TeliaSonera
TeliaSonera Annual Report 2008 - Financial Statements

Note 1 (Consolidated)
Basis of Preparation

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General

The annual report and consolidated financial statements have been approved for issue by the Board of Directors on March 9, 2009. The income statements and balance sheets of the parent company and the Group are subject to adoption by the Annual General Meeting on April 1, 2009.

TeliaSonera's consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and, given the nature of TeliaSonera's transactions, in accordance with IFRSs as adopted by the European Union (EU).

In addition, concerning purely Swedish circumstances, the Swedish Financial Reporting Board has issued standard RFR 1.2 “Supplementary Accounting Rules for Groups” and other statements. As encouraged by the Financial Reporting Board, TeliaSonera has pre-adopted RFR 1.2. The standard is applicable to Swedish legal entities whose securities are listed on a Swedish stock exchange or authorized equity market place on the balance sheet date and specifies supplementary rules and disclosures in addition to IFRS requirements, caused by provisions in the Swedish Annual Accounts Act.

Measurement bases, consolidation and accounting principles

The consolidated financial statements have been prepared mainly under the historical cost convention. Other measurement bases used and applied consolidation and accounting principles are described below.

Amounts and dates

Unless otherwise specified, all amounts are in millions of Swedish kronor (SEK) or other currency specified and are based on the twelve-month period ended December 31 for income statement and cash flow statement items, and as of December 31 for balance sheet items, respectively.

Recently issued accounting standards

New or revised/amended standards and interpretations, effective in 2008 or pre-adopted

  • IFRS 8 “Operating Segments” (effective for annual periods beginning on or after January 1, 2009; earlier application permitted). TeliaSonera adopted IFRS 8 in 2007.
  • Amended IAS 23 “Borrowing Costs” (effective January 1, 2009; earlier application permitted). The amendment removes the option of immediately expensing borrowing costs that are directly attributable to the acquisition, construction or production of an asset that takes a substantial period of time to get ready for use or sale. The amendment is of no consequence to TeliaSonera, as it already applied the existing alternative of capitalizing borrowing costs.
  • Amendments on reclassification of financial assets to IAS 39 Financial Instruments: Recognition and Measurement and IFRS 7 Financial Instruments: Disclosures (effective July 1, 2008 if reclassification made before November 1, 2008; otherwise November 1, 2008). The amendments to IAS 39 introduce the possibility of re-classification of a non-derivative financial asset out of the “Fair value through profit and loss" category if held-for-trading but only in rare circumstances. The deterioration of the world's financial markets occurring in the third quarter of 2008 is a possible example of such rare circumstances. IAS 39 now also permits the transfer from the “Available-for-sale” category to the “Loans and receivables” category of a financial asset that would have met the definition of loans and receivables had it not been designated as available-for-sale. The amendments to IFRS 7 require additional disclosures in connection with any now permitted reclassification. Currently, TeliaSonera is not considering the reclassification of any financial assets.
  • IFRIC 11 “IFRS 2 – Group and Treasury Share Transactions” (effective for annual periods beginning on or after March 1, 2007). IFRIC 11 is currently not relevant to TeliaSonera.
  • IFRIC 12 “Service Concession Arrangements” (effective for annual periods beginning on or after January 1, 2008). IFRIC 12 is not relevant to TeliaSonera.
  • IFRIC 14 “IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction” (effective January 1, 2008; earlier application permitted). IFRIC 14 provides general guidance on how to assess the limit in IAS 19 on the amount of the surplus that can be recognized as an asset and explains how the pension asset or liability may be affected when there is a statutory or contractual minimum funding requirement. No additional liability need be recognized by the employer unless the contributions payable under the minimum funding requirement cannot be returned to the company. TeliaSonera adopted IFRIC 14 in 2007. IFRIC 14 is currently not relevant to TeliaSonera.

