(3) Adjustments to the accounting policies
The accounting policies applied are the same as those used in the previous year, with the following exceptions:
In the second quarter of 2007, MLP Finanzdienstleistungen Aktiengesellschaft was merged into MLP Bank AG. Then, MLP Bank AG changed its name to “MLP Finanzdienstleistungen AG”. The merging of MLP Finanzdienstleistungen Aktiengesellschaft into MLP Bank AG led to an adjustment of internal reporting. The following changes in disclosure reflect this. From 2008, MLP will combine income/expenses from the brokerage business, income/expenses from the banking business and the income/expenses from wealth management as well as parts of the other interest and similar income in the following items: “Revenues” and “Commission or interest expenses”. Allowances for losses in the banking business will now be included in “Other operating expenses.” Cash and cash equivalents of MLP Finanzdienstleistungen AG have been reclassified from “Cash and cash equivalents” to “Receivables from banks from the banking business”. The item “Receivables/liabilities from banking business” has been subdivided into “Receivables from/liabilities towards clients from the banking business” and “Receivables from/liabilities towards banks from the banking business”. In all instances, the figures disclosed in the previous year have been adjusted. The changes in the figures disclosed have not had any effect on net profit or earnings per share.
MLP assessed the impairment of receivables due from office managers up until 2007 using a gross rental method on the basis of the planning of each office. Because it is hard to predict the net income of individual offices, from the start of the financial year 2008, MLP will establish any impairment loss in relation to these receivables using an experiencebased reference balance.
From the financial year 2008, MLP will change the classification of the reinsured benefit obligations for independent commercial agents and treat the obligation as one relating to a defined contribution plan. MLP is thus following the new prevailing opinion and is interpreting the concept of the contribution obligation in economic terms. The final liability attaching to MLP should be regarded as a contingent liability. The changes in accounting have not had any effect on the net profit or on earnings per share.
The tables below illustrate the effects of the changes in the accounting policies on the previous year’s figures:
Consolidated balance sheet
| All figures in €’000 | Dec 31, 2007 adjusted |
Dec 31, 2007 as reported |
Change in disclosure |
|---|---|---|---|
| Receivables from clients from the banking business | 260,297 | – | 260,297 |
| Receivables from banks from the banking business | 603,951 | – | 603,951 |
| Receivables from banking business | – | 771,751 | –771,751 |
| Other receivables and other assets | 162,075 | 157,263 | 4,812 |
| Cash and cash equivalents | 37,251 | 134,559 | –97,309 |
| Liabilities towards clients from the banking business | 724,816 | – | 724,816 |
| Liabilities towarads banks from the banking business | 27,465 | – | 27,465 |
| Liabilities due to banking business | – | 752,281 | –752,281 |
Consolidated income statement
| All figures in €’000 | 2007 adjusted |
2007 as reported |
+/– | of which IFRS 5 |
of which other changes in disclosure |
|---|---|---|---|---|---|
| Revenues | 588,217 | – | 588,217 | –8,791 | 597,007 |
| Revenues - brokerage business | – | 476,254 | –476,254 | – | –476,254 |
| Revenues - banking business | – | 79,902 | –79,902 | – | –79,902 |
| Revenues - wealth management | – | 39,154 | –39,154 | – | –39,154 |
| Other revenues (previous year: other income) | 41,584 | 41,815 | –231 | –231 | – |
| Total revenues | 629,801 | 637,126 | –7,325 | –9,022 | 1,696 |
| Commission expenses | –216,011 | – | –216,011 | 4,581 | –220,592 |
| Interest expenses | –17,335 | – | –17,335 | – | –17,335 |
| Expenses for brokerage business | – | –217,047 | 217,047 | – | 217,047 |
| Expenses for banking business | – | –21,356 | 21,356 | – | 21,356 |
| Expenses for wealth management | – | –2,190 | 2,190 | – | 2,190 |
