Consolidated Financial Statements >
CONSOLIDATED FINANCIAL STATEMENTS AND EXPLANATORY NOTES
192
| 2012 annual report prysmian group
The preparation of financial statements requires management
to apply accounting standards and methods which, at times,
rely on judgements and estimates based on past experience
and assumptions deemed to be reasonable and realistic
according to the related circumstances. The application of
these estimates and assumptions influences the amounts
reported in the financial statements, meaning the statement
of financial position, the income statement, the statement
of comprehensive income and the statement of cash flows,
as well as the accompanying disclosures. Ultimate amounts
previously reported on the basis of estimates and assumptions
may differ from original estimates because of the uncertain
nature of the assumptions and conditions on which the
estimates were based.
The following is a brief description of the accounting policies
that require the Prysmian Group’s management to exercise
greater subjectivity of judgement when preparing estimates
and for which a change in underlying assumptions could have a
significant impact on the consolidated financial statements.
(a) Provisions for risks and charges
Provisions are recognised for legal and tax risks and reflect
the risk of a negative outcome. The value of the provisions
recorded in the financial statements against such risks
represents the best estimate by management at that date.
This estimate requires the use of assumptions depending
on factors which may change over time and which could,
therefore, have a significant impact on the current estimates
made by management to prepare the Group consolidated
financial statements.
(b) Impairment of assets
Goodwill
In accordance with its adopted accounting standards and
impairment testing procedures, the Group tests annually
whether its goodwill has suffered an impairment loss. Goodwill
has been allocated to the two operating segments: Energy and
Telecom. It is therefore tested at this level. The recoverable
amount has been determined by calculating value in use. This
calculation requires the use of estimates.
During 2012 the Prysmian Group capitalised Euro 53 million
in Goodwill, of which Euro 4 million has been allocated to the
Telecom operating segment for the acquisition of control of
Telcon Fios e Cabos para Telecomuniçaoes SA. and Euro 49
million has been allocated to the Energy operating segment for
the acquisition of Global Marine Systems Energy Ltd.
Property, plant and equipment and finite-life intangible
assets
In accordance with the Group’s adopted accounting standards
and impairment testing procedures, property, plant and
equipment and intangible assets with finite useful lives are
tested for impairment. Any impairment loss is recognised
by means of a write-down, when indicators suggest it will
be difficult to recover the related net book value through
use of the assets. Verification of these indicators requires
management to make subjective judgements based on the
information available within the Group and from the market,
as well as from past experience. In addition, if an impairment
loss is identified, the Group determines the amount of such
impairment using suitable valuation techniques. Correct
identification of indicators of potential impairment as well as
the estimates for determining its amount depend on factors
which can vary over time, thus influencing judgements and
estimates made by management.
The Prysmian Group has assessed at year end whether
there is any evidence that its CGUs might be impaired and
consequently tested for impairment those CGUs potentially
at “risk”. Based on this test, the Group has even written down
certain individual assets at two plants whose restructuring was
announced in 2012, even though these plants belong to larger
CGUs for which there was no specific evidence of impairment.
The outcome of impairment tests at 31 December 2012 does
not mean that future results will be the same, especially
if there are currently unforeseeable developments in the
business environment.
Further information can be found in Note 1. Property, plant and
equipment.
(c) Depreciation and amortisation
The cost of property, plant and equipment and intangible
assets is depreciated/amortised on a straight-line basis
over the estimated useful lives of the assets concerned. The
useful economic life of Group property, plant and equipment
and intangible assets is determined by management when
the asset is acquired. This is based on past experience for
similar assets, market conditions and expectations regarding
future events that could impact useful life, including changes
in technology. Therefore, actual economic life may differ
from estimated useful life. The Group periodically reviews
technological and sector changes to update residual useful
lives. This periodic update may lead to a variation in the
depreciation/amortisation period and therefore also in the
depreciation/amortisation charge for future years.
(d) Revenue recognition for construction contracts
The Group uses the percentage of completion method to
record construction contracts. The margins recognised in the
income statement depend on the progress of the contract
and its estimated margins upon completion. Thus, correct
recognition of work-in-progress and margins relating to as
yet incomplete work implies that management has correctly
estimated contract costs, potential contract variants, as well
as delays, and any extra costs and penalties that might reduce
