New segment reporting and new accounting principles for the Skanska Group
Starting in 2010, changes in the accounting rules in the International Financial Reporting Standards (IFRSs) affect segments, Residential Development (IFRIC 15), Commercial Development (IFRIC 15) and Infrastructure Development (IFRIC 12).
Under the new rules, capital gains in Residential and Commercial Development are recognized only when the purchaser takes possession of the property, which is generally much later than the date when a binding contract is signed. In the accounting method applied to date, capital gains have been recognized successively after the signing of the sales contract and according to the percentage of completion.
Since the new accounting method (IFRIC 15) does not reflect the way that the Senior Executive Team and the Board of Directors monitor operations, a new segment reporting method will be presented, in which recognition of capital gains is based on the date when a binding sales contract is signed. The previous percentage of completion method for these two segments will thus disappear entirely in the future.
As a result of the new accounting rules, cooperative housing associations are also included in their entirety in Skanska’s accounts, implying an increase in current-asset properties and financial current liabilities compared to earlier.
To further increase the transparency of its accounting, Skanska will transfer residential development and commercial development operations that have been carried out as part of Construction in the Nordic countries to the Residential and Commercial Development segments. These two segments will include all of the Group’s operations in these segments.
As for Infrastructure Development, the new IFRIC 12-compliant accounting method means that income from joint ventures and associated companies is reported earlier than previously, with the added result that the carrying amount of these investments increases. In the future, the difference compared to market value will thus decrease.
Since the new IFRIC 12-compliant accounting method reflects the way that the Senior Executive Team and the Board of Directors monitor operations, the previous accounting method will disappear entirely. Market value figures will also continue to be presented.
The new accounting rules do not change the way that Skanska has previously reported its Construction operations. The effects of the new rules on cash flow and financial position are marginal, which means that these reports will follow the new rules in the future.
To summarize, in coming financial reports Skanska will present two income statements: one in which capital gains are recognized according to the segment reporting method in Residential and Commercial Development, and one in compliance with the new IFRS rules. The income statement based on segment reporting will primarily be used by the Board of Directors and the Senior Executive Team to monitor operations. The Group’s incentive programs are primarily based on segment reporting, which will also provide guidance for the Board’s dividend decisions.
The Group’s financial reports for 2009 have been restated. The effects on the Group’s financial statements for the full year 2009, the opening balance for 2009 and segment reporting for 2009 are presented in the following document.