IFRS Reporting
Elektrobit has adopted IFRS reporting as of the first quarter of 2005. Before the introduction of IFRS standards, Elektrobit used to prepare its consolidated financial statements in accordance with Finnish Accounting Standards (FAS). The date of transition to IFRS compliance called for by IFRS reporting is January 1, 2004. Elektrobit has prepared an opening consolidated balance sheet under IFRS for this date.
Below is described the effects of the IFRS transition on the consolidated opening balance sheet and shareholders' equity. IFRS comparison data for each quarter in 2004 will be presented in connection with the interim reports in 2005.
Elektrobit has utilized the exceptions allowed in the IFRS1 first time adoption standard with regard to retrospective application of individual standards. The IFRS information presented has been prepared in accordance with the IFRS standards valid at the time of preparation. The opening balance sheet may still change if a standard or interpretation is changed before the annual IFRS financial statements for the accounting period from January 1, 2005 to December 31, 2005 are finalized.
The transition to IFRS standards will reduce shareholders' equity on the transition date January 1, 2004 by approximately 1.5 MEUR (1.9%), while the balance sheet total increases by some 3.5 MEUR (2.4%). The most significant changes in consolidated shareholders' equity at the time of transition are attributable to impairment of consolidation goodwill, as well as deferred tax entries. The amount of assets on the balance sheet is increased most by the inclusion of fixed assets acquired through finance lease agreements, and to a lesser extent by fixed costs included in inventories and by the recognition of financial instruments at fair value.
According to our analysis, the transition to IFRS standards will not cause any change in the amount of liabilities recognized for pension schemes on the consolidated balance sheet on January 1, 2004. Pensions in our Corporation companies are arranged through insurance companies. Pension schemes in our foreign subsidiaries have the nature of defined contribution plans, and the practice of recognizing the disability pension liabilities associated with Finnish TEL pension insurance is interpreted to be practically equivalent to the current FAS accounting practice. Disability pension is considered as other long-term employment benefit under IAS 19, the level of which is not dependent on the duration of employment in an enterprise preparing IFRS financial statements. According to the provisions of IAS 19.130, the so called event leading to an obligation in the case of disability pension is an event of disability. Expenses and liabilities will be recognized once such an event has occurred.
Segment Reporting
The primary format of segment reporting is based on business segments, including Service business and Product business. Secondary reporting format is based on geographical segments, including Europe, the Americas and Asia.
For the time being, in order to preserve comparability with net sales information presented in accordance with Finnish Accounting Standards, the Corporation will present its net sales information not only as the data required for segment reporting but also separately for the Service business itemized into Contract R&D and Automotive business, as well as for the Product business itemized into Testing and Automation Solutions business.
Impairment of Assets
The IAS 36 standard prescribes the procedures applicable to impairment testing of consolidation goodwill and certain other asset items. Consolidation goodwill at the time of transition to IFRS standards was tested as required by the IAS 36 standard. Testing resulted in a 2.3 MEUR impairment of consolidation goodwill, after which there was 2.7 MEUR of consolidation goodwill remaining.
The FAS consolidated financial statements for 2004 included a total of 13.3 MEUR of depreciation and impairment, 7.2 MEUR of which consists of consolidation goodwill. In compliance with IFRS regulations, the amount of depreciation and impairment associated with acquisitions of subsidiaries is 5.7 Meur in 2004.