Reebok 2012 Annual Report Download - page 225

adidas Group
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2012 Annual Report
Consolidated Financial Statements
203
2012
Notes
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04.8
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Interest
Interest is recognised as income or expense as incurred using the
“effective interest method” with the exception of interest that is directly
attributable to the acquisition, construction or production of a qualifying
asset. This interest is capitalised as part of the cost of the qualifying
asset.
Income taxes
Current income taxes are computed in accordance with the applicable
taxation rules established in the countries in which the Group operates.
The Group computes deferred taxes for all temporary differences
between the carrying amount and the tax base of its assets and liabilities
and tax loss carry-forwards. As it is not permitted to recognise a deferred
tax liability for goodwill, the Group does not compute any deferred taxes
thereon.
Deferred tax assets arising from deductible temporary differences
and tax loss carry-forwards which exceed taxable temporary differences
are only recognised to the extent that it is probable that the company
concerned will generate sufficient taxable income to realise the
associated benefit.
Income tax is recognised in the income statement except to the
extent that it relates to items recognised directly in equity, in which case
it is recognised in equity.
Estimation uncertainties and judgements
The preparation of financial statements in conformity with IFRS
requires the use of assumptions and estimates that affect reported
amounts and related disclosures. Although such estimates are based
on Management’s best knowledge of current events and actions, actual
results may ultimately differ from these estimates.
The key assumptions concerning the future and other key sources of
estimation uncertainty at the balance sheet date which have a significant
risk of causing a material adjustment to the carrying amounts of assets
and liabilities within the next financial year are outlined in the respective
Notes, in particular goodwill
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SEE NOTE 13, trademarks
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SEE NOTE 14,
other provisions
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SEE NOTE 20, pensions
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SEE NOTE 24, derivatives
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SEE
NOTE 29 as well as deferred taxes
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SEE NOTE 34.
Judgements have, for instance, been used in classifying leasing
arrangements as well as in determining valuation methods for intangible
assets.
03 Adjustments according to IAS 8
At Reebok India Company (hereinafter “Reebok India”), numerous
financial irregularities were identified in March 2012. As a result, the
services of the then Managing Director (MD) and Chief Operating Officer
were terminated, and a new MD was instated. Immediately on becoming
aware of the aforesaid financial irregularities, Reebok India carried
out an externally assisted internal investigation and filed a criminal
complaint with the police. This resulted in an investigation which is
being carried out by the Special Economic Wing of the Gurgaon Police.
Additionally, various other regulatory agencies are conducting specific
investigations into various aspects of the case.
Key findings from the internal investigation include inappropriate
recognition of sales due to sales cut-off irregularities, a failure to book
sales returns and a failure to correctly post credit notes to accounts
receivable. This also resulted in a significant overstatement of the
accounts receivable balances as well as materially incorrect accounting
for inventories and provisions. During the investigation process, the new
management also discovered four secret warehouses not disclosed in
the official accounting records. The investigations also revealed that
Reebok India had adopted inappropriate procedures to artificially reduce
the accounts receivable balance. The findings of the investigations
suggest that the practice of inflating sales and profits had been going
on for several years.
The discovery of these activities resulted in the identification of
material errors in the prior period financial statements of Reebok
India. As a consequence of these errors, material misstatements are
also included in the consolidated financial statements of adidas AG for
the 2011 financial year and previous financial years, which have to be
corrected in accordance with IAS 8.41 et seqq. These corrections are
reflected in the consolidated financial statements as at December 31,
2012, in which the comparative figures for the year 2011 are restated and
the opening balance sheet for 2011 is corrected to the extent that earlier
periods are affected.
The following tables provide an overview of the impact of all
corrections: