Volvo 2014 Annual Report Download - page 160

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Contingent liabilities
A contingent liability is recognized for a possible obligation, for which it is
not yet confi rmed that a present obligation exists that could lead to an
outfl ow of resources; or for a present obligation that does not meet the
defi nitions of a provision or a liability as it is not probable that an outfl ow
of resources will be required to settle the obligation or when a suffi ciently
reliable estimate of the amount cannot be made.
Contingent liabilities Dec 31,
2014 Dec 31, 2013
Credit guarantees issued for customers and others 6,580 8,823
Tax claims 1,819 1,250
Residual value guarantees 2,850 3,389
Other contingent liabilities 4,691 3,828
Total contingent liabilities 15,940 17,290
Total contingent liabilities at December 31, 2014, amounted to net SEK
15,940 M (17,290) and included contingent assets of SEK 285 M (285).
Credit guarantees amounted to SEK 6,580 M (8,823) and a major part
was issued as a result of sales in emerging markets, in particular sales of
construction equipments in China. In 2014 the contingent liabilities
related to credit guarantees were reduced by SEK 521 M corresponding
to the cost for expected future credit losses in China.
Read more in Note 21 regarding the provision for expected credit losses in
China.
The recognized amount for credit guarantees corresponds to the gross
exposure and has not been reduced by the value of counter guarantees
received or other collaterals such as the right to repossess the products
in cases where a legal offsetting right does not exist. The value of counter
guarantees and other collaterals reducing the exposure is dependent on
the development of used products prices and on the possibility to repos-
sess the products.
Tax claims amounted to SEK 1,819 M (1,250) and pertained to charges
against the Volvo Group for which the criteria for recognizing a provision
were not met.
Residual value guarantees amounted to SEK 2,850 M (3,389) and were
attributable to sales transactions combined with buy back agreements or
residual value guarantees for which assets are not recognized in the bal-
ance sheet. The recognized amount corresponds to the gross exposure
and has not been reduced by the estimated net selling price of used prod-
ucts taken as collaterals. To the extent the used products pertaining to
those transactions are expected to be disposed at a loss, a provision for
residual value is recognized.
Read more about provision for residual value guarantees in note 21.
Other contingent liabilities amounted to SEK 4,691 M (3,828) and
included for example bid and performance clauses and legal proceedings.
Legal proceedings
Volvo Group is subject to the below investigations by competition author-
ities. Volvo Group is cooperating fully with the respective authority.
In April 2011, the Volvo Group’s truck business in Korea and a number
of other truck companies became the subject of an investigation by the
Korean Fair Trade Commission. The Korean Fair Trade Commission has
issued a decision, received by Volvo on December 19, 2013, imposing a
fi ne in the amount of approximately SEK 117 M as of December 31, 2014.
Volvo has appealed the decision and a contingent liability in a correspond-
ing amount has been disclosed.
In January 2011, the Volvo Group and a number of other companies in
the truck industry became part of an investigation by the European Com-
mission regarding a possible violation of EU antitrust rules. After the Euro-
pean Commission had issued its Statement of Objections on November
20, 2014 the Volvo Group recognized a provision.
Read more in Note 21 Other Provisions regarding the estimation of the
provision and the associated uncertainties.
In 2013 the disclosed contingent liabilities included an amount of SEK
401 M related to the dispute between Volvo Powertrain Corporation and
the U.S. Environmental Protection Agency (EPA) regarding a Consent
Decree on emission compliance of diesel engines. In the third quarter of
2014 the contingent liability has been recognized as provision.
Read more in Note 21 Other Provisions regarding the estimation of the
provision.
Global companies such as the Volvo Group are occasionally involved in
tax processes of varying scope and in various stages. Volvo Group regu-
larly assesses these tax processes. When it is probable that additional
taxes must be paid and the outcome can be reasonably estimated, the
required provision is made.
The Volvo Group is also involved in a number of legal proceedings other
than those described above. The Volvo Group’s assessment is that such
other legal proceedings in aggregate are not likely to entail any risk of
having a material effect on the Volvo Group’s fi nancial position.
ACCOUNTING POLICY
NOTE 24 CONTINGENT LIABILITIES
FINANCIAL INFORMATION 2014