Airbus 2015 Annual Report Download - page 199

AIRBUS GROUP FINANCIAL STATEMENTS 2015 l 17 l
Notes to the IFRSConsolidatedFinancialStatements
2.
2.1 Basis of Presentation
3. Key Estimates and Judgements
The preparation of the Group’s Consolidated Financial
Statements requires the use of estimates and assumptions.
In preparing these financial statements, management
exercises its best judgement based upon its experience and
the circumstances prevailing at that time. The estimates and
assumptions are based on available information and conditions
at the end of the financial period presented and are reviewed on
an ongoing basis. Key estimates and judgements that have a
significant influence on the amounts recognised in the Group’s
Consolidated Financial Statements are mentioned below:
Revenue recognition on construction contracts — The
PoC method is used to recognise revenue under construction
contracts. This method places considerable importance on
accurate estimates at completion as well as on the extent of
progress towards completion. For the determination of the
progress of the construction contract significant estimates
include total contract costs, remaining costs to completion,
total contract revenues, contract risks and other judgements.
The management of the operating Divisions continually review
all estimates involved in such construction contracts and adjusts
them as necessary (see Note21 “Trade receivables and trade
liabilities” for further information).
Provisions — The determination of provisions, for example for
contract losses, warranty costs, restructuring measures and
legal proceedings is based on best available estimates. Loss
making contracts are identified by monitoring the progress of
the contract as well as the underlying programme and updating
the estimate of contract costs, which also requires significant
judgement related to achieving certain performance standards
as well as estimates involving warranty costs. Depending
on the size and nature of the Group’s contracts and related
programmes, the extent of assumptions, judgements and
estimates in these monitoring processes differs. In particular, the
introduction of new commercial or military aircraft programmes
(such as the A350XWB and the A400M) or major derivative
aircraft programmes particularly involves an increased level
of estimates and judgements associated with the expected
development, production and certification schedules and
expected cost components.
The Group makes estimates and provides, across the
programmes, for costs related to in service technical issues
which have been identified and for which solutions have been
defined, which reflects the latest facts and circumstances. The
Group is contractually liable for the repair or replacement of
the defective parts but not for any other damages whether
direct, indirect, incidental or consequential (including loss of
revenue, profit or use). However, in view of overall commercial
relationships, contract adjustments may occur, and be
considered on a case by case basis.
Estimates and judgements are subject to change based on new
information as contracts and related programmes progress.
Furthermore, the complex design and manufacturing processes
of the Group’s industry require challenging integration and
coordination along the supply chain including an on-going
assessment of suppliers’ assertions which may additionally
impact the outcome of these monitoring processes (see Note10
“Revenues, cost of sales and gross margin” and Note22
“Provisions, contingent assets and contingent liabilities” for
further information).
Employee benefits — The Group accounts for pension and
other post-retirement benefits in accordance with actuarial
valuations. These valuations rely on statistical and other
factors in order to anticipate future events. The actuarial
assumptions may differ materially from actual developments
due to changing market and economic conditions and therefore
result in a significant change in post-retirement employee
benefit obligations and the related future expense (see Note29
“Post-employment benefits”).
Legal contingencies — Group companies are parties to
litigations related to a number of matters as described in
Note36 “Litigation and claims”. The outcome of these matters
may have a material effect on the financial position, results of
operations or cash flows of the Group. Management regularly
analyses current information about these matters and provides
provisions for probable cash outflows, including the estimate
of legal expenses to resolve the matters. Internal and external
lawyers are used for these assessments. In making the decision
regarding the need for provisions, management considers the
degree of probability of an unfavourable outcome and the ability
to make a sufficiently reliable estimate of the amount of loss.
The filing of a suit or formal assertion of a claim against Group
companies or the disclosure of any such suit or assertion, does
not automatically indicate that a provision may be appropriate.
Income taxes — The Group operates and earns income in
numerous countries and is subject to changing tax laws in multiple
jurisdictions within these countries. Significant judgements are
necessary in determining the worldwide income tax liabilities.
Although management believes that it has made reasonable
estimates about the final outcome of tax uncertainties, no
assurance can be given that the final tax outcome of these
matters will be consistent with what is reflected in the historical
income tax provisions. At each end of the reporting period, the
Group assesses whether the realisation of future tax benefits
is probable to recognise deferred tax assets. This assessment
requires the exercise of judgement on the part of management
with respect to, among other things, benefits that could be
realised from available tax strategies and future taxable income,
as well as other positive and negative factors. The recorded
Financial Statements 2015
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Annual Report 2015 Financial Statements 2015
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