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Notes to the consolidated financial
statements, REC Group
REC Annual Report 2011
IAS 28
Investments in Associates (2008)
and carries forward the
existing accounting and disclosure requirements with limited
amendments. These include:
• Investment in a joint venture shall be accounted for using the
equity method;
• IFRS 5 is applicable to an investment, or a portion of an
investment, in an associate or a joint venture that meets the
criteria to be classified as held-for-sale; and
• If an investment in an associate becomes an investment in a
joint venture or an investment in a joint venture becomes an
investment in an associate, the entity continues to apply the
equity method and does not remeasure the retained interest.
The preliminary evaluation is that the effect for the REC Group is
that its investments in joint ventures must be accounted for using
the equity method. See the discussion related to IFRS 11.
IFRS 12
Disclosure of Interests in Other Entities
(effective from
January 1, 2013. Earlier application is permitted, but it is not yet
approved by the EU). IFRS 12 combines, in a single standard, the
disclosure requirements for subsidiaries, associates and joint
arrangements, as well as unconsolidated structured entities (special
purpose vehicles and other offbalance sheet vehicles). The required
disclosures aim to provide information to enable user to evaluate:
• The nature of, and risks associated with, an entity’s interests in
other entities; and
• The effects of those interests on the entity’s financial position,
financial performance and cash flows.
REC has not concluded on the effects of IFRS 12 on its disclosures.
The adoption of IFRS 12may increase the level of disclosure
provided by the REC Group but without concluding REC currently
expects the effects to be limited due to the REC Group’s relatively
uncomplicated structure and involvement in other entities.
IFRS 13
Fair Value Measurement
(effective from January 1, 2013.
Earlier application is permitted, but it is not yet approved by the
EU). IFRS 13 requirements do not extend the use of fair value
accounting, but provide guidance on how it should be applied where
its use is already required or permitted by other standards within
IFRSs. The standard will be applied prospectively and comparatives
will not be restated. IFRS 13 introduces a single source of guidance
on fair value measurement for both financial and non-financial
assets and liabilities by defining fair value, establishing a framework
for measuring fair value and setting out disclosures requirements
for fair value measurements. The key principles in IFRS 13 are as
follows:
• Fair value is an exit price;
• Measurement considers characteristics of the asset or liability
and not entity-specific characteristics;
• Measurement assumes a transaction in the entity’s principle
(or most advantageous) market between market participants;
• Price is not adjusted for transaction costs;
• Measurement maximises the use of relevant observable inputs
and minimises the use of unobservable inputs;
• The three-level fair value hierarchy is extended to all fair value
measurements.
The REC Group has not concluded on the effect of IFRS 13.
A preliminary evaluation is that the REC Group already complies
with the main requirements for its existing fair value measurements
and disclosures, but expects some additional disclosures for its
annual financial statements and quarterly reports. However, IFRS
13 introduce a new definition of “an active market”, and has changed
the definition in IAS 36
Impairment of assets
of “an active market”.
The wording of the new definition in IAS 36 is different from the
current, and it is unclear for the REC Group if this is intentional and
if it changes the IAS 36 definition in substance. If so, it may change
the REC Group’s cash-generating units with potential impairment
effects if a current cash-generating unit is split into several
cash-generating units, of which one or more may have estimated
recoverable amounts below its carrying values. See note 7 for
further discussion of cash-generating units.
Amendments to IAS 19
Employee Benefits
(effective from January
1, 2013. Earlier application is permitted, but it is not yet approved
by the EU). The amendments relate broadly to the accounting for
defined benefit obligations and termination benefits. For defined
benefit plans the amendments include:
• Remeasurements (“actuarial gains and losses”) are recognised
immediately in other comprehensive income. The corridor
method and the recognition of actuarial gains and losses in
profit or loss are no longer permitted;
• Expected returns on plan assets are calculated based on the
rates used to discount the defined benefit obligation;
• Increased disclosure requirements for defined benefit plans,
including characteristics of defined benefit plans and the risks
that entities are exposed to through participation in those plans.
The REC Group’s preliminary evaluation is that the amendments to
IAS 19 for defined benefit plans will not have significant effects,
especially as the REC Group already recognizes actuarial gains or
losses to other comprehensive income (what to be included in
actuarial gains or losses will however be somewhat changed).
Furthermore, the REC Group expects limited effect of the change
in estimated return on plan assets to be included in profit or loss,
with corresponding opposite effect on remeasurements to other
comprehensive income. The REC Group may elect to present net
interest as part of financial items in the statement of income
instead of included as part of pension expense. Some more
disclosures may be required.