Axactor Annual Report 2016

rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date. Deferred income tax is provided using the liability method on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences except where the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss. A deferred tax asset is recognised to the extent that is probable that future taxable profit will be available against for which unused tax losses and unused tax credits can be uti- lised. A deferred tax assets arising from unused tax losses or tax credit are only recognised to the extent that the entity has sufficient taxable temporary differences or there is convinc- ing other evidence supporting the utilisation of the tax losses and tax credits. The carrying amount of deferred tax asset is reviewed at the end of each reporting period. Unrecognised deferred tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off tax assets against income tax liabilities and the deferred income taxes relate to the same taxable entity or taxation authority. 2.12 Borrowing expenses The Group applies IAS 23 Borrowing Costs and IAS 39 Financial Instruments: Recognition and Measurements. Expenses to secure bank financing are amortized across the term of the loan as financial expenses in the consolidated income statement. The amount is recognized in the balance sheet as a deduction to the loan liability. The Group capital- izes borrowing expenses in the cost of qualifying assets, that is, fixed assets for substantial amounts with long periods of completion. 2.13 Segment reporting For management purposes, the Group is organised into business units based on the geographical regions, by year- end 2016 this has been Norway, Sweden, Spain, Italy and Germany. The internal reporting provided to the Board of Directors of Axactor, which is the Group's chief decision maker, is in accordance with this structure. Segment perfor- mance is measured by operating profit (EBIT), as included in the internal management reports that are reviewed by management and the Board of Directors. 2.14 Revenue recognition Revenue is recognised when it is probable that services will generate future economic benefits that will flow to the company and the amount can be reliably estimated. Revenues are presented net of value added tax. Revenues from portfolios, see accounting principles 2.6.1 2.15 Conversion of foreign currency The financial statements are presented in SEK, which is Axactor’s functional currency, as well as being the presenta- tion currency. Transactions in foreign currency are accounted for in the functional currency, at the current rate of exchange of the transaction date. Both monetary and non-monetary assets and liabilities are converted per the balance sheet date, at the day’s current exchange rate. Currency differences which arise during conversion are accounted for in profit or loss. Assets and liabilities in foreign subsidiaries are valued at the closing currency rates at the end of the reporting period. Income statements are converted to the average of currency rates for the entire reporting period. Exchange differences that may occur at conversion are reported under other comprehensive income. 2.16 Differences between accounting principles of the Group and of the Parent Company According to the Swedish Financial Reporting Board’s stand- ard RFR 2, Accounting for Legal Entities, legal entities with securities listed on a Swedish stock exchange or authorized market on the balance sheet date shall, as a general rule, apply those IFRS standards that are applied in the con- solidated financial statements. There are however certain exceptions from and additions to this rule depending on legal provisions – principally those in the Annual Accounts Act – and the relationship between accounting and taxation. For Axactor AB (the Parent Company) this means that IFRS measurement and disclosure rules are applied, but the format differs from the Group’s financial reports since the Parent Company’s financial reports follow the Annual Accounts Act. In the Parent Company, shares in subsidiaries, associated companies and joint ventures are reported at cost (full consolidation and the equity method is used in the Group). 2.17 Changes in Accounting Policies and disclosures for 2017 calendar year or thereafter IFRS 9, financial instruments The standard comes into force for financial years beginning in 2018 or thereafter and replaces IAS 39. The standard has been endorsed by EU. It is divided into three sections: classification, hedge accounting and impairment. The standard requires the classification of financial assets in accordance with three valuation categories, namely amortized cost, fair value through other comprehensive income, or fair value through the Income Statement. The classification is determined when the asset is first accounted for on the basis of the characteristics of the financial asset and the company’s business model. No major changes apply with regard to financial liabilities. IFRS 9 also includes augmented regula- tions regarding disclosures in relation to risk management and the effects of hedge accounting. The standard has been complemented with regulations governing the impairment of financial assets, where the model is based on anticipated losses. The implementation of the standard is not assumed to have material impact on the Group. Axactor AB | Annual report 2016 35