Accounting standards, revisions, interpretations and improvements applied from 1 January 2010

The following documents, already previously issued by the IASB and approved by the European Union, came into force on 1 January 2010, which contain amendments to the international accounting standards:

IAS 27 Separate and Consolidated Financial Statements

Amendments to IAS 27 mainly regard the accounting of transactions or events that modify equity investments in subsidiaries and the allocation of losses attributable to minority interests.

IAS 27 standard sets out that, once the control of a company has been obtained, transactions, with which the parent company acquires or sales further minority interests without modifying the control exercised on the subsidiary, are to be considered as transactions with shareholders and therefore shall be recognised at equity. The accounting value of the controlling investment and of minority investments must be therefore adjusted to reflect the change in the equity investment of the subsidiary and any difference between the amount of the adjustment made to minority interests and fair value of the price paid, or received, for such transaction is recorded directly at equity and is attributed to the shareholders of the parent company. Goodwill and gains or losses recognised in the income statement will not be adjusted. Accessory costs of these transactions must be recorded at equity, pursuant to provisions envisaged by IAS 32, paragraph 35.

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations

The improvements issued in May 2008 include those relating to IFRS 5, “Non-Current Assets Held for Sale and Discontinued Operations”, which clarifies that the additional information required in relation to non-current assets and disposal groups classified as held for sale or relating to discontinued operations are only those required by IFRS 5. The information requested by other IFRSs only applies if specifically requested with reference to these types of non-current asset or discontinued operation.

IFRS 3 Revised

As already mentioned in the section dedicated to Business Combinations’ accounting standards, the “Revised” version introduces, among other things, amendments to the valuation of goodwill deriving from a business combination carried out in several phases. In particular, provision is made for recording goodwill at the date control is acquired and entering any residual gain or loss in the income statement at the end of the process of measurement of the assets, liabilities and potential liabilities identified at fair value.

IAS 39 Financial instruments: recognition and measurement

The amendment states that an entity is permitted to designate a portion of the changes in fair value or cash flows of a financial instrument as the hedged item. The amendment also includes the designation of inflation as a hedged risk or portion of risk in particular situations.

IFRIC 9 IAS 39 – Reassessment of the Value of Embedded Derivatives and Financial Instruments

This amendment to IFRIC 9 requires an entity to assess whether any embedded derivatives are required to be separated from the host contract when an entity reclassifies a hybrid instrument out of the fair value through profit or loss category with changes taken to the income statement.

This assessment must be carried out on the basis of conditions existing at the moment the entity becomes a party to the contract for the first time; subsequent reassessment is only permitted where there is a change in the terms of the contract that significantly modifies the cash flows that otherwise would be required under the contract.

IAS 39 establishes that if an embedded derivative cannot be reliably measured, the entire hybrid financial instrument must remain classified as at fair value with changes taken to the income statement.

The adoption of the standard did not have any effect on the Group’s consolidated financial statements.

IFRIC 12 Service Concession Arrangements

This was published in the Official Journal of the European Union on 26 March 2009. Companies are required to apply the new interpretation from the beginning of the first annual period starting after the date the regulation comes into effect.

This interpretation applies to operators that provide concession services in accordance with the following conditions:

  • the grantor controls or regulates what services the operator must provide with the infrastructure asset, to whom it must provide them and at what price;
  • the grantor controls, through ownership, beneficial entitlement or otherwise, any residual interest in the infrastructure at the end of the term of the arrangement.

If these conditions exist, the infrastructure assets involved in the provision of public services are recorded as intangible assets and/or as financial assets in accordance with whether the operator has the unconditional right to receive cash or another financial asset for the service rendered. Reference is therefore made to whether the operator is subject to demand risk for the related concession agreement.

Water Concessions

Based on the analysis of the characteristics of the concession agreements for the water business, the ACEA Group deemed that these agreements fell under the above-mentioned application interpretation. In particular, in view of their accounting disclosure, in compliance with IFRIC12, the Group adopted the model of intangible asset as it was deemed that concessions could not ensure the existence of an unconditional right to receive cash or another financial asset while exposing the operator to market demand risk.

