Volvo 2009 Annual Report Download - page 75

Notes to consolidated financial statements
Note 1 Accounting principles
The consolidated financial statements for AB Volvo and its subsidiar-
ies have been prepared in accordance with International Financial
Reporting Standards (IFRS) issued by the International Accounting
Standards Board (IASB), as adopted by the EU. The portions of IFRS
not adopted by the EU have no material effect on this report. This
Annual report is prepared in accordance with IAS 1 Presentation of
Financial Statements and in accordance with the Swedish Companies
Act. In addition, RFR 1.2 Supplementary Rules for Groups, has been
applied, issued by the Swedish Financial Reporting Board.
In the preparation of these financial statements, the company man-
agement has made certain estimates and assumptions that affect the
value of assets and liabilities as well as contingent liabilities at the
balance sheet date. Reported amounts for income and expenses in
the reporting period are also affected. The actual future outcome of
certain transactions may differ from the estimated outcome when
these financial statements were issued. Any such differences will
affect the financial statements for future accounting periods. The key
sources of estimation uncertainty are set out in Note 2.
Changes of accounting principles
Effective in 2005 Volvo has applied International Financial Reporting
Standards (IFRS) in its financial reporting. In accordance with the
IFRS transitions rules in IFRS 1, Volvo applies retrospective applica-
tion from the IFRS transition date at January 1, 2004. The details of
the transition from Swedish GAAP to IFRS are set out in Note 3 in the
annual reports of 2005 and 2006. Refer to the 2004 Annual Report
for a description of the previous Swedish accounting principles applied
by Volvo.
Consolidated financial statements
Principles for consolidation
The consolidated financial statements have been prepared in accord-
ance with the principles set forth in IAS 27, Consolidated and Separ-
ate Financial Statements. Accordingly, intra-Group transactions and
gains on transactions with associated companies are eliminated. The
consolidated financial statements comprise the parent company, sub-
sidiaries, joint ventures and associated companies.
– Subsidiaries are defined as companies in which Volvo holds more
than 50% of the voting rights or in which Volvo otherwise has a con-
trolling interest.
– Joint ventures are companies over which Volvo has joint control
together with one or more external parties. Joint ventures are reported
by use of the proportionate method of consolidation.
– Associated companies are companies in which Volvo has a sig-
nificant influence, which is normally when Volvo’s holdings equals to at
least 20% but less than 50% of the voting rights. Holdings in associ-
ated companies are reported in accordance with the equity method.
The Group’s share of reported income in such companies is included
in the consolidated income statement in Income from investments in
associated companies, reduced in appropriate cases by depreciation
of surplus values and the effect of applying different accounting prin-
ciples. Income from associated companies is included in operating
income as the Volvo investments are of operating nature. For practical
reasons, most of the associated companies are included in the con-
solidated accounts with a certain time lag, normally one quarter. Divi-
dends from associated companies are not included in consolidated
income. In the consolidated balance sheet, the book value of share-
holdings in associated companies is affected by Volvo’s share of the
company’s net income, reduced by depreciation of surplus values and
by the amount of dividends received.
Amounts in SEK M unless otherwise specified. The amounts within parentheses refer to the preceding year, 2008.
Volvo applies IFRS 3, Business Combinations for acquisitions after
January 1, 2004, in accordance with the IFRS 1 transition rules. All
business combinations are accounted for in accordance with the pur-
chase method. Volvo decided not to restate prior acquisitions. Volvo
values acquired identifiable assets, tangible and intangible, and liabil-
ities at fair value. Surplus amounts compared to the purchase consid-
eration are reported as goodwill. Any lesser amount, so-called nega-
tive goodwill, is reported in the income statement. Transactions with
the minority are reported as transactions with external parties to the
group. Divestments to the minority may result in gains or losses in the
income statement. Acquisitions from the minority may result in good-
will corresponding to the difference between considerations paid and
acquired part of net asset value in the acquired subsidiary. Companies
acquired during the year are consolidated as of the date of acquisition.
Companies that have been divested are included in the consolidated
financial statements up to and including the date of divestment.
Translation to Swedish kronor when consolidating
companies using foreign currencies
AB Volvo’s functional currency is the Swedish krona. All reporting in
group companies for group purposes is made in the currency, in which
the company has the majority of its revenues and expenses; normally
the currency of the country where the company is located. AB Volvo’s
and the Volvo Group’s presentation currency is Swedish kronor. In pre-
paring the consolidated financial statements, all items in the income
statements of foreign subsidiaries and joint ventures (except for sub-
sidiaries in highly inflationary economies) are translated to Swedish
kronor at the average exchange rates during the year (average rate).
All balance sheet items are translated at exchange rates at the
respect ive year-ends (closing rate). The differences in consolidated
shareholders’ equity, arising as a result of variations between closing
rates, for the current and previous year are charged or credited directly
to shareholders’ equity as a separate component.
The accumulated translation difference related to a certain sub-
sidiary, joint venture or associated company is reversed to income as
a part of the gain/loss arising from the divestment or liquidation of
such a company.
IAS 29, Financial Reporting in Hyperinflationary Economies, is
applied to financial statements of subsidiaries operating in highly
inflationary economies. Volvo applies reporting based on historical
value. Translation differences due to inflation are charged against
earnings for the year. Currently, Volvo has no subsidiaries with a func-
tional currency that could be considered a hyperinflationary currency.
Receivables and liabilities in foreign currency
In the individual group companies as well as in the consolidated
accounts, receivables and liabilities in foreign currency are valued at
closing rates. Translation differences on operating assets and liabili-
ties are recognized in operating income, while translation differences
arising in financial assets and liabilities are charged to other financial
income and expenses. Financial assets and liabilities are defined as
items included in the net financial position of the Volvo Group (see
Definitions at the end of this report). Currency swap contracts are
reported at fair value, unrealized gains on exchange rates are reported
as short term receivables and unrealized losses on exchange rates
are reported as short term liabilities. Exchange rate differences on
loans and other financial instruments in foreign currency, which are
used to hedge net assets in foreign subsidiaries and associated com-
panies, are offset against translation differences in the shareholders’
equity of the respective companies. Exchange rate gains and losses
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