Significant Accounting Policies
Applicable to the Consolidated Financial Statements for the year ended 31 December 2007
Basis of preparation
The Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union, International Financial Reporting Interpretations Committee (IFRIC) interpretations and the Companies Act 1985 applicable to companies reporting under IFRS. Avis Europe plc is a public limited company incorporated, listed and domiciled in the UK. The Consolidated Financial Statements have been prepared under the historical cost convention and are prepared in accordance with the accounting policies set out below, which are consistent with those followed in the preparation of the Consolidated Financial Statements for the year ended 31 December 2006 except for the adoption of the following:
IFRS 7, Financial Instruments: Disclosures, and a complementary
amendment to IAS 1, Presentation of Financial Statements - Capital Disclosures
(effective from 1 January 2007)
IFRS 7 introduces new disclosures to improve the information about financial
instruments. It requires the disclosure of qualitative and quantitative information
about exposure to risks arising from financial instruments, including specified
minimum disclosures about credit risk, liquidity risk and market risk. It replaces
IAS 30, Disclosures in the Financial Statements of Banks and Similar Financial
Institutions, and disclosure requirements in IAS 32, Financial Instruments:
Disclosure and Presentation. The amendment to IAS 1 introduces complementary
disclosures about the level of an entity's capital and how it manages capital.
The main additional disclosures relate to the sensitivity analysis for market risk
and the additional disclosures relating to credit and liquidity risk.
IFRIC 9 states that an entity must assess whether an embedded derivative is required to be separated from a host contract and accounted for as a derivative when the entity first becomes party to the contract. Subsequent reassessment is prohibited unless there is a change in the terms of the contract that significantly modifies the cash flows which would be required under the contract, in which case reassessment is required. Management has concluded that this interpretation has no impact on how embedded derivatives have been identified and recognised to date.
IFRIC 10, Interim financial reporting and impairment
(effective from 1 January 2007)
IFRIC 10 states that an entity shall not reverse an impairment loss
recognised in a previous interim period in respect of goodwill or an investment
in either an equity instrument or a financial asset carried at cost. As the Group
has not to date reversed any such impairments recognised in previous
periods, this amendment has no immediate impact on the Consolidated
Financial Statements.
Standards, interpretations and amendments to published standards
that are not yet effective
Certain new standards, amendments and interpretations to existing standards
have been published that are mandatory for the Group's accounting periods
beginning on or after 1 January 2008 or later periods but which the Group
has not early adopted, as follows:
IFRIC 11, IFRS 2, Group and Treasury share transactions
(effective from 1 January 2008)
IFRIC 11 provides guidance on applying IFRS 2. Where share-based payments
involving an entity's own equity instruments in which the entity chooses or is
required to buy its own equity instruments (treasury shares) to settle the sharebased
payment obligation these should be accounted for as an equity-settled
share-based transaction under IFRS 2. The Group believes that this amendment
will not have a significant impact on the treatment of the Group's share-based
payments.
IFRIC 12, Service concession arrangements (effective from 1 January 2008)
IFRIC 12 provides guidance on the treatment of government service concession
arrangements and is deemed not relevant to the Group's operations.
IFRIC 13, Customer loyalty programmes (effective from 1 July 2008)
IFRIC 13 provides guidance on the treatment of customer loyalty programmes.
An entity shall account for award credits which are granted as part of customer
loyalty programmes as separately identifiable components of a sales transaction.
The fair value of the consideration received or receivable in respect of the initial
sale shall be allocated between the award credits and the other components
of the sale. The Group believes that this amendment will not have a significant
impact on the treatment of the Group's customer loyalty programmes.
IFRIC 14, The limit on a defined benefit asset, minimum funding requirements
and their interaction (effective from 1 January 2008)
IFRIC 14 provides guidance on the recognition of defined benefit assets in
conjunction with minimum funding requirements (MFRs). The extent to which
an asset may be recognised is dependent upon the entity's entitlement to
a future refund or reduction in contributions, and the existence of an MFR may
give rise to an additional liability if contributions are not available to the entity
once they have been paid. The Group believes that this amendment will have
no impact on the amounts recognised under defined benefit schemes.
IFRS 8, Operating segments (effective from 1 January 2009)
IFRS 8 requires an entity to adopt a "management approach" to segment
reporting such that segment information is the information which management
uses internally for calculating segment performance and deciding how to
allocate resources to operating segments. This information may be different
from that used to prepare the Income Statement and Balance Sheet.
Management does not anticipate that the introduction of IFRS 8 will have a
significant impact on the Group's segmental disclosures. The Group will apply
IFRS 8 from annual periods beginning 1 January 2009.
IAS 23 (Revised), Borrowing Costs (effective from 1 January 2009)
The revision to IAS 23, Borrowing Costs, removes the option of immediately
recognising as an expense borrowing costs which relate to assets that
take a substantial period of time to prepare for their intended use. The
Group are reviewing the impact of this amendment upon the Consolidated
Financial Statements.
Underlying measures
In addition to total performance measures, the Group discloses additional underlying performance measures, including underlying profit and underlying earnings per share. The Group believes that these underlying performance measures provide additional useful information on underlying trends. The term "underlying" is not defined under IFRS, and may therefore not be comparable with similarly titled profit measurements reported by other companies. It is not intended to be a substitute for, or superior to, IFRS measures of profit.
Underlying measures are calculated based on reported profit before exceptional items, certain re-measurement items and adjustments to reflect the realised gains and losses on foreign exchange forward contracts and accrued interest cash flows on certain derivative financial instruments (economic hedge adjustments). These are detailed below.
Exceptional items
Exceptional items are material non-recurring items that derive from events
or transactions that fall within the ordinary activities of the Group, and which
individually or, if of a similar type, in aggregate, are separately disclosed by
virtue of their size or incidence.
