Notes to the financial statements segments are presented according to internal reporting. The standard is not expected to have a material impact on the Group’s segment reporting. IFRIC 13 “Customer loyalty program” (effective July 2008) clarifies that when goods or services are sold together with a customer loyalty incentive the consideration received is to be allocated between the components using fair values. IFRIC 13 will not have a material effect on the Group’s financial statements IFRIC 14, “IAS 19 – the limit on a defined benefit asset, minimum funding requirements and their interaction” (effective January 2008). IFRIC 14 provides guidance on assessing the limit in IAS 19 on the amount of the surplus that can be recognised as an asset. It also explains how the pension asset or liability may be affected by a minimum funding requirement. The interpretation is not expected to have any impact on the Group accounts. Standard and interpretation issued that are neither effective nor relevant to the Group IAS 23 (Amendment) “Borrowing costs” (effective January 2009). The amendment requires capitalisation of borrowing costs for qualifying assets that currently is not relevant to the Group. IFRIC 12 “Service concession” (effective January 2008). Applies to contractual arrangements whereby a private entity participates in the development, financing, operation and maintenance of infrastructure for public sector services. IFRIC 12 is not relevant to the Group’s operations. Consolidation The consolidated accounts comprise the parent company and its subsidiaries including Special Purpose Entities (“SPE”). Subsidiaries are companies, over which the parent company has control, implying that they have the power of governing the financial and operating policies of an entity so as to obtain benefits from its activities. Such influence is deemed to exist when, amongst other circumstances, the parent company holds, directly or indirectly, more than 50 per cent of the voting power of an entity. For SPE’s, consolidation also takes place if the Parent Company or subsidiary does not have more than 50 percent of the votes but bears the economic risks and receives the economic benefits in another manner. Companies in which the Parent Company or its subsidiary hold more than 50 percent of the votes, but are unable to exercise control due to contractual and legal reasons, are not included in the consolidated accounts. The financial statements of the parent company and the consolidated subsidiaries refer to the same period and have been drawn up according to the accounting policies applicable to the Group. A subsidiary is included in the consolidated accounts from the time of its acquisition, which is the date at which the parent company gains control over the subsidiary and the subsidiary is included in the consolidated accounts until the date at which control over the company ceases to exist. The consolidated accounts are prepared in accordance with the purchase method. The cost of an acquisition is measured as the fair value of the assets provided as compensation, the fair value of any equity instruments issued, and the fair value of liabilities incurred or assumed, plus costs directly attributable to the acquisition. The identifiable assets acquired and the liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at acquisition date, irrespective of any minority interest. The excess of the cost of the acquisition over the fair value of the Group’s share of the identifiable acquired net assets is recorded as goodwill. If the cost of the acquisition is less than the fair value of the net assets of the acquired subsidiary, the difference is recognised directly against profit or loss. Goodwill is allocated between the cash-generating units or groups of units which are expected to gain benefits from an acquisition through synergies. The cash-generating units to which goodwill is allocated correspond to the lowest level within the Group in which goodwill is monitored for internal management purposes. These units may not be larger than the equivalent of one segment, that is, one business segment or one geographical segment, as determined in the segment reporting of the Group. The useful life of each individual intangible asset is determined; however the useful life of goodwill is indefinite. For information regarding amortisation and impairment, see further comments under intangible assets. Intra-group transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated. The minority share of the results in subsidiaries is included in the reported results in the consolidated profit and loss account, while the minority share of net assets is included in equity. The consolidated accounts also include associated companies, which are companies over which the Group has a significant influence. By significant influence is meant that the Group can participate in the financial and operating policy decisions of the company, whilst not determining or controlling such financial and operating policies. A significant influence is deemed to exist if the Group, directly or indirectly, holds between 20 and 50 per cent of the voting rights of an entity. A company in which the Group holds fewer than 20 percent of votes can also be classified as an associated company if the Group is represented in the Board of Directors and participates in work related to the company’s strategic issues and issues affecting guidelines. According to the main principle, associated companies are consolidated in accordance with the equity method. However, the Group has chosen to designate investments in associates held by the Group’s venture capital organisation at fair value through profit or loss. The equity method implies that participations in associated companies are initially reported at acquisition cost. The carrying amount of the participations is thereafter adjusted to the Group’s share of the change in the value of the net assets of the associated companies. The Group’s share of the results of the associated companies is included in profit or loss. Dilution gains and losses in associates are recognised in the income statement. Segment reporting A segment is a business segment or a geographical segment. A business segment is a distinguishable component, in terms of accounting, of an entity engaged in providing an individual product or service or a group of related products or services, and that is subject to risks and returns differing from those of other business segments. A geographical segment from a reporting point of view is a distinguishable component of an entity engaged in providing products or services in a particular economic environment and that is subject to risks and returns differing from those applicable to other economic environments. The Group has defined business segments as primary segments and geographical segments as secondary segments. Foreign currency translation The consolidated financial statements are presented in Swedish kronor (SEK), which is the presentation currency of the Group. When a foreign currency transaction is initially recognised, the amount is translated into the functional currency at the spot exchange rate on the date of the transaction. On subsequent balance sheet dates monetary items in foreign currency are translated using the closing rate. Non-monetary items, which are measured in terms of historical cost in foreign currency, are translated using the exchange rate on the date of the transaction. Non-monetary items, which are measured at fair value in a foreign currency, are translated applying the exchange rate on the date on which the fair value is determined. Gains and losses arising as a result of exchange rate differences on settlement or translation of monetary items are recognised in profit or loss. Translation differences on non-monetary items, classified as financial assets or financial liabilities at fair value through profit or loss, are included in the change in fair value of those items. Translation differences from non-monetary items, classified as available for sale financial assets, are recognised directly in equity. The income statements and balance sheets of Group entities, with a functional currency other than the Group’s presentation currency, are translated to Swedish kronor (SEK) in the consolidated accounts. Assets and liabilities in foreign Group entities are translated at closing rate and income and expenses in the income statement are translated at the average exchange rate for the year. Resulting exchange rate differences are recognised as a separate component of equity. Hedge accounting is applied to net investments in foreign subsidiaries. Foreign currency loans constitute the major portion of hedging instruments in these hedging transactions. The translation differences arising when the hedging instruments are translated to the presentation currency are also recognised as translation differences in equity. When a foreign operation is partially disposed of or sold, exchange differences recorded in equity are recognised in the income statement as part of the gain or loss on the sale. Goodwill arising in conjunction with acquisitions of foreign Group entities, as well as adjustments to the fair value of assets and liabilities made in conjunction with acquisitions is included in assets and liabilities in the foreign entity in question and is translated to the presentation currency at closing rate. Financial assets Classification Financial assets are classified in the following four categories at initial recognition: – Financial assets at fair value through profit or loss – Loans and receivables – Held-to-maturity investments – Available-for-sale financial assets SEB ANNUAL REPORT 2007 63
