Unilever 2011 Annual Report Download - page 71

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNILEVER GROUP
1. Accounting information and policies
The accounting policies adopted are the same as those which
were applied for the previous financial year, except as set out
below under the heading ‘Recent accounting developments’.
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 positions of the shareholders of both companies are as closely
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. It also requires that dividends
and other rights and benefits attaching to each ordinary share of
NV, be equal in value to those rights and benefits attaching to each
ordinary share of PLC, as if each such unit of capital formed part
of the ordinary capital of one and the same company.
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 financial statements. Accordingly, the
financial statements of Unilever are presented by both NV and
PLC as their respective consolidated financial statements. 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 financial statements 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 financial statements up to their date of disposal,
being the date control ceases.
Intra-group transactions and balances are eliminated.
Companies legislation and accounting standards
The consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards
(IFRS) as adopted by the European Union (EU), IFRIC
Interpretations and in accordance with Part 9 of Book 2 of the Civil
Code in the Netherlands and the United Kingdom Companies Act
2006 applicable to companies reporting under IFRS. They are also
in compliance with IFRS as issued by the International Accounting
Standards Board.
These financial statements are prepared under the historical cost
convention unless otherwise indicated.
Accounting policies
Accounting policies are included in the relevant notes to the
consolidated financial statements and have been highlighted
withblue shading and a vertical green bar on the left. The
accounting policies below are applied throughout the financial
statements.
Balance sheet presentation
The presentation of the balance sheet has been changed in 2011 to
remove the sub-totals titled ‘Total assets less current liabilities’
and ‘Total capital employed’, instead including sub-totals titled
‘Total assets’ and ‘Total liabilities and equity’. This change
provides information that is clearer and more relevant.
Comparative information has been reclassified.
Foreign currencies
The consolidated financial statements are presented in euros.
Thefunctional currencies of NV and PLC are euros and sterling
respectively. Items included in the financial statements of
individual group companies are recorded in their respective
functional currency which is the currency of the primary
economic environment in which each entity operates.
Foreign currency transactions in individual group companies are
translated into functional currency using exchange rates at the
date of the transaction. Foreign exchange gains and losses from
settlement of these transactions, and from translation of
monetary assets and liabilities at year-end exchange rates, are
recognised in the income statement except when deferred in
equity as qualifying hedges.
In preparing the consolidated financial statements, the balances
in individual group companies are translated from their functional
currency into euros. The income statement, the cash flow
statement and all other movements in assets and liabilities are
translated at average rates of exchange as a proxy for the
transaction rate, or at the transaction rate itself if more
appropriate. Assets and liabilities are translated at year-end
exchange rates.
The ordinary share capital of NV and PLC is translated in
accordance with the Equalisation Agreement. The difference
between the value for PLC and the value by applying the year-end
rate of exchange is taken to other reserves (see note 18 on
page 101).
The effect of exchange rate changes during the year on net assets
of foreign operations is recorded in equity. For this purpose net
assets include loans between group companies and any related
foreign exchange contracts where settlement is neither planned
nor likely to occur in the foreseeable future.
The Group applies hedge accounting to exchange differences
arising between the functional currency of a foreign operation and
the euro, regardless of whether the net investment is held directly
or through an intermediate parent. Differences arising on
retranslation of a financial liability designated as a foreign
currency net investment hedge are recorded in equity to the
extent that the hedge is effective. These differences are reported
within profit or loss to the extent that the hedge is ineffective.
Cumulative exchange differences arising since the date of
transition to IFRS of 1 January 2004 are reported as a separate
component of other reserves (see note 18 on page 101). 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.
Unilever Annual Report and Accounts 2011
Financial statements