Tiscali 2009 Annual Report Download - page 95

Tiscali Group: Annual Report 2009
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deposits, trade receivables, and receivables from third parties generated as part of core business activities.
If they have a fixed maturity, they are stated at amortised cost, using the effective interest rate method.
When financial assets have no fixed expiry, they are estimated at the acquisition cost. Receivables with
expiry over one year, unprofitable receivables, and receivables maturing interests at lower rates with respect
to the market, are updated by using market rates.
Estimates are regularly carried out with the aim of making sure whether there is objective evidence that
a financial asset or a group of assets have been subject to market value reduction. If there is objective
evidence, the value loss must be recorded as cost in the income statement of the period.
Cash and cash equivalents
Cash and cash equivalents include cash on hand, on-demand and short-term deposits, in the latter case
with an original maturity envisaged of no more than three months.
Payables and financial liabilities
The Group’s payables and financial liabilities are stated in the items “bonds”, “payables to banks and other
lenders”, “payables for finance leases”, “other non-current liabilities”, “payables to suppliers”, and include
trade payables, payables to third parties, financial payables, inclusive of payables for loans received for
advances on the factoring of receivables and for finance lease transactions.
Trade payables and other payables are stated at face value. Financial payables are initially stated at cost,
equating to the fair value of the amount received, net of related charges. Subsequently, these payables are
stated at amortised cost using the effective interest rate method, calculated considering the issue costs and
any other premium or discount envisaged on settlement.
Reduction in value of financial assets
For each period the financial statements refer to (annual or half-year), appraisals are made to check
whether objective evidence exists that a financial asset or group of assets has suffered impairment. If there
is objective evidence, the impairment is recorded in the income statement for financial assets valued at cost
or at amortized cost while for “financial assets available for sale”, the matters already illustrated above are
should be referred to.
Derivative financial instruments
Periodically the Group uses derivative financial instruments mainly to hedge its financial risks associated
with interest rate fluctuations on long/medium term debt. In accordance with treasury management policies
the Group does not use derivative financial instruments for declared trading purposes.
Derivative instruments are recorded and subsequently stated at fair value. For hedges, the Group adopts the
rules established by IAS 39 on ‘Hedge accounting’, as follows:
• Cash flow hedges: These are hedging instruments which aim to hedge exposure to fluctuations in future
cash flows arising in particular from risks relating to changing interest rates on loans. Changes in the fair
value of the ’effective’ portion of the hedge are booked to equity while the ineffective portion is booked
to the income statement if the hedge is not effective. Hedge effectiveness, i.e. its ability to adequately
offset fluctuations caused by the hedged risk, is periodically tested, in particular analysing correlation
between the fair value or the cash flows of the hedged item and those of the hedging instrument.