Key accounting policies
This section provides a summary of significant accounting policies, new IFRS requirements and other general accounting policies. A detailed description of the accounting policies applied and the estimates made relative to each individual item is provided in relevant notes, such that all information about a specific accounting item can be found there.
Basis of preparation
The consolidated financial statements for 2015/16 have been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the EU and additional Danish disclosure requirements applying to listed companies.
The annual report is prepared on the basis of the historical cost principle, modified in that certain financial assets and liabilities are measured at fair value. Subsequent to initial recognition, assets and liabilities are measured as described below in respect of each individual item or in the relevant note.
Changes in accounting policies
Effective from the 2015/16 financial year, the Coloplast Group has implemented all new, updated or amended international financial reporting standards and interpretations (IFRS) as issued by the IASB and IFRS adopted by the EU that are effective for the 2015/16 financial year. The implementation did not affect the financial statements.
New financial reporting standards adopted
Other relevant standards or interpretations adopted by the IASB but not adopted by the EU have not been applied in this annual report. New and amended standards are implemented when taking effect. The new IFRS 9 “Financial instruments” and the new IFRS 15 “Revenue from contracts with customers” are expected to apply from the 2018/19 financial year, while the new IFRS 16 “Leases” is expected to apply from the 2019/20 financial year. Implementation of IFRS 16 is expected to increase total assets by approximately 5%. Implementation of IFRS 16 will not have a material effect on profit/loss. The effects of implementing IFRS 9 and IFRS 15 are still being analysed, but implementation is not expected to have a material effect on the consolidated financial statements.
The financial statement items of individual Group entities are measured in the currency used in the primary economic environment in which the entity operates (functional currency). The consolidated financial statements are presented in Danish kroner (DKK), which is the functional and presentation currency of the parent company. Other currencies are considered foreign currencies.
Foreign currency translation
Transactions denominated in foreign currencies are translated into an entity’s functional currency at the exchange rate prevailing at the transaction date.
Monetary items denominated in foreign currencies are translated at the exchange rate prevailing at the balance sheet date. Exchange adjustments arising as the difference between exchange rates at the balance sheet date and exchange rates at the transaction date of monetary items are recognised in the income statement as financial income or expenses.
On translation of entities with a functional currency other than DKK, balance sheet items are translated at the exchange rates at the balance sheet date and income statement items are translated at the exchange rates at the transaction date. The resulting exchange adjustments are taken directly to other comprehensive income.
Consolidation, business combinations and associates
The consolidated financial statements comprise the financial statements of Coloplast A/S (the parent company) and enterprises (subsidiaries) controlled by the parent company. The parent company is considered to exercise control when it has power over the relevant activities of the enterprise, is exposed or has rights to a variable return from the investment and has the ability to affect those returns through its power.
The consolidated financial statements are prepared by aggregating the financial statements of the parent companyand the individual subsidiaries, all of which are prepared in accordance with the Group’s accounting policies. Intragroup transactions, balances, dividends and unrealised gains and losses on transactions between Group enterprises are eliminated.
Enterprises, which are not subsidiaries but in which the Group holds at least 20% of the voting rights or otherwise exerts a significant influence, are regarded as associates. The Group’s proportionate share of unrealised gains and losses on transactions between the Coloplast Group and associates is eliminated.
Enterprises recently acquired or divested are included in the consolidation in the period in which the Coloplast Group has control of the enterprise.
Comparative figures are not adjusted to reflect acquisitions. Divested activities are shown separately as discontinued operations.
Acquisitions are accounted for using the purchase method, according to which the assets and liabilities and contingent liabilities of enterprises acquired are measured at fair value at the date of acquisition.
Goodwill on acquisition of subsidiaries or associates is calculated as the difference between the fair value of the consideration and the fair value of the Group companies’ proportionate share of identifiable assets less liabilities and contingent liabilities at the date of acquisition.
The consideration for an enterprise consists of the fair value of the agreed consideration for the acquired enterprise. If part of the consideration is contingent on future events, such part is recognised at its fair value at the date of acquisition. Costs directly attributable to business combinations are recognised directly in the income statement as incurred.
In cases where the fair value of acquired identifiable assets, liabilities or contingent liabilities subsequently turns out to differ from the values calculated at the date of acquisition, the calculation, including goodwill is adjusted until up to 12 months after the date of acquisition, and comparison figures are restated. Subsequently, goodwill is not adjusted. Changes to estimates of contingent consideration are generally recognised in the income statement.
Goodwill arising in connection with the acquisition of subsidiaries is recognised in the balance sheet under intangible assets in the consolidated financial statements and tested annually for impairment.
Revenue comprises income from the sale of goods after deduction of any price reductions, quantity discounts or cash discounts. Sales are recognised in the income statement when the risk related to the goods passes to the customer, and the amounts can be reliably measured and are expected to be received.
Marketable securities are designated at fair value through income statement under the fair value option, as the marketable securities are part of a portofolio, which is managed and measured based on fair value basis.
Bonds forming part of repo transactions, i.e. the sale of bonds that are bought back at a later date remain classified as financial assets in the balance sheet, while amounts received from repo transactions are recognised as repo debt. Returns on such bonds are recognised under financial items.
Cash flow statement
The consolidated cash flow statement, which is presented according to the indirect method, shows the Group’s cash flow from operating, investing and financing activities as well as the Group’s cash and cash equivalents and shortterm debt to credit institutions at the beginning and end of the year. Cash and cash equivalents comprise cash and debt to credit institutions recognised under current assets and current liabilities, respectively. Marketable securities include bonds with maturities of more than three months and are recognised under investing activities.