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20.2 Notes to the consolidated financial statements for the year ended December 31, 2016
FINANCIAL INFORMATION CONCERNING ASSETS,
FINANCIAL POSITION AND FINANCIAL PERFORMANCE
20
p
customer advances and prepayments invested in non-current assets: this
heading records the amounts received from customers and used to finance
capital expenditures for the performance of long-term contracts to which they
have subscribed;
p
advances and prepayments on orders: this heading records advances and
prepayments fromcustomers that do not fall under the preceding two categories;
they are reimbursed by charges to revenue earned from the contracts in question.
Only advances and prepayments effectively collected are recognized.
1.3.20. Translation of foreign currency denominated
transactions
Foreign currency-denominated transactions are translated by group companies
into their functional currency at the exchange rate prevailing at the transaction date.
Monetary assets and liabilities denominated in foreign currencies are revalued at
the exchange rate prevailing on the last day of the period. Foreign exchange gains
and losses are then recognized:
p
in operating income when related to operating activities: trade accounts
receivable, trade accounts payable, etc.;
p
in financial income when related to loans or borrowings.
1.3.21. Derivatives and hedge accounting
1.3.21.1.Risks hedged and financial instruments
The AREVA group uses derivative instruments to hedge foreign exchange risks,
interest rate risks and the price of commodities. The derivatives used are mainly
forward exchange contracts, currency and interest rate swaps, inflation swaps,
currency options and commodity options.
The risks hedged relate to receivables, borrowings and firm commitments in foreign
currencies, planned transactions in foreign currencies, and planned sales and
purchases of commodities.
1.3.21.2.Recognition of derivatives
As provided in IAS 39, derivatives are initially recognized at fair value and
subsequently revalued at the end of each accounting period until settled.
Accounting methods for derivatives vary, depending on whether the derivatives are
designated as fair value hedging items, cash flow hedging items, hedges of net
investments in foreign operations, or do not qualify as hedging items.
FAIR VALUE HEDGES
This designation concerns hedges of firm commitments in foreign currencies:
purchases, sales, receivables and debt. The hedged item and the derivative are
revalued simultaneously and any changes in value are recorded in the income
statement.
CASH FLOW HEDGES
This designation covers hedges of probable future cash flows: planned purchases
and sales in foreign currencies, planned purchases of commodities, etc.
The highly probable hedged items are not valued in the balance sheet. Only the
derivative hedges are revalued at the end of each accounting period. The portion
of the gain or loss that is considered effective is recognized under “other items of
comprehensive income” and presented directly in equity under the balance sheet
heading “deferred unrealized gains and losses on financial instruments”, on an after-
tax basis. Only the ineffective portion of the hedge impacts income for the period.
The amounts recognized under “deferred unrealized gains and losses on financial
instruments” are released to income when the hedged item impacts the income
statement, i.e. when the hedged transaction is recognized in the financial statements.
HEDGES OF NET INVESTMENTS IN FOREIGN OPERATIONS
This heading relates to borrowings in a foreign currency and to borrowings in euros
when the euro has been swapped into a foreign currency to finance the acquisition
of a subsidiary using the same functional currency. Currency translation adjustments
on these borrowings are recognized under “other items of comprehensive income”
and presented on the balance sheet under “currency translation reserves” in their
net amount after tax; only the ineffective portion is recognized through profit and
loss.
The amount accumulated in currency translation reserves is released to profit and
loss when the subsidiary in question is sold.
DERIVATIVES NOT QUALIFYING AS HEDGES
When derivatives do not qualify as hedging instruments, fair value gains and losses
are recognized immediately in the income statement.
1.3.21.3.Presentation of derivatives in the statement of
financial position and statement of income
PRESENTATION IN THE STATEMENT OF FINANCIAL POSITION
Derivatives used to hedge risks related to market transactions are reported under
operating receivables and liabilities in the statement of financial position. Derivatives
used to hedge risks related to loans, borrowings and current accounts are reported
under financial assets or borrowings.
PRESENTATION IN THE STATEMENT OF INCOME
The revaluation of derivatives and hedged items relating to market transactions
affecting the statement of income is recognized under “other operating income
and expenses”, except for the component corresponding to the discount/premium,
which is recognized in financial income.
For loans and borrowings denominated in foreign currencies, fair value gains
and losses on financial instruments and hedged items are recognized in financial
income.
1.3.22. Income tax
As provided in IAS 12, deferred taxes are determined according for all temporary
differences between net carrying amounts and the tax basis of assets and liabilities,
to which is applied the anticipated tax rate at the time of reversal of these temporary
differences. They are not discounted.
Temporary taxable differences generate a deferred tax liability.
Temporary deductible differences, tax loss carry-forwards, and unused tax credits
generate a deferred tax asset equal to the probable amounts recoverable in the
future. Deferred tax assets are analyzed case by case for recoverability, taking into
account the income projections of the group’s strategic action plan.
Deferred tax assets and liabilities are netted for each taxable entity if the entity is
allowed to offset its current tax receivables against its current tax liabilities.
2016 AREVA
REFERENCE DOCUMENT
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