Volvo 2009 Annual Report Download - page 109

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Note 35 Fees to the auditors
Audit fees 2008 2009
Audit fees to PricewaterhouseCoopers 105 112
Audit fees to other audit firms 2 1
Total 107 113
Other fees to PricewaterhouseCoopers
Fees for audit related services 12 8
Fees for tax services 17 14
Total 29 22
Fees and other remuneration
to external auditors total 136 135
Auditing assignments involve examination of the annual report and
financial accounting and the administration by the Board and the
President, other tasks related to the duties of a company auditor and
consultation or other services that may result from observations noted
during such examination or implementation of such other tasks. All
other tasks are defined as other assignments.
Note 36 Goals and policies in financial risk management
Apart from derivatives, Volvo’s financial instruments consist of bank
loans, financial leasing contracts, accounts payable, accounts receiv-
able, shares and participations, as well as cash and short-term invest-
ments.
The primary risks deriving from the handling of financial instru-
ments are interest-rate risk, currency risk, liquidity risk and credit risk.
All of these risks are handled in accordance with an established finan-
cial policy.
Interest-rate risks
Interest-rate risk refers to the risk that changed interest-rate levels will
affect consolidated earnings and cash flow (cash-flow risks) or the fair
value of financial assets and liabilities (price risks). Matching the inter-
est-fixing terms of financial assets and liabilities reduces the ex posure.
Interest-rate swaps are used to change/influence the interest-fixing
term for the Group’s financial assets and liabilities. Currency interest-
rate swaps permit borrowing in foreign currencies from different mar-
kets without introducing currency risk. Volvo also has standardized
interest-rate forward contracts (futures) and FRAs (forward-rate
agreements). Most of these contracts are used to hedge interest-rate
levels for short-term borrowing or investment.
Cash-flow risks
The effect of changed interest-rate levels on future currency and
interest-rate flows refers mainly to the Group’s customer financing
operations and net financial items. Within the customer finance oper-
ations the degree of matching interest-rate fixing on borrowing and
lending is measured. The calculation of the matching degree excludes
equity, which in the customer finance operations amount to between
8 and 10%. According to the Group’s policy, the degree of matching
for interest-rate fixing on borrowing and lending in the customer-
financing operations must exceed 80%. At year-end 2009, the degree
of such matching was 100% (100). A part of the short-term financing
of the customer financing operations can however be pertaining to
internal loans from the industrial operations, why the matching ratio in
the Volvo group then may be slightly lower. At year-end 2009, in add-
ition to the assets in its customer-financing operations, Volvo’s inter-
est-bearing assets consisted primarily of cash, cash equivalents and
liquid assets invested in short-term interest-bearing securities. The
objective is to achieve an interest-fixing term of three months for the
liquid assets in Volvo’s industrial operations through the use of deriva-
tives. On December 31, 2009, after taking derivatives into account,
the average interest on these assets was 1.1% (2.9). After taking
derivatives into account, outstanding loans had interest terms cor-
responding to an interest-rate fixing term of three months and the aver-
age interest at year-end amounted to 4.1% (4.1).
Price risks
Exposure to price risks as result of changed interest-rate levels refers
to financial assets and liabilities with a longer interest-rate fixing term
(fixed interest). A comparison of the reported values and the fair val-
ues of all of Volvo’s financial assets and liabilities, as well as its deriva-
tives, is provided in note 37, Financial instruments.
Assuming that the market interest rates for all currencies suddenly
rose by one percentage point (100 interest-rate points) over the inter-
est-rate level on December 31, 2009, for the next 12-month period, all
other variables remaining unchanged, Volvo’s net interest income
would be negatively impacted by 354 (negatively 88) considering an
interest rate fixing term of 3 months. During 2008 the interest rate
fixing term was 6 months. Assuming that the market interest rates for
all currencies fell in a similar manner by one percentage point (100
interest-rate points), Volvo’s net interest income would be positively
impacted by a corresponding amount.
The following table shows the effect on income before taxes in
Volvo’s key financing currencies if the interest-rate level were to
increase by one percentage point, (100 interest-rate points) not con-
sidering interest rate fixing terms.
SEK M Effect on income
SEK 197
USD (153)
EUR (304)
CAD (8)
JPY (111)
KRW 9
The above sensitivity analysis is based on assumptions that rarely
occur in reality. It is not unreasonable that market interest rates
change with one percentage point (100 interest-rate points) over a
12-month period. However, in reality, market interest rates usually do
not rise or fall at one point in time. Moreover, the sensitivity analysis
105