Annual Report 2005

Under the previous accounting principle, SKK 150 000 thousand of the negative goodwill would have been released to income during 2004, leaving for the Group a balance of negative goodwill of SKK 828 048 thousand to disclose as at 31 December 2004. In 2005, with reference to acquisitions dated after 31 March 2004 and the increase in ownership interests in current subsidiaries, the Group reported negative goodwill amounting to SKK 282 490 thousand recognised directly in the statement of profit and loss. Standards and interpretations not yet effective: At the date of authorization of these financial statements, the following standards and interpretations were in issue but not yet effective: • IFRS 6 “Exploration for and Evaluation of Mineral Resources”; • IFRS 7 “Financial Instruments: Disclosures”; • IFRIC 4 “Determining whether an Arrangement contains a Lease”; • IFRIC 5 “Right to Interests Arising from Decommissioning, Restoration and Environmental Rehabilitation Funds”; • IFRIC 6 “Liabilities arising from Participating in a Specific Market—Waste Electrical and Electronic Equipment”; • IFRIC 7 “Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies”; and • IFRIC 8 “Scope of IFRS 2”. The Company anticipates that the adoption of these standards and interpretations in future periods will have no material impact on the financial statements of the Group. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Statement of compliance These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“the EU”). IFRS as adopted by the EU do not currently differ from IFRS as issued by the International Accounting Standards Board (IASB), except for portfolio hedge accounting under IAS 39 “Financial Instruments: Recognition and Measurement”, which has not been approved by the EU. The Company has determined that portfolio hedge accounting under IAS 39 would not impact the consolidated financial statements had it been approved by the EU at the balance sheet date. Basis of preparation of the consolidated financial statements The consolidated financial statements are prepared under the historical cost convention, except for certain financial instruments and business combinations under IFRS 3. The principal accounting policies adopted are set out below. The accompanying consolidated financial statements reflect certain adjustments and reclassifications not recorded in the accounting records of the Group companies in order to conform the Slovak statutory and other financial statements to financial statements prepared in accordance with IFRS as adopted by the EU. Certain comparatives have been reclassified to conform to current year presentation. The reporting currency is the Slovak Crown (Sk). The data in the consolidated financial statements are reported in thousands of Slovak Crowns unless otherwise stated. The accounting policies have been consistently applied by the Group and are consistent with those of the previous year except for the application of new IFRS 3 (see Note 2) and the change in the accounting for material processing as described below. IFRS 3 is effective in the case of acquisition of entities after 31 March 2004 and applicable for all entities in the Group acquired before the date. The impact of the application of this standard is described in Notes 2 and 3(h). In 2005, the Group changed its method of accounting for a specific phase of the material processing. In the past, the Group recognised this particular phase of the material processing using the capitalisation account. In 2005, the Group discontinued using the capitalisation account for this specific phase of the material processing. This change resulted in the decrease in own work capitalized by SKK 839 414 thousand, and decrease in raw material and consumables used by the same amount in the statement of profit and loss for the year ended 31 December 2005. In the case the Group would have used the new accounting policy in 2004, own work capitalized and raw material and consumables used recognised in the statement of profit and loss for the year ended 31 December 2004 would have been decreased by SKK 671 348 thousand. The change in the accounting policy has no effect on the amount of the Group’s assets, liabilities, profit, or equity. The preparation of the financial statements in conformity with IFRS requires the use of certain accounting estimates. It also requires management to exercise its judgment in the process of applying the accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in Note 4. 3. (a) (b) Consolidated financial statements Annual Report 2005 Železiarne Podbrezová NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2005 (in thousand SKK) 50