New or revised/amended standards and interpretations, not yet effective

Recently issued new or revised/amended standards and interpretations impacting TeliaSonera's consolidated financial statements on or after January 1, 2009, are as follows:

  • Amended IFRS 1 “First-time Adoption of International Financial Reporting Standards” and IAS 27 “Consolidated and Separate Financial Statements” (effective for annual periods beginning on or after January 1, 2009; earlier application permitted). The amendments address retrospective determination of the cost of an investment in separate financial statements when adopting IFRSs for the first time. The amendments to IFRS 1 and IAS 27 are not applicable to TeliaSonera.
  • Revised IFRS 1 “First-time Adoption of International Financial Reporting Standards” (effective for annual periods beginning on or after July 1, 2009; earlier application permitted). The revised version has an improved structure but does not contain any technical changes. IFRS 1 is not applicable to TeliaSonera.
  • Amended IFRS 2 “Share-based Payment” (effective for annual periods beginning on or after January 1, 2009; earlier application permitted). The amendment clarifies that vesting conditions are service conditions and performance conditions only and further specifies that all cancellations, whether by the entity or by other parties, should receive the same accounting treatment. IFRS 2 is currently not relevant to TeliaSonera.
  • Revised IFRS 3 “Business Combinations” and amended IAS 27 “Consolidated and Separate Financial Statements” (effective for annual periods beginning on or after July 1, 2009; earlier application permitted). Among other things, the changes to the standards include: (a) that transaction costs are expensed as incurred; (b) that contingent consideration is always recognized at fair value and for non-equity-consideration post-combination changes in fair value affects the income statement; (c) that an option is added to on a transaction-by-transaction basis permit recognition of 100 percent of the goodwill of the acquired entity with the in-creased goodwill amount also increasing the non-controlling interest; (d) that in a step acquisition, on the date that control is obtained, the fair values of the acquired entity's assets and liabilities, including goodwill, are measured and any resulting adjustments to previously recognized assets and liabilities are recognized in profit or loss; (e) that acquiring additional shares in a subsidiary after control was obtained as well as a partial disposal of shares in a subsidiary while retaining control is accounted for as an equity transaction with owners; and (f) that a partial disposal of shares in a subsidiary that results in loss of control triggers remeasurement of the residual holding to fair value and any difference between fair value and carrying amount is a gain or loss, recognized in profit or loss. TeliaSonera expects that applying the revised IFRS 3 and the amended IAS 27 will lead to increased volatility in the income statement.
  • Amendment on improving disclosures about financial instruments to IFRS 7 “Financial Instruments: Disclosures” (effective for annual periods beginning on or after January 1, 2009; earlier application permitted; comparative disclosures not required in the first year of application). The amendments introduce a three-level hierarchy for fair value measurement disclosures and require additional disclosures about the relative reliability of fair value measurements. In addition, the existing requirements for the disclosure of liquidity risk are clarified and enhanced.
  • Revised IAS 1 “Presentation of Financial Statements” (effective for annual periods beginning on or after 1 January 1, 2009; earlier application permitted). The revision requires all owner changes in equity to be presented in a statement of changes in equity, separately from non-owner changes in equity. All non-owner changes in equity (i.e. comprehensive income) are presented in one statement of comprehensive income or in two statements (a separate income statement and a statement of comprehensive income). Components of comprehensive income are not permitted to be presented in the statement of changes in equity. The revisions also include changes in the titles of some of the financial statements to reflect their function more clearly. The new titles will be used in accounting standards, but are not mandatory for use in financial statements. TeliaSonera is currently evaluating the effects of the revised IAS 1.
  • Amendments on puttable financial instruments and obligations arising on liquidation to IAS 32 “Financial Instruments: Presentation” and IAS 1 “Presentation of Financial Statements” (effective for annual periods beginning on or after January 1, 2009; earlier application permitted). The amendments are currently not relevant to TeliaSonera.
  • Amendment on eligible hedged items to IAS 39 Financial Instruments: Recognition and Measurement (effective for annual periods beginning on or after July 1, 2009; earlier application permitted, to be applied retrospectively). The amendment restricts/clarifies the risks qualifying for hedge accounting in two particular situations: (a) a one-sided risk in a hedged item (hedging with options) and (b) inflation in a financial hedged item (identifying inflation as a hedged risk or portion). The amendment is currently not relevant to TeliaSonera.
