New accounting principles

 Following the endorsement of the European Union, starting from the 1st January 2012 new principles and amendments shall be applied. Following the most relevant changes for the Group’s consolidated financial statement at 31 December 2012 are described. In addition, also the main documents issued by the International Accounting Standard Board, that could be relevant for the Group, but not yet effective, are described. The new rules are presented by subject.

 IFRS 7 –  Financial instruments – disclosure

 On 7 October 2010 the IASB issued an amendment to IFRS 7 Financial instruments – disclosures. The amendment increased disclosure requirements relating to the transfer of financial assets, in particular with reference to the risk associated with the continuing involvement of the transferor entity, or else there is a total or partial transfer of the risks and rights on a financial instrument. The abovementioned amendment is effective for annual periods commencing on or after 1 July 2011, and has been endorsed by European Union with Regulation (EU) n. 1256 of 13 December 2012. Hence it is applied in this consolidated financial statement.

If the entity that transfer a financial asset retains any of the contractual rights or obligation inherent in a transferred financial asset or obtains any new contractual rights or obligations relating to a transferred financial assets, the definition of the continuing involvement is met, so additional disclosure is required in the notes about the nature, risks and rewards that the entity is still exposed to.

This amendment however does not have a significant impact on the present consolidated financial statement.

At December 2011 the IASB introduced new disclosure requirements of offsetting of all recognized financial assets and liabilities. In particular, it is required that entities present separately the gross and net amounts of the offset assets and liabilities.

IFRS 9 –  Financial instruments

 On 12 November 2009, the IASB published IFRS 9 - Financial Instruments, the same principle has been subsequently amended. The principle which shall be applied from 1 January 2015 retrospectively, is the first part of a phased process that aims to replace IAS 39 and introduces new requirements for the classification and measurement of financial assets and liabilities. In particular, financial assets, the new standard uses a single approach based on business model and the contractual cash flow characteristics of the financial assets in order to determine the criteria, replacing the many different rules in IAS 39. For financial liabilities, however, the main change concerns the accounting treatment of changes in fair value of a financial liability designated as at fair value through profit or loss, in the event that these are due to changes in the credit risk of the liability . Under the new standard, such changes shall be recognized in other comprehensive income / (loss) and no longer in the income statement.

The other phases of the project address the accounting for hedges (hedge accounting) and impairment losses (impairment) on financial instruments.

 IFRS 9 –  Limited Amendments (Exposure draft)

 On 28 November 2012, the IASB published the Exposure draft “IFRS 9 – Limited Amendments”. The document’s purpose is to consider the interaction between the classification and measurement of financial assets with the insurance contracts project and to clarify classification and measurement requirement. The exposure draft reaffirms the basic principles of IFRS 9 Financial Instruments and introduce an amendment to the contractual cash flow characteristics assessment to allow financial instruments to be classified at amortized cost. The contractual cash flows shall represent solely payments of principal and interests on the principal amount outstanding. In making such assessment an entity consider a benchmark cash flows and if the modification of contractual characteristic are “more than insignificantly different” than benchmark cash flows, the contractual cash flows are not solely payments of principal and interests.

Furthermore the exposure draft introduce a third measurement category to be measured at fair value through Other comprehensive income for financial instruments held within a business model in which assets are managed both in order to collect contractual cash flows and for sale. These proposed amendments will be applicable starting on or after 1st January 2015.

IFRS 9 – Draft of forthcoming IFRS on hedge accounting

On 7 September 2012, the IASB published the draft review "Hedge Accounting", a document which modifies the previous exposure draft in December 2010. Hedge accounting is the third part of the draft revision of IAS 39 and will be part del'IFRS 9.

New requirements mainly regard the efficiency test of hedging relationships, the extension of items that can be designated as hedging instruments and hedged items and the elimination or rebalancing of the hedging relationship. The Review draft expanded the scope of eligible hedged items and hedging instruments, and it replaced the threshold of hedge effectiveness established by IAS 39 Financial Instruments: Recognition and Measurement (80% -125%) with an approach that is based on the economic relationship between the hedged item and the hedging defined by risk management of the entity.

IFRS 9 is effective for annual periods beginning 1 January 2015 or later.

