Notes to consolidated financial statements
For the years ended December 31, 2011 and 2010 (as adjusted)
(In thousands of Mexican pesos ($) and thousands of U.S. dollars (US$))
23. Effects of adopting International Financial Reporting Standards
The CNBV requires certain entities that disclose their financial information to the public through the Mexican Stock Exchange, that beginning in 2012, they must prepare and disclose their financial information according to IFRS, issued by the International Accounting Standards Board (IASB).
The consolidated financial statements for the year ending December 31, 2012 to be issued by the Company will be its first annual financial statements that comply with IFRS. The transition date is January 1, 2011 and, therefore, the year ended December 31, 2011 will be the comparative period established by IFRS 1, First-Time Adoption of International Financial Reporting Standards. According to IFRS 1, the Company will apply the relevant mandatory exceptions and certain optional exemptions to the retroactive application of IFRS.
The following are the most significant changes the Company has identified in its accounting policies as a result of the adoption of IFRS:
1.- Property, plant and equipment: The accounting policy of the Company was modified to include the requirements of International Accounting Standard (IAS) 16, Property, plant and equipment, relating to component depreciation. IAS 16 also provides the option to value fixed assets at its acquisition cost or at its fair value. The Company elected the option to value its fixed assets at its acquisition cost.
2.- Investment properties: IAS 40, Investment properties, allows the use of the fair value model, which requires that gains and losses from fair value measurement be recorded in the results of the period, or the cost model. The Company elected to measure its investment properties using the fair value model.
3.- Investment in shares of subsidiaries, associates and other (in the separate financial statements): Provides the option to value such investment at cost or at its fair value. The Company has elected the cost method to measure its investment in subsidiaries, associates and other.
4.- Interest free sales: According to IAS 18, Revenue, sales that are considered interest free must be recognized at its discounted present value; hence, the Company discounted its accounts receivable from customers (net of the suppliers recovery), by recognizing the difference between the lineal rate method and the effective interest rate method for the earned interest income at the transition date.
5.- Intangible assets: There is the option of measuring intangible assets using cost or fair value. The Company uses the cost method.
6.- Functional currency: The functional currency of the Company presented no changes as a result of adopting IFRS; however, the functional currency of some of its subsidiaries changed because they considered greater emphasis on the economic factors and indicators defined IAS 21, The effects of changes in foreign exchange rates.
7.- Effects of inflation: Inflation effects from periods not considered hyperinflationary according to IAS 29, Financial Reporting in Hyperinflationary Economies, were eliminated.
8.- Statement of cash flows: There is an option to present the statement of cash flows using the direct or the indirect method. The Company has chosen the option to use the indirect method.
9.- Employee benefits: The Company took the option of early adopting the changes to IAS 19 that are mandatory in 2013; hence, it has chosen to recognize all actuarial gains and losses in the results of the period. Furthermore, it recognizes in the results the severance indemnity, once incurred, as well as the cost of past services.
10.- Presentation of comprehensive income in the financial statements: There is an option to present comprehensive income within the statement of income, or, on a separate financial statement. The Company has temporarily chosen to present comprehensive income separately from the statement of income, even though from 2013 it becomes mandatory to present it as part of such statement.
At the issuance of these financial statements, the Company has determined certain transition adjustments in its statement of financial position as of January 1, 2011, in the following line items: accounts receivable, property, machinery and equipment, deferred PTU, retirement employee benefits, which are considered of significant impact.
The Company is in the process of evaluating the impacts in its consolidated financial statements of 2011; however, the net effect in its
cash flows should not be modified as a result of the adoption of IFRS.
The information contained in this Note has been prepared in accordance with the standards and interpretations issued and in effect, or issued and adopted in advance of the date of preparation of these consolidated financial statements. Standards and interpretations that will be applicable as of December 31, 2012, including those that may be applied optionally, are not known with certainty at the time of preparation of the consolidated financial statements as of December 31, 2011 and 2010. In addition, the accounting policies selected by the Company could be modified as a consequence of changes in the economic environment or industry trends that occur after the issuance of these consolidated financial statements. The information contained in this Note is not intended to comply with IFRS, as only a group of financial statements that includes the statements of financial position, comprehensive income, changes in stockholders' equity and cash flows, along with comparative information and explanatory notes, can provide an appropriate presentation of the financial position of the Company, the result of its operations and its cash flows in accordance with IFRS.