| Personnel expenses | –104,936 | –107,425 | 2,488 | 2,488 | – |
| Depreciation and amortisation | –19,318 | –19,450 | 132 | 132 | – |
| Other operating expenses | –158,200 | –159,256 | 1,056 | 3,752 | –2,696 |
| Earnings from shares accounted for using the equity method | –65 | –65 | – | – | – |
| Earnings before interest and taxes (EBIT) | 113,935 | 110,337 | 3,598 | 1,932 | 1,666 |
| Other interest and similar income | 4,965 | 6,696 | –1,731 | –35 | –1,696 |
| Other interest and similar expenses | –8,823 | –8,859 | 37 | 6 | 31 |
| Finance cost | –3,858 | –2,163 | –1,695 | –29 | –1,666 |
| Earnings before taxes (EBT) | 110,078 | 108,174 | 1,903 | 1,903 | 0 |
| Income taxes | –32,609 | –32,135 | –474 | –474 | – |
| Earnings from continuing operations | 77,469 | 76,039 | 1,430 | 1,430 | 0 |
| Earnings from discontinued operations | –15,322 | –13,893 | –1,430 | –1,430 | – |
| Net profit (total) | 62,146 | 62,146 | 0 | 0 | 0 |
MLP started applying the new standard relating to segment reporting, IFRS 8 “Operating segments” on January 1, 2008 before its application becomes binding. Up until December 31, 2007, segment reporting had followed IAS 14 “Segment reporting” (see note 35 in “Notes on Group reporting by segment”). The previous year’s disclosures were adjusted accordingly. Due to the first-time adoption of IFRS 8 and because of the resulting IAS 36 amendment, goodwill has had to be tested for impairment on altered cash-generating units. For details on impairment testing please refer to note 9. The Group net profit and the earnings per share have not been changed by the process of transition to IFRS 8.
The following new or amended accounting provisions of the IFRS financial reporting framework had to be applied for the first time in the 2008 financial year:
- Amendment of IAS 39 and IFRS 7 - Reclassification of financial assets (to be applied to the reclassification affected by these changes to the standard, which took place on or after July 1, 2008). Now, the altered IAS 39, in exceptional cases, also permits the reclassification of certain financial assets in the “held for trading” category, and further reclassification options for financial assets in the “available for sale” category. The altered IFRS 7 specifies additional notes if such reclassification have been effected.
- IFRIC 11 “IFRS 2 - Group and treasury share transactions”. The interpretation regulates the application of IFRS 2 “Share-based payments” with regard to agreements which grant company equity instruments or equity instruments of another company within the same group (such as equity instruments of the parent company) as remuneration.
- IFRIC 14 “IAS 19 Employee benefits: the limit on a defined benefit asset, minimum funding requirements and their interaction” provides guidelines on defining the limit on the amount of a surplus in a pension plan they can recognise as an asset under IAS 19. Furthermore, IFRIC 14 also explains how statutory or contractual minimum funding requirements may affect the accounting of assets and liabilities resulting from a defined pension plan. IFRIC 14 is to be applied to financial years beginning on or after January 1, 2008.
Because they are not relevant to MLP, the new or amended IFRS mentioned above do not have any influence on the consolidated financial statements.
The application of the following new or amended standards and new interpretations was not yet binding for the financial year beginning on January 1, 2008, and they were not early adopted:
- Revision of IAS 23 “Borrowing costs”. The main amendment concerns the elimination of the option of recognising immediately as an expense borrowing costs that are directly attributable to a qualifying asset. In accordance with the new standard, borrowing costs must be capitalised as part of the acquisition or manufacturing costs of the asset. The amended version of IAS 23 is to be applied to borrowing costs for qualifying assets capitalised on or after January 1, 2009. The revised standard is to be applied for financial years beginning on or after January 1, 2009.
