Chrysler 2009 Annual Report Download - page 139

138 FIAT GROUP
CONSOLIDATED
FINANCIAL
STATEMENTS
AT 31 DECEMBER
2009
NOTES
When derivative financial instruments qualify for hedge accounting, the following accounting treatment applies:
Fair value hedge – Where a derivative financial instrument is designated as a hedge of the exposure to changes in fair value
of a recognised asset or liability that is attributable to a particular risk and could affect the income statement, the gain or
loss from remeasuring the hedging instrument at fair value is recognised in the income statement. 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.
Cash flow hedge – Where a derivative financial instrument is designated as a hedge of the exposure to variability in future
cash flows of a recognised asset or liability or a highly probable forecasted transaction and could affect income statement,
the effective portion of any gain or loss on the derivative financial instrument is recognised directly in equity. The cumulative
gain or loss is removed from equity and recognised in the income statement at the same time as the economic effect arising
from the hedged item affects income. The gain or loss associated with a hedge or part of a hedge that has become ineffective
is recognised in the income statement immediately. When a hedging instrument or hedge relationship is terminated but
the hedged transaction is still expected to occur, the cumulative gain or loss realised to the point of termination remains
in equity and is recognised in the income statement at the same time as the underlying transaction occurs. If the hedged
transaction is no longer probable, the cumulative unrealised gain or loss held in equity is recognised in the income statement
immediately.
Hedge of a net investment – If a derivative financial instrument is designated as a hedging instrument for a net investment in
a foreign operation, the effective portion of the gain or loss on the derivative financial instrument is recognised in equity. The
cumulative gain or loss is reclassified from equity to profit or loss on the disposal of the foreign operation.
If hedge accounting cannot be applied, the gains or losses from the fair value measurement of derivative financial instruments
are recognised immediately in the income statement.
Sales of receivables
The Group sells a significant part of its financial, trade and tax receivables through either securitisation programs or factoring
transactions.
A securitisation transaction entails the sale of a portfolio of receivables to a securitisation vehicle. This special purpose entity
finances the purchase of the receivables by issuing asset-backed securities (i.e. securities whose repayment and interest
flow depend upon the cash flow generated by the portfolio). Asset-backed securities are divided into classes according
to their degree of seniority and rating: the most senior classes are placed with investors on the market; the junior class,
whose repayment is subordinated to the senior classes, is normally subscribed for by the seller. The residual interest in
the receivables retained by the seller is therefore limited to the junior securities it has subscribed for. In accordance with
SIC 12 – Consolidation – Special Purpose Entities (SPE), all securitisation vehicles are included in the scope of consolidation,
because the subscription of the junior asset-backed securities by the seller entails its control in substance over the SPE.
Furthermore, factoring transactions may be with or without recourse to the seller; certain factoring agreements without recourse
include deferred purchase price clauses (i.e. the payment of a minority portion of the purchase price is conditional upon the full
collection of the receivables), require a first loss guarantee of the seller up to a limited amount or imply a continuing significant
exposure to the receivables cash flow. These kinds of transactions do not meet IAS 39 requirements for assets derecognition,
since the risks and rewards have not been substantially transferred.
Consequently, all receivables sold through both securitisation and factoring transactions which do not meet IAS 39 derecognition
requirements are recognised as such in the Group financial statements even though they have been legally sold; a corresponding
financial liability is recorded in the consolidated statement of financial position as Asset-backed financing. Gains and losses
relating to the sale of such assets are not recognised until the assets are removed from the Group statement of financial
position.