The interpretation was applied retrospectively, from the dates the individual business combination, through which the Group acquired the related concession agreements, became effective. By reason of the application of this model, infrastructures under concession, that were previously recorded under property, plant and equipment, are now stated under intangible assets, and more specifically under item Rights on infrastructure. The intangible model of IFRIC12 requires, in fact, that individual intangible assets be recorded insofar as to show the right of the operator to make the end users pay for the public service; this instead of disclosing the aggregate amount of tangible infrastructures used for the management of the service. As a consequence of the above, in the balance sheet at 1 January 2009, restated for comparative purposes, the amount of 800.4 million euros was restated from item “Property, plant and equipment” to item “Rights on infrastructure”.

The useful life of infrastructures, which were previously classified under property, plant and equipment, is substantially in line with the duration of the concession, as the latter is duly consistent with the period of time in which future economic benefits, deriving from the use of the assets under evaluation, are expected to be obtained. 

The possible recover of the value recorded under “Rights on infrastructure” is also guaranteed by the provision in the concession agreements that, upon expiration of the agreements, the operator will be granted a price, duly indexed, equal to the construction cost of investments, less technical depreciation related to the duration of the concession.

Always pursuant to IFRIC12, a margin in line with what is possible to assume from the reference market for similar activities was applied to the construction activities carried out entirely by the Group.

Concession for the electricity distribution service

In accordance with the analyses carried out, backed by an authoritative external opinion, the conditions provided by IFRIC 12 with reference to the electrical energy distribution service were found to be non-existent, as the operator has full control over the infrastructure assets used for the aforesaid electrical energy distribution service. This clearly entails the unfulfillment of one of the pre-conditions required to comply with the application of the interpretation as the conceding body is not in a position to control any significant residual interest in the infrastructure at the expiry of the agreement.

Concession for the public lighting service

With Resolution no. 897 of 20 April 1999, Roma Capitale assigned the concession for the public lighting service to ACEA, granting free of charge and exclusive use by ACEA of the entire infrastructure for a period of thirty years, starting from 1 January 1998 (and until 31 December 2027), while regulating the general right/duty to provide for any ordinary and extraordinary maintenance operations, as well as renewal, construction, refurbishment and upgrading that will be deemed necessary for the performance of the service.

In the concession and accounting framework in force before the effective date of IFRIC12, the extraordinary maintenance activities carried out on public owned lighting, with free of charge use, were capitalised under property, plant and equipment as they are deemed increasing the value in use and the useful life of the assets and can be recovered based on fees paid annually. Ordinary maintenance, management and restoration activities, as well as electricity supplies were directly included in the Income Statement.

It should also be noted that, within the thirty-year duration of the concession, ACEA and Roma Capitale entered concession contracts, yet of shorter duration aimed at regulating, for each single period, the criteria and ways to implement the public lighting service, as well as the related economic terms. The term of the current agreement is from 1 June 2005 to 30 May 2015.

Based on the analysis carried out on the reference legislative and concession framework to evaluate the possible application of the aforementioned interpretation, the ACEA Group chose the adoption of a mixed method. In particular, extraordinary maintenance activities, equal to 67.1 million euros which, as at 1 January 2009, were recorded among improvements on third-party assets under item “Property, plant and equipment” were partially restated; 25.9 million euros were recorded under loans and receivables and 39.7 million euros under intangible assets.

The restatement of 25.9 million euros under loans and receivables, pursuant to the financial assets model envisaged by IFRIC12, permits to disclose the measurement of the Group’s current unconditional right to receive cash flows up to 30 May 2015, expiration term of the current service contract, against investments, carried out on the infrastructure, and improvements made.

Conversely, pursuant to the intangible assets model envisaged by IFRIC12, restatement of 39.7 million euros in intangible assets, under item "Rights on infrastructure", allows to highlight the measurement of the residual right deriving from the concession, based on which the operator will be able to receive cash flows according to ways and criteria set out only by subsequent service contracts.

