Renault S.A. – Annual report – 31 December 2018
NOTE 2 – ACCOUNTING POLICIES (extracts)
A4 – Hyperinflation
To determine whether a country is in hyperinflation, the Group refers to the list published by the International Practices Task Force (IPTF) of the Center for Audit Quality. Argentina was identified in the IPTF bulletin of November 27, 2018 as a country with a cumulative 3-year inflation rate above 100%. At June 30, 2018 Argentina’s cumulative 3-year inflation rate was higher than 100% by every measurement index, and the country is therefore considered as a hyperinflationary country for the purposes of the 2018 financial statements.
The Group’s Argentinian subsidiaries’ accounts at December 31, 2018 have been restated by applying price indexes to nonmonetary assets and liabilities, income statement items, the comprehensive income and the cash flow statement, in order to express items in terms of the measuring unit current at the end of the reporting period. The financial statements of the Argentinian subsidiaries are then translated at the closing exchange rate.
The gain or loss on net monetary position from index-based restatements of non-monetary assets and liabilities at January 1, 2018 are recorded in consolidated reserves (€65 million) and in translation adjustments (€14 million). Those relating to 2018 are classified as other financial income and expenses (financial expense of €(41) million). The restatements of income statement items have no impact on net income as they are offset by a reverse effect on other financial income and expenses (financial income of €10 million). The restatements of cash flow statement items (a net €(11) million) decrease in cash flows) are offset by a reverse effect in the “Effect of changes in exchange rate and other changes” line of the statement.
The indexes applied by the Group are the IPIM (Índice de Precios Internos al por Mayor) for operations prior to January 1, 2017, and the IPC (Indice de Precios al Consumidor Nacional) from that date, in compliance with resolution 539/18 of the FACPCE (Federacion Argentina de Consejos Profesionales de Ciencas Economicas).
At December 31, 2018 Argentina was the Group’s ninth-largest market in terms of volume (tenth-largest in 2017), with sales of around €1.23 billion at that date, after index-based restatement and translation at the closing rate in application of IAS 29 (€1.31 billion translated at the average exchange rate without prior restatement). A USD 205 million capital increase was undertaken for the Group’s principal subsidiary in this country in June 2018, to limit exposure to changes in the exchange rate.
An impairment test of fixed assets was carried out at December 31, 2018 on industrial assets at January 1, 2018 and December 31, 2018. This test did not indicate any impairment that should be recognized at January 1, 2018, but the industrial assets were fully written off at December 31, 2018 (see Note 11-B).
E – Translation of the financial statements of foreign companies
The Group’s presentation currency is the Euro.For foreign companies, the functional currency is generally the local currency. In cases where most transactions are carried out in a different currency, that is adopted as the functional currency.
Foreign companies’ accounts are established in their functional currency, and subsequently translated into the Group’s presentation currency as follows:
- financial position items other than components of shareholders’ equity, which are stated at historical value, are translated at the closing exchange rate;
- income statement items are translated at the average exchange rate for the period;
- the translation adjustment is one of the other components of comprehensive income, and therefore has no impact on net income.
Goodwill generated by a business combination with a foreign company is treated as an asset or liability of the entity acquired, as appropriate. It is therefore expressed in the relevant entity’s functional currency, and translated into Euros at the closing rate.
When a foreign company is sold, the accumulated translation adjustments on its assets and liabilities are transferred to other operating income and expenses in the income statement.
In an exception from the above principles, the financial statements of entities in hyperinflationary economies are translated in accordance with IAS 29 “Financial reporting in hyperinflationary economies”. Non-monetary balance sheet items, income statement items, the comprehensive income and cash flow statement items are adjusted for inflation in their original local currency, then all the financial statements are translated at the closing exchange rate for the period. To determine whether a country is in hyperinflation, the Group refers to the list published by the International Practices Task Force (IPTF) of the Center for Audit Quality. The financial statements of the Group’s subsidiaries in Argentina are consolidated in accordance with the principles of IAS 29, which are applied from January 1, 2018.