2. Reporting in accordance with IFRS

Pursuant to §245a of the Austrian Commercial Code, the consolidated financial statements were prepared in accordance with the current guidelines set forth in the IFRSs issued by the International Accounting Standards Board (IASB) as well as the interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) that were applicable as of the balance sheet date and had been adopted by the European Union (EU).

Standards and interpretations applied for the first time and changes in accounting policies

The following standards and interpretations were applied for the first time in the 2013/14 financial year:

IFRS 10, IFRS 11 and IFRS 12 form the new consolidation package that was released by the IASB in May 2011. The new consolidation standards IFRS 10-12 principally require mandatory application in the EU for financial years beginning on or after 1 January 2014. Earlier application is permitted, and EVN has decided to exercise this right.

IFRS 10 includes rules for the preparation and presentation of consolidated financial statements; provides a new, standardised definition of “control“; and sets out the accounting requirements for the inclusion of companies through full consolidation in the consolidated financial statements. IAS 27 now only defines the rules for the preparation of IFRS individual (“separate”) financial statements. Based on the principles of corporate governance and any additional contractual agreements, the individual companies were analysed with respect to their significant activities, related variable returns and the possibility to affect these variable returns through the relevant activities. The new definition of control provided by IFRS 10 did not lead to any changes in the scope of fully consolidated companies.

IFRS 11 replaces IAS 31, which eliminates the previous option to consolidate joint ventures according to the proportionate method. IFRS 11 distinguishes between two forms of joint arrangements: depending on the rights and obligations of the controlling parties created by the arrangement, a differentiation is made between joint ventures and joint operations. Under IFRS 11, jointly controlled companies that meet the definition of a joint venture must be accounted for by applying the equity method. Joint operations, however, are to be considered line-by-line in the consolidated financial statements. The companies classified as joint arrangements after an analysis of the corporate governance structures were subsequently evaluated to determine the applicability of the IFRS 11 criteria for classification as a joint venture or joint operation. The structure of the individual joint arrangements was analysed and, if this structure was based on an independent vehicle, the respective legal form, other contractual agreements and additional facts and accompanying circumstances were reviewed. The application of the new standard led to the following changes:

With respect to the EnergieAllianz regional sales companies previously included through proportionate consolidation, the initial application of IFRS 11 led to the inclusion of EVN Energievertrieb GmbH & Co KG (“EVN KG”) and ENERGIEALLIANZ Austria (“EnergieAllianz”) at equity in the consolidated financial statements. This change was required because both companies were classified as joint ventures in the sense of IFRS 11.

The interest in Steag-EVN Walsum 10 Kraftwerksgesellschaft mbH (“Steag-EVN Walsum”) was classified as a joint operation in the sense of IFRS 11. In contrast to the previous inclusion at equity, Steag-EVN Walsum was included in EVN’s consolidated financial statements at 49.0%.

IFRS 12 regulates the disclosure requirements for interests in other companies in a single standard. The, in part new, disclosure requirements are related primarily to the nature of the interests in other entities as well as the related risks and the effects on the asset, financial and earnings positions.

In connection with the application of the new consolidation standards, the following accounting policy was changed in 2013/14:

The share of results from equity accounted investees with operational nature now also includes among others the proportional share of results from EVN KG and EnergieAllianz, two operating companies that are attributable to EVN’s core business. These results are reported as part of the results of operating activities (EBIT) beginning with the third quarter of 2013/14. Under the previous reporting method, the entire share of results of equity accounted investees was included under financial results. This change in presentation led to a shift in the major component of at equity results to the results of operating activities. The share of results from equity accounted investees with financial nature now only includes the proportional share of results from WEEV Beteiligungs GmbH and e&i EDV Dienstleistungsgesellschaft m.b.H. in financial results. The change in the disclosure of at equity results provides a more accurate presentation of earnings because it better depicts the actual ownership interests in connection with the application of the new consolidation standards. This change in accounting policy led to an increase of EUR 94.0m in results from operating activities for 2013/14 and a decrease of the same amount in financial results (previous year: increase of EUR 95.0m in results from operating activities and a comparable reduction in financial results). This change in accounting policy had no effect on earnings per share.

The following accounting policy related to the regulatory account was changed in 2013/14:

IFRS 14 was issued by the IASB on 30 January 2014 and gives first-time adopters of IFRS an option for the recognition of regulatory assets and liabilities where recognition is possible under local GAAP (see below: Standards and interpretation not yet effective). This option is not applicable to EVN because the company is not a first-time adopter. The current IASB discussion paper “Reporting the Financial Effects of Rate Regulation“, which was published on 17 September 2014, again points to the regulatory gap in IFRS. However, the IASB only addresses this subject on a broad basis and describes a range of accounting policies, but does not indicate a preference for any particular alternative.

Further evaluation and on-going analysis of the latest literature and a comparison of the practices followed by other market participants in recognising regulatory deferral accounts (regulatory account, also see note 19. Revenue recognition) under IFRS did not indicate a general trend for the recognition of regulatory assets or liabilities. In the event of a regulatory gap, the definitions provided by the IFRS Framework Concept are given greater weight in accordance with IAS 8. The prevailing opinion in the latest discussions rejects any consistency with “assets” and “liabilities” as defined in the current Framework Concept.

Based on the latest developments in the accounting treatment of regulatory deferral accounts and given the non-applicability of IFRS 14 to EVN, regulatory assets and regulatory liabilities were not recognised. The effect on profit after tax for the reporting year totals EUR –18.0m. The effect on earnings equals EUR –0.10 per share.

