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LISI 2011 —
35
— financial report
Consolidated financial statements
Accounting treatment of the CVAE
(Tax on Companies’ Added Value)
Following the release of the National Accounting Council of January 14,
2010, the Group decided to qualify the CVAE (contribution of the
Added Value of Businesses) as income tax that would fall within the
scope of IAS 12. This decision is based on an opinion of the IFRIC issued
in 2006 stating that the term “taxable profit” implies a notion of net
rather than gross amount without it being necessarily identical to
the accounting result. Moreover, this choice ensures consistency with
the accounting treatment applied to similar taxes in other foreign
countries.
Correlatively, the deferred tax was recorded as at January 1, 2010,
for a net amount of €1.4m taken on the shareholders’ equity of the
Group. This stock deferred tax is included as the depreciation of fixed
assets included in the calculation is recorded to the accounts. As at
December 31, 2011 the balance of net deferred tax concerned stood
at €0.8 million.
Treatment of the research tax credit
Revenues related to the research tax credit are classified in the income
statement under “other products”.
2.2.3 Consolidation principles
A subsidiary is an entity controlled by its parent company. Control
exists when the Group is able to direct the financial and operating
policies of the entity (either directly or indirectly) in order to obtain
benefits from its activities. The list of consolidated companies is
provided in Note 2.3.3. As at December 31, 2011, ANKIT Fasteners is
consolidated via the proportional integration method. All the other
companies are included in the consolidation scope in accordance with
the full consolidation method.
2.2.4 Transactions excluded from the consolidated financial
statements
Balance sheet balances, unrealized profits and losses, and income and
costs arising from intra-group transactions have been excluded in
preparing the consolidated financial statements.
Unrealized losses have been excluded in the same way as unrealized
profits, on condition that they do not represent a loss of value.
2.2.5 Conversion methods for items in foreign currency
2.2.5.1 Transaction in foreign currency
Transactions in foreign currencies are recorded in the books in the
operating currency at the rate of exchange at date of transaction.
At year-end, assets and liabilities recorded in foreign currencies are
converted into the operating currency at the rate of exchange at
year-end. Exchange rate differences arising from conversions are
recognized in income or expenses, with the exception of differences
from foreign currency loans that are a hedge on a net investment in
a foreign entity, which are recognized in the conversion reserve as a
distinct element of shareholders’ equity. They appear on the income
statement upon the exit of that business.
2.2.5.2 Translating financial statements of consolidated
subsidiaries and joint ventures
The financial statements of subsidiaries and affiliateswhose operating
currency is not the euro have been converted at rates in effect at the
close of the period reported for the balance sheet and at themean rate
of exchange for the earnings and cash flow statements. Exchange rate
differences arising from conversions appear in the conversion reserve,
as a distinct element of shareholders’ equity.
2.2.6 Financial instruments
2.2.6.1 Non-derivative financial instruments
Non-derivative financial instruments include investments in equity
instruments and debt securities, trade and other receivables, cash
and cash equivalents, loans and debts, and trade and other payables.
Non-derivative financial instruments are recognized in the accounts
as indicated in the specific notes below: 2.2.8.6, 2.2.10, 2.2.11, 2.2.12,
2.2.16 and 2.2.17.
2.2.6.2 Financial derivatives
The Group makes very seldom use of derivatives to hedge its
exposure to currency risks, and more occasionally, interest rate and
raw material price fluctuation risks that result from its operating,
financial and investment activities. In accordance with its cash
management policy, LISI S.A. neither holds nor issues derivatives for
trading purposes.
However, derivatives that do not meet the hedge criteria are valued
and recorded at fair value by earnings. The profit or loss arising from
the re-evaluation at fair value is immediately posted to the income
statement.
When a derivative is designated as a hedge for cash flow variations
of a recognized asset or liability, or of a highly probable, expected
transaction, the effective share of change in fair value of the derivative
is recognized directly in shareholders’ equity. Accumulated, associated
profits or losses are taken out of shareholders’ equity and included
in the income statement of the period(s) during which the covered
transaction affects the profit or loss.
2.2.7 Intangible assets
2.2.7.1 Goodwill
In line with IFRS 3, business combinations are recognized in the
accounts using the acquisition method. This method requires that at
the first consolidation of any entity over which the Group has direct or
indirect control, the assets and liabilities acquired (and any potential
liabilities assumed) should be recognized at their acquisition-date fair
value. At this point, goodwill is valued at cost, which equates to the
difference between the cost of the business combination and LISI’s
stake in the fair value of the assets and identifiable liabilities.
For acquisitions prior to January 1, 2004, goodwill remains at its
presumed cost,
i.e.
the net amount recognized in the accounts under
the previous accounting framework, less depreciation.