- Revision of IAS 1 “Presentation of financial statements”. Amendments to the current version of IAS 1 include: (a) separate disclosure of all equity capital changes, which are not shareholder-related. This can be done either through a “comprehensive statement of earnings” or in two separate presentations (a traditional income statement and a comprehensive statement of earnings); (b) The retrospective application of accounting policies in the case of correction of an error or changes in disclosure which has an effect on the opening balance sheet of the first comparative period to be presented, an additional balance sheet must be included in the financial statements at the beginning of the earliest comparative period. The revised standard is to be applied to financial years beginning on or after January 1, 2009.
- Amendment of IFRS 2 “Vesting conditions and cancellations”: (a) Vesting conditions include only service conditions and (non-market-related) performance conditions. Other features of a share-based payment arrangement are not considered to be vesting conditions. Under IFRS 2, agreements relating to a share-based payment arrangement that are not considered to be vesting conditions must be taken into account when the fair value of the share-based payment is determined. (b) Cancellations are to be presented under the requirements of IFRS 2 regardless of whether they are effected by the entity or the counterparties. The cancellation of equity instruments is recognised as an accelerated vesting, i.e. amounts not yet recognised that would otherwise have been recognised as expenses over the remainder of the vesting period must be recognised immediately. Payments connected with the cancellation are to be accounted for up to the amount of the fair value of the equity instruments as the repurchasing of the entity’s own shares. Payments that exceed the fair value of the equity instruments granted are to be recognised as expenses. The revised standard is to be applied to financial years beginning on or after January 1, 2009.
- Revision of IFRS 3 and IAS 27 “Business combinations‚ Phase II”. The changes in the standards largely relate to the method used to account for business combinations, the recognition of goodwill and transactions with minority interests. As a departure from the legal position obtaining hitherto, IFRS 3 and IAS 27, inter alia, provide for the following rules: (a) Incidental acquisition costs that are incurred when the business combination is created are to be recognised as expenditure. (b) In the amount of the fair value of contingent considerations the level of which depends on events that occur after acquisition (e.g. payments based on earn-out clauses), an asset, a liability or an equity instrument is to be recognised at the time of acquisition. (c) There is the option of capitalising the goodwill relating to the minority interests using the full goodwill method. (d) Disposals of shares that do not involve a loss of control will be recognised as straightforward transactions between the shareholders, i.e. recognised directly in equity. The same applies to acquisitions of other shares in subsidiaries after control has been achieved. The revised standards are to be applied, if accepted in their current form by the EU, to financial years beginning on or after July 1, 2009.
- Amendment of IAS 32 and IAS 1 “Puttable financial instruments”. According to the existing version of IAS 32, instruments must be classified as financial liabilities if the issuer can be required to pay cash or another financial asset in return for redeeming or repurchasing a financial instrument. As a result of the changes, puttable financial instruments and liabilities which only have to be paid back upon the issuer’s liquidation will be classified as equity if specified criteria are met. The classification of these instruments as equity triggers additional disclosure obligations in the notes. The standards are to be applied to financial years beginning on or after January 1, 2009.
- Amendment of IFRS 1 and IAS 27 “Cost of an investment in the separate financial statements of a parent”. The amendment makes it easier to measure the acquisition costs of shares in subsidiaries, jointly-controlled entities and associates in the separate individual financial statements on first-time adoption of the IFRSs. In addition, the measurement of the acquisition costs of shares in the separate individual financial statements of a new parent that has been formed as a result of reorganisation is provided for. Both standards are to be applied to financial years beginning on or after January 1, 2009.
- Amendment of IAS 39 “Exposures qualifying for hedge accounting”. On the one hand, the altered version of the standard specifies the risks that qualify for hedge accounting and, on the other hand, it clarifies when an entity can designate a portion of the cash flows of a financial instrument as an item to be hedged. If accepted in its current form by the EU, the altered standard is to be applied to financial years beginning on or after July 1, 2009.
