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2.2.3
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Consolidation principles
A subsidiary is an entity controlled by its parent company.
In accordance with IFRS 10, an investor controls an investee if and
only if all of the following conditions are satisfied:
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it holds power over the investee;
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it is exposed or entitled to variable returns because of its
relationship with the investee;
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it has the ability to exercise its power over the investee in such a
way as to affect the amount of returns that it obtains.
The list of consolidated companies is provided in note 2.3.4. At
December 31, 2017 all the companies are included in the consolidation
scope in accordance with the full consolidation method.
2.2.4
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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
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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 on the date of the
transaction. At the year-end, the monetary assets and liabilities
in foreign currencies are converted into the operating currency at
the rate in force at the 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 affiliates whose
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
the average exchange rate 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
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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,
2.2.15 and 2.2.16.
2.2.6.2 Financial derivatives
The Group uses derivative financial instruments to hedge its
exposure to foreign exchange and interest rate risks arising from
operational, financing 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
derivativeisrecognizeddirectlyinshareholders’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
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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, minus depreciation.
For acquisitions after this date, goodwill is valued at cost, minus the
cumulative loss in value. It is allocated to cash-generating units or
groups of cash-generating units and is not amortized; instead, it
is subject to an impairment test at least once a year following the
method described in paragraph 2.2.8.5.
If the goodwill is negative, it is recognized directly as a profit in the
income statement.
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LISI 2017 FINANCIAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS
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