The possible recover of this value recorded under “Rights on infrastructure” is however guaranteed by the provision in the concession deed that, upon expiration of the agreement, the operator will be granted a price, duly indexed, equal to the construction cost of investments, less technical depreciation related to the duration of the concession.

As described in detail in the section “Relations with related parties”, it is noted that the Board of Directors of ACEA S.p.A. – during the meeting held on 1 February 2011 - approved a draft of the supplementary service contract that governs the economic terms of the concession: the supplementary agreement was signed on 15 March 2011.

Once it enters into force, this draft can set out the adoption of the financial assets model, also with regard to the residual right resulting from the concession.

IFRIC 17 Distributions of Non-Cash Assets to Owners

IFRIC 17 was issued in January 2009 in order to clarify how an entity should measure the distributions of non-cash assets when paying dividends to shareholders. The interpretation must be applied prospectively from 1 January 2010.

IFRIC 18 Transfers of Assets from Customers

IFRIC 18 was issued in January 2009. It provides additional guidance on accounting for transfers of assets from customers and clarifies the IFRS requirements for agreements in which an entity receives from a customer an item of property, plant or equipment that the entity must then use either to connect the customer to a network or to provide the customer with ongoing access to a supply of goods or services.

The interpretation must be applied prospectively from 1 January 2010.

IFRIC 15 Agreements for the Construction of Real Estate

IFRIC 15, published in July 2008, aims to clarify the method of accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through sub-contractors.

The interpretation must be applied prospectively from 1 January 2010.

Amendments to IAS 32 and IAS 1 – Puttable Financial Instruments

The amendments to IAS 32 and IAS 1 were endorsed in February and will come into effect in the first annual period after 1 January 2009. The amendment to IAS 32 requires that certain puttable financial instruments and obligations arising on liquidation are classified as equity instruments if certain conditions are met. Said amendment had no impact on the Group’s financial statements.

Improvements to IFRS

IASB issued a series of improvements to the standards, the main goal of which was to eliminate inconsistencies and clarify terminology. Each standard presents ad hoc transition clauses. The adoption of the following amendments translated to changes in the accounting standards but did not affect the Group’s financial position or operating results.

  • IFRS 8 “Operating segments” establishes that assets and liabilities relating to the operating segment must be presented only if part of the reporting used by the entity’s chief operating decision maker.
  • IAS 1 “Presentation of financial statements”: assets and liabilities classified as held for trading in line with IAS 39 “Financial instruments: recognition and measurement” are not automatically classified as current items on the statement of financial position. This did not involve new classifications of financial instruments from current to non-current items in the financial position.
  • IAS 7 “Cash flow statement” explicitly states that only spending that results in asset recognition can be classified as a cash flow from investing activity.
  • IAS 16 “Property, plant and equipment” replaced the term “net selling price" with "fair value less costs to sell". This change did not involve any variation in the financial position.
  • IAS 18 “Revenues”: the Board supplemented the standard with an application guide (which accompanies the standard) which determines whether an entity is operating as a principal or an agent. The aspects to be considered are whether the entity: (i) has the primary responsibility for providing the goods or services; (ii) bears the inventory risk; (iii) has discretion in establishing prices; (iv) bears the credit risk.
  • IAS 36 “Impairment of assets”: when discounted cash flows are used to estimate the “fair value less costs to sell” additional information is required on the discount rate, consistent with the information required when discounted cash flows are used to estimate the “value in use”. This amendment does not have a direct impact on the Group’s consolidated financial statements since the recoverable amount of its cash-generating units is currently estimated on the basis of its “value in use”. The amendment states that the cash-generating unit (or group of units) to which it is possible to allocate goodwill acquired in a business segment is the operating segment as defined under IFRS 8 before the combination for reporting purposes.

It should be noted that the ACEA Group has applied the amendments introduced to the international accounting standards shown above as well as the additional improvements to these Consolidated Financial Statements.

IFRIC 12 had the most significant impact, while the adoption of other standards, or improvements, did not have a significant impact on the Group’s financial position and operating result.