- Revision of IAS 39 “Reclassification of financial assets”. On October 27, 2008, the IASB published an updated version of the “reclass” amendments of IAS 39 dated October 13, 2008. This version clarifies the fact that any reclassification that takes place on or after November 1, 2008, will become effective at the time of the reclassification. Reclassifications taking place before November 1, 2008, can become effective on July 1, 2008, or at a later date. Retrospective reclassifications at a date before July 1, 2008, are not permitted. The clarification has not yet been adopted by the EU.
- Revision of IFRS 1 “First-time adoption of the International Financial Reporting Standards”. IFRS 1 is being restructured with the aim of making it clearer and easier to follow. The improved structure is also intended to better accommodate future changes to the standard. If accepted in its current form by the EU, the revised version of IFRS 1 will come into force for entities who adopt IFRSs for the first time for financial years beginning on or after January 1, 2009. Earlier application is permitted.
- In May 2008, the Board published, for the first time, a collection of amendments designed to change various IFRSs with the primary objective of removing inconsistencies and clarifying wordings. Each standard has its own transitional provisions. The changes are to be applied at the earliest to financial years beginning on or after January 1, 2009.
- IFRIC 12 “Service concession arrangements” refers to arrangements whereby the public sector grants contracts for the supply of public services (such as roads) to private sector operators and addresses the application of IFRS by the private sector. If accepted in its current form by the EU, IFRIC 12 is to be applied to financial years beginning on or after January 1, 2008.
- IFRIC 13 “Customer loyalty programmes” addresses the accounting by entities that grant their customers award credits when purchasing other goods or services. In particular the question of how companies have to recognise their obligations to provide free or discounted goods or services (“incentives”) to customers redeeming their credits in the balance sheet is clarified. IFRIC 13 is to be applied to financial years beginning on or after July 1, 2008.
- IFRIC 15 “Agreements for the construction of real estate”. IFRIC 15 provides guidance on how to determine whether an agreement for the construction of real estate is within the scope of IAS 11 “Construction contracts” or within the scope of IAS 18 “Revenue”. It shows when revenue from the construction should be recognised in the financial statements. If accepted in its current form by the EU, IFRIC 15 is to be applied to financial years beginning on or after January 1, 2009.
- IFRIC 16 “Hedges of a net investment in a foreign operation”. IFRIC 16 clarifies three main issues concerning the hedging of a net investment in a foreign operation: (a) Foreign exchange differences arising from net investments that arise from differing functional currencies within a Group can be hedged. (b) Hedging instruments can be held by any entity within the Group with the exception of the entity in relation to which the currency risk arising from the net investment is hedged. c) IAS 39 must be applied to determine the amounts that need to be reclassified to profit or loss in respect of the hedging instrument from the foreign currency translation reserve if the net investment is disposed of. IAS 21 must be applied in respect of the underlying. If accepted in its current form by the EU, IFRIC 16 is to be applied to financial years beginning on or after October 1, 2008.
- IFRIC 17 “Distributions of non-cash assets to owners”. According to IFRIC 17, the dividends should be entered on the liabilities side if the dividend has been authorised and is no longer at the discretion of the entity distributing it. Non-cash dividends should be measured at the fair value of the assets being paid out. If there is any difference between the fair value and the carrying amount of the assets, the latter will be recognised in profit or loss. If accepted in its current form by the EU, IFRIC 17 has to be applied prospectively to financial years beginning on or after July 1, 2009.
The conditions mentioned in the new IFRIC have not occurred at MLP to date. IAS 1 (revised) will have an effect on the formal presentation of the consolidated financial statements, but it will not have lead to any material changes in the representation of MLP’s net assets, financial position or results of operations. The revised version of IFRS 3 will largely be applied prospectively. Depending on the nature and volume of future transactions, the changes will have an effect on the Group’s net assets, financial position and results of operations. In all other cases, MLP is not expecting any effects on the representation of the Group’s net assets, financial position or results of operations. If the retrospective application of the new provisions is required, MLP is not expecting any effects on the representation of the net assets, financial position or results of operations. MLP will apply the new and/or revised IFRS standards at the latest when their application becomes binding following their acceptance by the EU.