Chrysler 2007 Annual Report Download - page 101

Notes to the Consolidated
Financial Statements
Fiat Group Consolidated Financial Statements at December 31, 2007 - Notes100
Principal 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 approximately 50 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
engines, transmission systems, automotive-related components,
metallurgical products and production systems. In addition, it is
involved in certain other sectors, including publishing and
communications, which represent a small 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.
Significant accounting policies
Basis of preparation
The 2007 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 adopted by the
European Union, and with the provisions implementing article
9 of Legislative Decree no. 38/2005. 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 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 Group presents an income statement using a classification
based on the function of expenses (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 consistent with
international practice in the automotive sector.
In this income statement, in which the classification of
expenses is based on their function, the result from trading
operations is reported specifically as part of the Operating
result and separate from the income and expense resulting
from the non-recurring operations of the business, such as
gains and losses on the sale of investments, restructuring costs
and any other unusual income or expense of a different nature.
By doing this, it is believed that the Group’s actual
performance from normal trading operations may be measured
in a better way, while disclosing specific details of unusual
income and expenses. Consequently, the definition of unusual
transaction adopted by the Group differs from that provided in
the Consob Communication of July 28, 2006, under which
unusual and abnormal transactions are those which, because
of their significance or importance, the nature of the parties
involved, the object of the transaction, the methods of
determining the transfer price or the timing of the event (close
to the year end), may give rise to doubts regarding the
accuracy/completeness of the information in the financial
statements, conflicts of interest, the safeguarding of an entity’s
assets or the protection of minority interests.
For the balance sheet, a mixed format has been selected to
present current and non-current assets and liabilities, as
permitted by 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 an entity performing banking activities (disposed of
in 2006 as described below). The investment portfolios of
financial services companies are included in current assets, as
the investments will be realised in their normal operating
cycle. Financial services companies, though, obtain funds only
partially from the market: the remaining are obtained from Fiat
S.p.A. through the Group’s treasury companies (included in
industrial companies), which lend funds both to industrial
Group companies and to financial services companies as the
need arises. This financial service structure within the Group
means that any attempt to separate current and non-current
debt in the consolidated balance sheet cannot be meaningful.
Suitable disclosure on the due dates of liabilities is moreover
provided in the notes.
The Statement of Cash Flows is presented using the indirect
method.