Unilever 2003 Annual Report Download - page 76

Unilever Annual Report & Accounts and Form 20-F 2003 73
Accounting information and policies
Unilever
The two parent companies, NV and PLC, together with their
group companies, operate as nearly as is practicable as a single
entity (the Unilever Group, also referred to as Unilever or the
Group). NV and PLC have the same Directors and are linked by a
series of agreements, including an Equalisation Agreement, which
are designed so that the position of the shareholders of both
companies is as nearly as possible the same as if they held shares
in a single company.
The Equalisation Agreement provides for both companies
to adopt the same accounting principles and requires as a general
rule the dividends and other rights and benefits (including rights
on liquidation) attaching to each Fl. 12 (€5.445) nominal of
ordinary share capital of NV to be equal in value at the relevant
rate of exchange to the dividends and other rights and benefits
attaching to each £1 nominal of ordinary share capital of PLC, as
if each such unit of capital formed part of the ordinary capital of
one and the same company. For additional information please
refer to ‘Control of Unilever’ on page 152.
Basis of consolidation
Because of the operational and contractual arrangements referred
to above and the internal participating interests set out in note 21
on page 110, NV and PLC and their group companies constitute a
single group under Netherlands and United Kingdom legislation
for the purposes of presenting consolidated accounts.
Accordingly, the accounts of the Unilever Group are presented by
both NV and PLC as their respective consolidated accounts. These
accounts are supplemented in notes 22 and 23 on page 111 and
note 30 on page 125 by additional information for the NV and
PLC parts of the Group in which group companies are
consolidated according to respective ownership.
Companies legislation
The consolidated accounts of the Unilever Group comply with
Book 2 of the Civil Code in the Netherlands and the United
Kingdom Companies Act 1985. The consolidated accounts of the
Unilever Group also comply with accounting standards generally
accepted in the United Kingdom, as allowed by Article 362.1
of Book 2 of the Civil Code in the Netherlands, unless such
standards conflict with the Civil Code in the Netherlands which
would in such case prevail. The company accounts, the notes to
those accounts and the further statutory information given for
each of NV and PLC comply with legislation in the Netherlands
and the United Kingdom respectively. As explained under ‘Group
companies’ below, in order to give a true and fair view, the
presentation of the consolidated capital and reserves differs from
that specified by the United Kingdom Companies Act 1985.
Accounting standards
The accounts are prepared under the historical cost convention
and comply in all material respects with legislation in the
Netherlands and with United Kingdom Accounting Standards.
The accounting policies of the Unilever Group are set out
on pages 73 to 75. Our accounting policy for the treatment
of exceptional items is given on page 86. Material variations
from United States generally accepted accounting principles
are set out on pages 131 to 136. In order to maintain the
most appropriate accounting policies, Unilever has made the
changes described below.
In line with recommendations of various standard setting bodies,
from 1 January 2003 Unilever changed its accounting policy for
share options. The impact of adoption of this change has been
reflected by means of adjustments to the profit and loss accounts
for the prior years. Existing share option programmes have been
hedged by buying shares at the time of grant and taking the
financing cost within interest. The accounting change is to include
an additional non-cash charge against operating profit to reflect
the fair value to the employee of the share options granted. In
determining this charge we are applying an option pricing model
(usually an adjusted Black-Scholes or multinomial model) of which
the resulting cost is spread over the vesting period of the option.
For further information see note 29 on page 116.
Unilever has adopted United Kingdom Financial Reporting
Standard 17 ‘Retirement Benefits’ (FRS 17) as the basis of
accounting for retirement benefits from 1 January 2003. Figures
for prior years have been restated onto the same basis. The effect
of the implementation of this standard is discussed in note 17 on
page 99.
In addition, we have made a change to the presentation of
securities held as collateral in respect of derivative financial
instruments. The effect of this change in accounting policy is
discussed in note 14 on page 94. Figures for prior years have
been restated. This change has had no effect on reported
earnings.
Recent changes in reporting requirements under US GAAP are
discussed on page 136.
OECD Guidelines
In preparing its Annual Review and Annual Report & Accounts
and Form 20-F, Unilever adheres to disclosure recommendations
of the OECD Guidelines for Multinational Enterprises.
Group companies
Group companies are those companies in whose share capital
NV or PLC holds an interest directly or indirectly, and whose
consolidation is required for the accounts to give a true and
fair view.
In order that the consolidated accounts should present a true and
fair view, it is necessary to differ from the presentational
requirements of the United Kingdom Companies Act 1985 by
including amounts attributable to both NV and PLC shareholders
in the capital and reserves shown in the balance sheet. The
Companies Act would require presentation of the capital and
reserves attributable to NV and PLC shareholders as minority
interests in the respective consolidated accounts of PLC and NV.
This presentation would not give a true and fair view of the effect
of the Equalisation Agreement, under which the position of all
shareholders is as nearly as possible the same as if they held
shares in a single company.
Net profit and result for the year retained are presented on a
combined basis on page 76, with the net profit attributable to
NV and PLC shown separately. Movements in profit retained are
analysed between those attributable to NV and PLC in note 22
on page 111.