Tiscali 2008 Annual Report Download - page 72

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liability component and a shareholders’ equity component. At
the date of issue, the fair value of the liability component is
estimated by using the current interest rate on the market, for
similar non-convertible bonds. The difference between the net
amount obtained from the issue and the fair value assigned to
the liability component (representing the implicit option of
converting bonds into shares of the Group) is included in the
shareholders’ equity as a capital reserve.
Issue costs are subdivided into the liability component and the
shareholders’ equity component, on the basis of their respective
book values at the date of issue. The part relating to the
shareholders’ equity is booked directly to reduce the same.
The interest expense relating to the liability component is
calculated by using the current interest rate on the market for
similar non-convertible bonds.
The difference between this amount and the interest really paid
is recorded as an increase to the book value of convertible bonds.
Reduction in value of financial assets
As of each balance sheet date (annual or half-year), appraisals
are made for the purpose of checking whether objective
evidence exists that a financial asset or group of assets has
suffered impairment. If there is objective evidence, the
impairment must be recorded in the income statement for
financial assets valued at cost or at amortized cost while for
“financial assets available for sale”, reference should be made
to the matters already illustrated previously.
Derivative financial instruments
Periodically the Group uses derivative instruments mainly to hedge
its financial risks associated with interest rate fluctuations on
long/medium term debt. In accordance with centralised cash
management policies, the Group does not use derivative
instruments for declared trading purposes.
Derivative instruments are recorded in the financial statements
and subsequently stated at fair value. For hedging instruments,
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 the
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 derivative are booked to equity, for the
effective portion of the hedge, while they are 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.
Fair value hedges
Hedging instruments fall within this classification when used to
hedge changes in the fair value of an asset or liability that are
attributable to a specific risk. Changes in value related both to
the hedged item, in relation to changes caused by the underlying
risk, and to the hedging instrument are booked to the income
statement. Any difference, representing the partial ineffectiveness
of the hedge, therefore corresponds to the net economic effect.
On a consistent basis with the matters established by IAS 39,
financial hedging derivatives are stated according to the
methods established for hedge accounting only when:
•on commencement of the hedge, formal designation and
the documentation of the hedging relationship itself exist;
•it is envisaged that the hedge will be highly effective;
•the effectiveness can be reliably gauged;
•the hedge itself is highly effective during the various
accounting periods for which it is designated.
With regard to financial instruments that do not qualify for hedge
accounting, changes arising from the fair value assessment of
the financial derivative are booked to the income statement.
At present, the Group does not apply Hedge accounting to
outstanding financial derivatives.
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Liabilities for pension obligations and staff severance indemnities
Defined benefit schemes (as classified by IAS 19), in particular
the Staff Severance indemnities relating to employees of the
parent company and the subsidiaries with registered offices in
Italy, are stated on the basis of valuations made at the end of
each financial year by independent actuaries. The liability
recognised in the balance sheet is the current value of the
obligation payable on termination of the employment relationship
which the employees have accrued at the balance sheet date.
It should be specified that no assets are held in support of the
above scheme.
As permitted by IFRS 1 and IAS 19, the Tiscali Group has not
adopted the corridor method but uses the Projected Unit Credit
method and, therefore, the actuarial gains and losses are stated
in full in the period in which they arise and are booked directly
to the income statement.
Payments made in relation to outsourced pension schemes with
defined contributions are booked to the income statement in the
period in which they are due. The Group does not recognise post-
employment benefit schemes, therefore periodic contributions
do not involve further liabilities or obligations to be recognised as
such in the financial statements.
CONSOLIDATED FINANCIAL STATEMENTS AND EXPLANATORY NOTES