IFRS 10, 11, 12, Amendments to IAS 27 and IAS 28

Concerning Consolidation project, on May 12 2011, the IASB issued IFRS 10 Consolidated Financial Statements, which replaced IAS 27 and the interpretation of SIC12 Consolidation - Special Purpose Entities, IFRS 11 Joint Arrangements, which replaced IAS 31 and IFRS 12 Disclosure of Interests in Other Entities which contains the disclosure requirement for IFRS 10, 11, 12. IFRS 10 unified and specified the consolidation principles in IAS 27 and SIC 12. According to IAS 27 the control is defined as the power to govern the financial operating policies of an entity to obtain benefits from its activities and for special purpose vehicles SIC 12 indicates the majority of the risk and rewards that can be obtained from the investment as a criterion for their consolidation. According to IFRS 10 an investor has control over another company when he jointly:

  • power to direct the "significant activities" (which influence the economic returns)
  • Exposure to returns of the investee
  • Ability to affect those returns through its power over the investee

IFRS 11 defined a joint arrangement as an arrangement of which two or more parties have joint control. Distinguishes between joint operations and joint ventures: a joint operation is an agreement ehereby the parties have rights to the assets, and obligations for the liabilities relating to the arrangement. For accounting purposes, the assets and liabilities that are part of the arrangemnt are reflected in the financial statements using the IFRS applicable A joint venture is an agreement whereby the parties have rights to the net assets of the arrangement. For accounting purposes, the joint ventuire is consolidated using the equity method (proportional method no longer available as optional IFRS 11).

IFRS 12 established the minimum information designed to understand the nature and risk of the interest held by an entity in one or other entities and the effects that these interest bearing financial position, performance and cash flows of 'entity.

On 31 October 2012, the IASB published amendments to IFRS 10, IFRS 12 and IAS 27 Investment Entities. The standard defines investment entities and requires that they measure its investments in subsidiaries at fair value through profit or loss excluding line by line consolidation. However, the parent company of an investment company shall consolidate the subsidiaries of the investment entity.

An investment company is a company that:

  • obtains funds from one or more investors for the purpose of providing those investor(s) with investment management services;
  • commits to its investor(s) that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both; and;
  • measures and evaluates the performance of substantially all of its investments on a fair value basis.

On 28 June 2012, the IASB published then amendment "Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance". The guidance introduces limits to the application of the new standards on the consolidated IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interest in Other Entities, IAS 27 Separate Financial Statements and IAS 28 Investments in Associates and Joint Ventures, which will become effective for annual periods beginning on 1 January 2014, following the postponement ordered by the European Financial Reporting Advisory Group in the endorsement. IFRS 10, 11, 12, IAS 27 and IAS 28 revised has been endorsed by European Regulation (UE) n. 1254 of 11 December 2012.

In particular, a company must not make entries for the restatement of the company for which the consolidation conclusion on the date of initial application is the same as that obtained in accordance with IAS 27 and SIC-12 Consolidation - Special Purpose Entities and opposite case the retrospective application is limited to the period preceding the date of initial application.

IFRS 13 –  Fair value measurement

In May 2011, the IASB issued IFRS 13, the principle that offers a unique guide for the measurement and disclosure of fair value, defined as the price that would be received in the case of sale of the asset or paid to transfer the liability in an ordinary transaction market.

The fair value is the price of the asset and liabilities in its principal or most advantageous market between market participants at the measurement date in the current market conditions (ie, an exit price from the perspective of a market participant that holds the asset or obligation). between market participants at the measurement date in the current market conditions (ie, an exit price from the perspective of a market participant that holds the asset or obligation).

Assets and liabilities measured at fair value are classified for accounting purposes in accordance with a fair value hierarchy into three levels:

1 - quoted prices in active markets for identical financial instruments

2 - inputs other than those included in Level 1 that are observable for the asset or liability, either directly (such as quoted prices for similar instruments in active markets), or indirectly (ie derived from prices)

3 - inputs for the asset or liability that are not based on observable market data.

IAS 19 – Amendments to IAS 19 – Employee benefits

In June 2011, the IASB issued IAS 19 Employee Benefits revised, which introduced the following changes:

  1. Elimination of the option not to recognize part of the actuarial gains/losses arising from changes in estimates of obligations related to the defined benefit plan or changes in the fair value of the assets of the plans, that is  the amendment removed the option to use the corridor method to recognize off-balance-sheet profits or losses.
  2. New disclosure in the profit or loss account of interest expenses arising from defined benefit plans. More specifically, the current service cost is recorded as personnel expenses, interest expense related to the component of the "time value" in the actuarial calculations shall be accounted for in financial expenses. Finally, the gains / losses arising from the remeasurement or settlement of defined benefit plans and the performance of the assets of the plan shall be accounted for in the other comprehensive income (without recycling).
  3. More disclosure in relation to the characteristics of defined benefit plans and the risks deriving from them, the amounts recognized in the financial statements and participation in plans for more than one employer.

The amended IAS 19 is effective for annual periods beginning 1 January 2013 or later and has been endorsed by European Union with Regulation (EU) n. 475 of 5 June 2012.

The estimated impacts on the Group are described in the relevant section of the notes.

IAS 1 – Presentation of Financial Statements

In June 2011, the IASB amended IAS 1 Presentation of Financial Statemen ts requiring to put together in one section all items included in the other comprehensive income that will be recycled  to the profit or loss (gains and losses from the translation of financial statements in foreign currency, effective portion of cash flow hedges).