Chrysler 2010 Annual Report Download - page 169

FIAT GROUP
CONSOLIDATED
FINANCIAL
STATEMENTS
AT 31 DECEMBER
2010
NOTES
168
On 20 December 2010, the IASB issued amendments to IAS 12 – Income Taxes that require an entity to measure the deferred
tax relating to an asset depending on whether the entity expects to recover the carrying amount of the asset through use or
sale. As a result of the amendments, SIC-21 Income Taxes – Recovery of Revalued Non-Depreciable Assets no longer applies.
These amendments are effective from 1 January 2012. The amendments had not yet been endorsed by the European Union
at the date of these financial statements.
RISK MANAGEMENT
Credit risk
The Group’s credit 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 Union market for the
Fiat Group Automobiles and Trucks and Commercial Vehicles sectors, in North America for the Agricultural and Construction
Equipment sector, as well as in Latin America for all main sectors.
Financial assets are recognised in the statement of financial position net of write-downs for the risk that counterparties may be
unable to fulfil their contractual obligations, determined on the basis of the available information as to the creditworthiness of
the customer and historical data.
Liquidity risk
The Group is exposed to funding risk if there is difficulty in obtaining finance for operations at any given point in time.
The cash flows, funding requirements and liquidity of Group companies are monitored on a centralised basis, under the control
of the Group Treasury. The aim of this centralised system is to optimise the efficiency and effectiveness of the management of
the Group’s capital resources.
Additionally, as part of its activities the Group regularly carries out funding operations on the various financial markets which may
take on different technical forms and which are aimed at ensuring that it has an adequate level of current and future liquidity.
The continuation of a difficult economic situation in the markets in which the Group operates and the uncertainties that
characterise the financial markets necessitate giving special attention to the management of liquidity risk. In that sense measures
taken to generate financial resources through operations and to maintain an adequate level of available liquidity are an important
factor in ensuring normal operating conditions and addressing strategic challenges over the next few years. The Group therefore
plans to meet its requirements to settle liabilities as they fall due and to cover expected capital expenditures by using cash flows
from operations and available liquidity, renewing or refinancing bank loans and making recourse to the bond market and other
forms of funding.
Interest rate risk and currency risk
As a multinational group that has operations throughout the world, the Group is exposed to market risks from fluctuations in
foreign currency exchange and interest rates.
The exposure to foreign currency risk arises both in connection with the geographical distribution of the Group’s industrial
activities compared to the markets in which it sells its products, and in relation to the use of external borrowing denominated
in foreign currencies.