  • “Improvements to IFRSs (May 2008)” (mostly effective for annual periods beginning on or after January 1, 2009; earlier application permitted). These improvements to about 20 IFRSs make necessary, but non-urgent, amendments that have not been included as part of other major projects. The amendments are presented in two parts: (a) those that involve accounting changes for presentation, recognition or measurement purposes, and (b) those involving terminology or editorial changes with minimal effect on accounting. All in all, the amendments to those IFRSs that are applicable to TeliaSonera have in certain cases already been applied and will otherwise have no or very limited impact on TeliaSonera's results or financial position.
  • IFRIC 13 “Customer Loyalty Programmes” (effective for annual periods beginning on or after July 1, 2008; earlier application permitted). IFRIC 13 explains how to account for obligations to provide free or discounted goods or services (?awards') to customers who redeem award credits. Entities are required to allocate some of the proceeds of the initial sale to the award credits and recognize these proceeds as revenue only when their obligations are fulfilled either by supplying awards themselves or through a third party. TeliaSonera already defers revenue related to loyalty programs as required by IFRIC 13. However, IFRIC 13 requires that the deferred revenue be determined as the fair value of the goods or services to be delivered in the future, while TeliaSonera bases the deferral on estimated costs. The change following the adoption of IFRIC 13 is not expected to have a material impact on TeliaSonera's results or financial position.
  • IFRIC 15 “Agreements for the Construction of Real Estate” (effective for annual periods beginning on or after January 1, 2009; to be applied retrospectively). IFRIC 15 applies to the accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors. IFRIC 15 provides guidance on how to determine whether an agreement for the construction of real estate is within the scope of IAS 11 “Construction Contracts” or IAS 18 “Revenue” and when revenue from the construction should be recognized. IFRIC 15 is not applicable to TeliaSonera.
  • IFRIC 16 “Hedges of a Net Investment in a Foreign Operation” (effective for annual periods beginning on or after October 1, 2008; to be applied prospectively). IFRIC 16 applies to entities that hedge foreign currency risks arising from net investments in foreign subsidiaries, associates, joint ventures or branches and wish to qualify for hedge accounting in accordance with IAS 39. IFRIC 16 does not apply to other types of hedge accounting and should not be applied by analogy. IFRIC 16 clarifies that (a) the presentation currency does not create an exposure to which hedge accounting may be applied and consequently, an entity may designate as a hedged risk only the foreign exchange differences arising from a difference between its own functional currency and that of its foreign operation; (b) the hedging instrument(s) may be held by any entity or entities within the group; and (c) while IAS 39 “Financial Instruments: Recognition and Measurement” must be applied to determine the amount that needs to be reclassified to profit or loss from the foreign currency translation reserve in respect of the hedging instrument, IAS 21 “The Effects of Changes in Foreign Exchange Rates” must be applied in respect of the hedged item. TeliaSonera already in previous periods applied the principles stated by IFRIC 16.
  • IFRIC 17 “Distributions of Non-cash Assets to Owners” (effective for annual periods beginning on or after July 1, 2009; earlier application permitted; to be applied prospectively). IFRIC 17 applies to pro rata distributions of non-cash assets except for common control transactions and clarifies that: (a) a dividend payable should be recognized when the dividend is appropriately authorized and is no longer at the discretion of the entity; (b) the dividend payable should be measured at the fair value of the net assets to be distributed; and that (c) the difference between the dividend paid and the carrying amount of the net assets distributed should be recognized in profit or loss. IFRIC 17 also requires an entity to provide additional disclosures if the net assets being held for distribution to owners meet the definition of a discontinued operation. Currently, IFRIC 17 is not relevant to TeliaSonera.
  • IFRIC 18 “Transfers of Assets from Customers” (effective for transfers received on or after July 1, 2009; earlier application permitted within limits; to be applied prospectively). IFRIC 18 clarifies (a) the circumstances in which the definition of an asset is met; (b) the recognition of the asset and the measurement of its cost on initial recognition; (c) the identification of the separately identifiable services (one or more services in exchange for the transferred asset), (d) the recognition of revenue; and (e) the accounting for transfers of cash from customers. Currently, IFRIC 18 is not expected to have any significant impact on TeliaSonera's results or financial position.

EU endorsement status

As of the beginning of March 2009, all standards, revisions/amendments to standards, and interpretations mentioned above had been adopted by the EU, except for revised IFRS 1, revised IFRS 3, amendment on improving disclosures to IFRS 7, amendment on business combinations to IAS 27, amendment on eligible hedged items to IAS 39, IFRIC 12, IFRIC 15, IFRIC 16, IFRIC 17 and IFRIC 18.

The EU Commission has announced that, if an IFRS (or equivalent) is endorsed after the balance sheet date but before the date the financial statements are issued, it can be treated as endorsed for the purposes of those financial statements if application prior to the date of endorsement is permitted by both the Regulation endorsing the document and the related IFRS.