5. VISIÓN DETALLADA DE LA ENTIDAD
5.5. Perfiles lingüísticos, prioridades y fechas de preceptividad
Consolidated financial statements
Principles for consolidation
The consolidated financial statements comprise the parent company, sub- sidiaries, joint ventures and associated companies. Intra-group transac- tions as well as gains on transactions with joint ventures and associated companies are eliminated in the consolidated financial statements.
Read more in note 5 about definitions of subsidiaries, joint ventures, and associated companies.
Translation to Swedish kronor when consolidating companies have other functional currencies
The functional currency of each Volvo Group company is determined based on the currency in which the company primarily generates and expends cash, normally the currency of the country where the company is located. AB Volvo’s and the Volvo Group’s presentation currency is SEK. In preparing the consolidated financial statements, items in the income statements of foreign subsidiaries (except for subsidiaries in hyperinflation- ary economies) are translated to SEK using monthly average exchange rates. Balance-sheet items are translated into SEK using exchange rates at year-end (closing rate). Exchange differences are recognized in other comprehensive income and accumulated in equity.
The accumulated translation differences related to a certain subsidiary, joint venture or associated company are reversed to the income statement as a part of the gain/loss arising from disposal of such a company or repayment of capital contribution from such a company.
Receivables and liabilities in foreign currency
Receivables and liabilities in currencies other than the functional currency of the reporting entity (foreign currencies) are translated to the functional currency using the closing rate. Translation differences on operating assets and liabilities are recognized in operating income, while translation differences arising in financial assets and liabilities are recognized in financial income and expenses. Interest-bearing financial assets and lia- bilities are defined as items included in the net financial position of the Volvo Group (see Definitions at the end of this report). Exchange rate differences on loans and other financial instruments in foreign currency, which are used to hedge net assets in foreign subsidiaries and associated companies, are offset against translation differences in the shareholders’ equity of the respective companies. Exchange-rate gains and losses on assets and liabilities in foreign currencies, both on payments during the year and on measurements at year-end, impact profit or loss in the year in which they are incurred.
Read more in note 4 about currency exposure and currency risk management.
The most important exchange rates applied in the consolidated financial statements are shown in the table.
Exchange rates Average rate
Closing rate as of Dec 31
Country Currency 2015 2014 2015 2014
Australia AUD 6.3377 6.1801 6.0861 6.3746
Brazil BRL 2.5643 2.9202 2.1596 2.8903
Euro Zone EUR 9.3638 9.1059 9.1443 9.5248
Japan JPY 0.0697 0.0649 0.0694 0.0654
Canada CAD 6.6054 6.2122 6.0293 6.7231
China CNY 1.3424 1.1134 1.2868 1.2595
Norway NOK 1.0469 1.0904 0.9567 1.0526
Great Britain GBP 12.9042 11.2976 12.3848 12.1451 South Africa ZAR 0.6641 0.6320 0.5433 0.6722 South Korea KRW 0.0075 0.0065 0.0071 0.0071 United States USD 8.4370 6.8582 8.3537 7.8130
New accounting policies for 2015
There are no new accounting principles and interpretations that came into effect as of January 1, 2015 that significantly effects the Volvo Group’s financial statements.
New accounting policies for 2016 and later
A number of accounting standards and interpretations have been pub- lished, but have not yet become effective.
IFRS 9 Financial instruments
IFRS 9 is divided in three parts: Classification and Measurement, Im - pairment and Hedge Accounting, and will replace the current IAS 39 Financial instruments: recognition and measurement. The Volvo Group is currently assessing the effect of IFRS 9 and are expecting the greatest impact from the transition to the new expected credit loss model, however the impact is not yet quantifiable. The mandatory effective date is January 1, 2018, with earlier application allowed.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 represent a new framework for recognising revenue with addi- tional disclosure requirements. The framework establishes principles about the nature, amount, timing and uncertainty of revenue and cash flow arising from an entity’s contracts with customers. IFRS 15 will replace current IAS 11 Construction contracts and IAS 18 Revenue. The Volvo Group is assessing the impact of the IFRS 15 and monitors any state- ments from the IASB and FASB Joint transition resource group for reve- nue recognition as well as amendments to the standard. Areas in focus for the Volvo Group are for example accounting for repurchase commit- ments and service contracts, where the guidance in IFRS 15 is more explicit than under IAS 18. The mandatory effective date is January 1, 2018, with earlier application allowed.
IFRS 16 Leases
IFRS 16 Leases was published in January 2016 and are replacing the former IAS 17 Leases and the related interpretations IFRIC 4, SIC-15 and SIC-27. The accounting for lessors will in all material aspects be unchanged, however the accounting for lessees will change. There will no longer be a distinction between operating and finance lease, all leases will be recognized on the balance sheet except for short-term leases and those of minor value. The model reflects that, at the start of a lease, the lessee obtains the right to use an asset for a period of time and has an obligation to pay for that right. The standard is effective for annual periods beginning on or after 1 January 2019. Early adoption is permitted. Volvo Group will assess the impact of IFRS 16, however it can already now be concluded that the balance sheet for Volvo Group will increase.
IFRS 9, IFRS 15 and IFRS 16 has not yet been adopted by the EU when this Annual Report is published.
Other new or revised accounting standards are not considered to have a material impact on the Volvo Group’s financial statements.
GROUP PERFORMANCE 2015 NOTES
The Volvo Group’s most significant accounting policies are described together with the applicable note. Read more in Note 1, Accounting Poli- cies for a specification. The preparation of AB Volvo’s Consolidated Financial Statements requires the use of estimates and assumptions that may affect the recognized amounts of assets and liabilities at the date of the financial statements. In addition, the recognized amounts of net sales and expenses during the periods presented are affected. In preparing these financial statements, management has made its best judgments of cer- tain amounts included in the financial statements, materiality taken into account. Actual results may differ from previously made estimates. In accordance with IAS 1, the company is required to disclose the assump- tions and other major sources of estimation uncertainties that, if actual results differ, may have a material impact on the financial statements.
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The sources of uncertainty which has been identified by the Volvo Group and which are considered to fulfill these criteria are pre- sented in connection to the items considered to be affected. The table discloses where to find these descriptions.Source of estimation uncertainty Note Buy-back agreements and residual value
guarantees 7, Revenue
Deferred taxes 10, Income taxes
Impairment of goodwill and other intangible
assets 12, Intangible assets
Impairment of tangible assets 13, Tangible assets
Credit loss reserves 15,
16,
Customer-financing receivables Receivables Inventory obsolescence 17, Inventories Assumptions when calculating pensions and
other post-employment benefits
20, Provisions for post- employment benefits Product warranty costs 21, Other provisions Legal proceedings 21, Other provisions Residual value risks 21, Other provisions