Chrysler 2006 Annual Report Download - page 54

Fiat Group Consolidated Financial Statements at December 31, 2006 -Notes 105
cumulative amortisation recognised in accordance with
IAS 18 - Revenue.
In limited cases the Fiat Group provides guarantees to third
parties, mostly on behalf of associates and joint ventures in
which the Group participates, receiving in exchange a
commission for this service. No significant effects arose on
applying the amendment.
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’s financial position and performance.
These disclosures incorporate many of the requirements
previously 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’sobjectives,
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 Fiat Group
early adopted IFRS 7 for the annual period beginning January
1, 2005.
On November 2, 2006, the IFRIC issued an interpretation, the
IFRIC 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 as of January 1, 2008. The Group early adopted this
interpretation as of January 1, 2006 and no significant effects
arose from this.
New accounting principles
On March 3, 2006, the IFRIC issued interpretation IFRIC 9 –
Reassessment of Embedded Derivatives,which requires an
entity to assess whether an embedded derivative is required
to be separated from the host contract and accounted for as
aderivative when the entity first becomes a party to the
euros and valuation allowances against these assets of 4,551
million euros. The corresponding totals at December 31, 2005
were 5,011 million euros and 4,046 million euros, respectively.
Management has recorded these valuation allowances to
reduce deferred tax assets to the amount that it believes it is
probable will be recovered.
Contingent liabilities
The Group is the subject of legal proceedings and tax issues
covering a range of matters, which are pending in various
jurisdictions. Due to the uncertainty inherent in such matters,
it is difficult to predict the final outcome of such matters. The
cases and claims against the Group often raise difficult and
complex factual and legal issues, which are subject to many
uncertainties and complexities, including but not limited to the
facts and circumstances of each particular case and claim, the
jurisdiction and the differences in applicable law. In the normal
course of business management consults with legal counsel
and certain other experts on matter related to litigation and
taxes. The Group accrues a liability when it is determined that
an adverse outcome is probable and the amount of the loss
can be reasonably estimated. In the event an adverse outcome
is possible or an estimate is not determinable, the matter is
disclosed.
Accounting principles adopted
from January 1, 2006
In December 2004 IFRIC released the interpretation IFRIC 4 –
Determining whether an arrangement contains a Lease in order
to give guidance on determining whether arrangements that do
not take the legal form of a lease should be accounted for in
accordance with IAS 17 – Leases.In particular,the
interpretation specifies that an arrangement contains a lease
if it depends on the use of a specific asset and conveys a right
to control the use of that asset. The Group adopted this
interpretation as of January 1, 2006; no significant effects
arose from the adoption of this interpretation.
In April 2005, the IASB issued an amendment to IAS 39 –
Financial Instruments: Recognition and Measurement to
permit the foreign currency risk of a highly probable
intragroup forecast transaction to qualify as the hedged item
in a cash flow hedge in consolidated financial statements –
provided that the transaction is denominated in a currency
other than the functional currency of the entity entering into
Fiat Group Consolidated Financial Statements at December 31, 2006 -Notes 104
that transaction and the foreign currency risk will affect
consolidated financial statements. The amendment also
specifies that if the hedge of a forecast intragroup transaction
qualifies for hedge accounting, any gain or loss that is
recognised directly in equity in accordance with the hedge
accounting rules in IAS 39 must be reclassified into profit or
loss in the same period or periods during which the foreign
currency risk of the hedged transaction affects consolidated
income statement.
In June 2005, the IASB issued an amendment to IAS 39 –
Financial Instruments: Recognition and Measurement to restrict
the use of the option to designate any financial asset or any
financial liability to be measured at fair value through profit
and loss (the fair value option). The revisions limit the use of
the option to those financial instruments that meet certain
conditions. Those conditions are that:
■the fair value option designation eliminates or significantly
reduces an accounting mismatch;
■agroup of financial assets, financial liabilities, or both are
managed and their performance is evaluated on a fair value
basis in accordance with a documented risk management or
investment strategy; and
■an instrument contains an embedded derivative that meets
particular conditions.
The Group adopted these amendments to IAS 39 as of January
1, 2006. This adoption had no material impact on the
Stockholders’ equity and net result for the period.
In August 2005, the IASB issued amended requirements for
financial guarantee contracts, in the form of limited
amendments to IAS 39 and IFRS 4. The amendments require
that issuers of financial guarantee contracts include the
resulting liabilities in their balance sheet, measured as follows:
■initially at fair value;
■subsequently at the higher of (i) the best estimate of the
expenditure required to settle the present obligation at the
balance sheet date in accordance with IAS 37 - Provisions,
Contingent Liabilities and Contingent Assets and (ii) the
amount initially recognised less, where appropriate,
contract. Subsequent reassessment is prohibited unless there
is a change in the terms of the contract that significantly
modifies the cash flows that otherwise would be required
under the contract, in which case reassessment is required.
This interpretation will become effective for the Group on
January 1, 2007 No significant impact is expected to arise
on its adoption.
On November 30, 2006, the IASB issued the IFRS 8 –
Operating Segments that will become effective for the Group
on January 1, 2009 and which will replace IAS 14 – Segment
Reporting from that date. The new standard requires the
information provided in segment reporting to be based upon
the components of the entity that management uses to make
decisions about operational matters. The standard requires
these operating segments to be identified on the basis of
internal reports that are regularly reviewed by an entity’s
management in order to allocate resources to the segment
and assess its performance. The Group is currently assessing
any impact that the adoption of this new standard may have
on the financial statements.
The following standards and interpretations have also been
issued in 2006 but are not applicable to the Fiat Group:
■IFRIC 8 – Scope of IFRS 2 (effective from January 1, 2007);
■IFRIC 12 – Service Concession Arrangements (effective from
January 1, 2008).
Risk management
Credit risk
The Group’scredit concentration risk differs in relation to
the activities carried out by the individual sectors and various
sales markets in which the Group operates; in all cases,
however, the risk is mitigated by the large number of
counterparties and customers. Considered from a global point
of view, however, there is a concentration of credit risk in trade
receivables and receivables from financing activities, in
particular dealer financing and finance leases in the European