corresponding tax basis. Deferred tax assets resulting from
unused tax losses and temporary differences are recognised
to the extent that it is probable that future taxable profit will
be available against which they can be utilised. Current and
deferred income taxes and liabilities are offset when there is
alegally enforceable right to offset. Deferred tax assets and
liabilities are measured by using the tax rates that are
expected to apply to the period when the asset is realised
or the liability is settled.
Fiat S.p.A. and almost all its Italian subsidiaries have elected to
take part in the national tax consolidation programme pursuant
to articles 117/129 of the Consolidated Income Tax Act
(T.U.I.R.); the election has been made for a three year period
beginning in 2004.
Fiat S.p.A. acts as the consolidating company in this programme
and calculates a single taxable base for the group of companies
taking part, thereby enabling benefits to be realised from
offsetting taxable income and tax losses in a single tax return.
Each company participating in the consolidation transfers its
taxable income or tax loss to the consolidating company and
Fiat S.p.A. recognises a receivable from that company for the
amount of IRES corporate income tax paid over on its behalf. In
the case of a company bringing a tax loss into the consolidation
Fiat S.p.A. recognises a payable to that company for the amount
of the loss actually set off at a group level.
Dividends
Dividends payable are recognised as a change in stockholders’
equity in the period in which their distribution is approved by
stockholders.