Unilever 2007 Annual Report Download - page 74

Notes to the consolidated accounts Unilever Group
1 Accounting information and policies
The accounting policies adopted are the same as those which applied
for the previous financial year, except as set out below under the
heading of ‘Companies legislation and accounting standards’.
Unilever
The two parent companies, NV and PLC, together with their group
companies, operate as a single economic 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 that both companies 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 €0.16 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 31⁄9p
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 ‘Corporate
governance’ on page 40.
Basis of consolidation
Due to the operational and contractual arrangements referred to
above, NV and PLC form a single reporting entity for the purposes
of presenting consolidated accounts. Accordingly, the accounts of
Unilever are presented by both NV and PLC as their respective
consolidated accounts. Group companies included in the consolidation
are those companies controlled by NV or PLC. Control exists when the
Group has the power to govern the financial and operating policies of
an entity so as to obtain benefits from its activities.
The net assets and results of acquired businesses are included in the
consolidated accounts from their respective dates of acquisition, being
the date on which the Group obtains control. The results of disposed
businesses are included in the consolidated accounts up to their date
of disposal, being the date control ceases.
Companies legislation and accounting standards
The consolidated accounts have been prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by
the European Union (EU) and in accordance with Book 2 of the Civil
Code in the Netherlands and the United Kingdom Companies Acts
1985 and 2006. They are also in accordance with IFRS as issued by
the International Accounting Standards Board.
The accounts are prepared under the historical cost convention unless
otherwise indicated.
The accounting policies adopted are consistent with those of the
previous financial year except that the Group has adopted
International Financial Reporting Standard 7 ‘Financial Instruments:
Disclosures’ and the following IFRIC interpretations with effect from
1 January 2007: IFRIC 7, ‘Applying the Restatement Approach’ under
IAS 29 ‘Financial Reporting in Hyperinflationary Economies’; IFRIC 9
‘Reassessment of embedded derivatives’; and IFRIC 10 ‘Interim
Financial Reporting and Impairment’. Adoption of IFRS 7 and these
interpretations did not have a material effect on the financial
statements of the Group.
The Group also applied the amendment to IAS 1 ‘Presentation of
Financial Statements’ which requires Unilever to make new disclosures
to enable the users of the financial statements to evaluate the Group’s
objectives, policies and processes for managing capital.
In addition, the Group has applied the following changes in
presentation of the financial statements within the balance sheet:
•Finance lease creditors and funding-related derivatives have been
reclassified in order to facilitate the presentation of net debt.
Comparatives for 31 December 2006 have been restated
accordingly; and
•Line items relating to borrowings have been renamed to financial
liabilities to align with the requirements of IFRS 7.
Foreign currencies
Items included in the financial statements of group companies are
measured using the currency of the primary economic environment in
which each entity operates (its functional currency). The consolidated
financial statements are presented in euros. The functional currencies
of NV and PLC are euros and sterling respectively.
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at year-end
exchange rates of monetary assets and liabilities denominated in
foreign currencies are recognised in the income statement, except
when deferred in equity as qualifying hedges. Those arising on trading
transactions are taken to operating profit; those arising on cash,
financial assets and financial liabilities are classified as finance income
or cost.
In preparing the consolidated financial statements, the income
statement, the cash flow statement and all other movements in assets
and liabilities are translated at annual average rates of exchange.
The balance sheet, other than the ordinary share capital of NV and
PLC, is translated at year-end rates of exchange. In the case of hyper-
inflationary economies, which are those in which inflation exceeds
100% cumulatively over a three-year period, the accounts are
adjusted to reflect current price levels and remove the influences
of inflation before being translated.
The ordinary share capital of NV and PLC is translated in accordance
with the Equalisation Agreement. The difference between the
resulting value for PLC and the value derived by applying the year-end
rate of exchange is taken to other reserves (see note 23 on page 110).
The effects of exchange rate changes during the year on net
assets at the beginning of the year are recorded as a movement in
shareholders’ equity, as is the difference between profit of the year
retained at average rates of exchange and at year-end rates of
exchange. For these purposes net assets include loans between group
companies and related foreign exchange contracts, if any, for which
settlement is neither planned nor likely to occur in the foreseeable
future. Exchange gains/losses on hedges of net assets are also
recorded as a movement in equity.
Cumulative exchange differences arising since the transition date
of 1 January 2004 are reported as a separate component of other
reserves (see note 23 on page 110). In the event of disposal or part
disposal of an interest in a group company either through sale or as
a result of a repayment of capital, the cumulative exchange difference
is recognised in the income statement as part of the profit or loss
on disposal of group companies.
72 Unilever Annual Report and Accounts 2007
Financial statements continued