The application of the new consolidation standards and the change in the presentation of the share of results from equity accounted investees (“CONS”) as well as the change in the accounting policy applied to the regulatory account (“REG”) took place retrospectively as of 1 October 2012 in accordance with IAS 8. This led to adjustments to the data reported in prior periods. All comparative data in the consolidated financial statements and the consolidated notes were adjusted accordingly.

Details on the adjusted amounts for 2012/13 can be also found on the EVN website under the following link: https://www.evn.at/EVN-Group/Investor-Relations/Publikationen/2013-14.aspx

The above-mentioned effects on the positions in the 2012/13 financial statements are as follows:

IFRS 13 was published by the IASB in May 2011 and is the result of a joint project by the IASB and Financial Accounting Standards Board (FASB) to develop a standardised concept for the measurement of fair value. The measurement of fair value is based on a hypothetical transaction. IFRS 13 defines a three-level “fair value hierarchy“, which gives the level 1 input factors the highest priority for the measurement of fair value. The transition to IFRS 13 requires the inclusion of a company’s own credit risk in the fair value measurement of derivatives. In addition, the disclosures in the notes are now standardised and expanded. The effects of the prospective initial application of IFRS 13 in the reporting period are reflected, above all, in additional disclosures on financial instruments in these financial statements (see note 64. Reporting on financial instruments).

The change in IAS 36 Impairment of Assets clarifies the disclosure requirements for the recoverable amount of cash-generating units. In cases where goodwill or an intangible asset with an indefinite useful life that is significant compared to the total carrying amount of good-will or the intangible asset with an indefinite useful life that have been allocated, the recoverable amount must only be disclosed if there is impairment or an increase in value. The premature application of this clarification had no effect on the disclosures in the consolidated financial statements.

The change in IAS 39 Financial Instruments ensures that hedge accounting can be continued under circumstances where a hedge must be novated to a central counterparty as a result of legal regulations. The premature application of this change had no effect on the consolidated financial statements.

The initial obligatory application of the other revised standards and interpretations did not have any impact on the consolidated financial statements.

EVN regularly monitors and analyses the effects of the revised standards and interpretations on the presentation of the consolidated financial statements and the notes.

Standards and interpretations not yet effective

The following standards and interpretations have been issued as at the balance sheet date of the consolidated financial statements by the IASB, adopted by the EU and published in the Official Journal of the EU.

EVN does not expect the future, initial application of the above-mentioned new or revised standards and interpretations to have any significant effects on the asset, financial or earnings position.

The following standards and interpretations have been issued as at the balance sheet date of the consolidated financial statements by the IASB, but not yet adopted by the EU.

On 24 July 2014 the IASB issued the final version of IFRS 9, which replaces the rules defined in IAS 39 for the recognition and measurement of financial instruments. This represents the conclusion of a project started in 2008 as a reaction to the financial crisis. The new rules require mandatory application for financial years beginning on or after 1 January 2018; early application is permitted, but the adoption by the EU is still outstanding. IFRS 9 includes revised guidelines for the classification and measurement of financial assets, expanded rules for the recognition of impairment losses to financial assets and new rules for hedge accounting. The application of the new standard is expected to have an effect on the classification and measurement of financial assets in EVN’s consolidated financial statements, whereby no statements can be made at this time concerning the effects on the asset, financial or earnings position. Minor effects on the asset, financial and earnings position are also expected in the area of hedge accounting because the new rules are based more on risk management and are therefore likely to result in differences from previous accounting practices. The impact of the application of IFRS 9 will be evaluated in detail when this standard is adopted into European law.

The IASB issued IFRS 14 on 30 January 2014 as a so-called interim standard. IFRS 14 permits first-time adopters (i.e. companies applying International Financial Reporting Standards for the first time) to present rate-regulated transactions in agreement with their previously applied accounting rules. IFRS 14 represents an interim solution that will apply until the IASB agrees on the accounting treatment of these issues within the context of its project on “rate-regulated activities“. The previously issued IFRSs do not provide any guidelines for the accounting treatment of rate-regulated transactions, but a number of countries – including Austria – have issued national rules which require the recognition of regulatory deferral accounts. According to the prevailing opinion, the recognition of a regulatory asset or a regulatory liability is currently not permitted in financial statements prepared in accordance with IFRS. EVN is not directly affected by IFRS 14 because it only applies to first-time IFRS adopters.

IFRS 15 was issued by the IASB on 28 May 2014 and regulates the recognition of revenue from contracts with customers. The goal of this multi-year joint standardisation process between the IASB and the FASB was to unify the widely diverse requirements under IFRS and US-GAAP and to define principle-based rules for all industries. For IFRS users, IFRS 15 replaces IAS 11 “Construction Contracts“ and IAS 18 “Revenue“ as well as a number of interpretations, including IFRIC 18 “Transfers of Assets from Customers“. IFRIC 18 covers, among others, the accounting treatment of construction subsidies received by EVN from customers. The new standard is based on a five-step model that applies to all contracts with customers unless more specific rules are provided in other standards, e.g. IAS 17 “Leases“. With regard to the timing of revenue recognition, IFRS 15 defines whether revenue is to be recognised at a specific point in time or over time. This determination is based, above all, on the satisfaction of the performance obligation, which is based on a general control model in IFRS 15. The transfer of control determines the timing of revenue recognition. IFRS 15 also provides new, more comprehensive requirements for the disclosures in the notes to the consolidated financial statements. The effects of the application of IFRS 15 will be evaluated after this standard is adopted into European law.

EVN does not expect the future initial application of the other revised standards and interpretations to have a material effect on the asset, financial or earnings position.