All the companies in which the Group exercises control according to the terms of IAS 27, SIC 12 and IFRIC 2 are considered as controlled companies or subsidiaries. In particular, companies and investment funds are considered as subsidiaries when the Group has the power to make decisions regarding financial and operating policy. The existence of this power is presumed to exist when the Group possesses the majority of the voting rights of a company, including potential voting rights that are exercisable without any restrictions or when it has in any case effective control over Shareholders’ Meetings despite not having a majority of the voting rights.
Subsidiaries are fully consolidated as from the date on which the Group takes control and are de-consolidated when such control ceases to exist.
Consolidation is carried out using the full line-by-line consolidation method. The main criteria adopted for the application of this method are generally the following:
- The book value of the holding is eliminated against the appropriate portion of shareholders’ equity and the difference between acquisition cost and the shareholders’ equity of investee companies is posted, where the conditions exist, to the items of assets and liabilities included in the consolidation. Any remaining part is recognized to the statement of income when it is negative or to the “Goodwill” item of the assets when it is positive. Goodwill is subjected to an impairment test to determine its recoverable value;
- Significant transactions between consolidated companies are eliminated as are payables, receivables and unrealized income resulting from transactions between companies of the Group, net of any tax;
- Minority shareholders’ equity and their share of net income for the period are shown in special items of the consolidated balance sheet and income statement.
Associates
All those companies in which the Group has a significant influence, without having control, in accordance with the terms of IAS 28, are considered as associated companies or associates. Significant influence is presumed to exist when the Group holds a percentage of the voting rights of between 20% and 50% (excluding cases where there is joint control). Associates are consolidated using the equity method as from the date on which the Group acquires significant influence in the associate and they are de-consolidated from the moment when significant influence ceases to exist.
The criteria adopted for applying the equity method are mainly the following:
- The book value of the holding is eliminated against the appropriate portion of equity and any positive difference, identified at the time of the acquisition, net of any lasting loss of value resulting from an impairment test to establish its recoverable value; the corresponding share of the net income or loss for the period is recognized to the income statement. Whenever the part attributable to the Group of the losses of the associate exceeds the carrying value of the investment in the accounts, the value of the investment is written off and any further losses are not recognized unless the Group has any contractual obligation to do so;
- Any unrealized gains and losses generated by transactions between companies of the Group are netted out except in cases where losses represent a permanent loss of value of the assets of the associate;
- The accounting principles of associates are amended, where necessary, in order to make them compatible with the accounting principles adopted by the Group.
Joint ventures:
All companies in which the Group exercises control jointly with another company according to the terms of IAS 31 are considered as joint ventures. In particular it is presumed that joint control exists when the Group owns half of the voting rights of a company.
International accounting standards give two methods for consolidating investments in joint ventures:
. the usual method, which involves pro-rata consolidation:
. the alternative method which involves consolidation using the equity method.
The Group has adopted the equity method of consolidation.