These financial statements are prepared using the historic cost approach, with the following exceptions:
- CO2 emission allowances acquired in order to generate a profit from fluctuations in market prices, which are measured at fair value less cost to sell;
- financial instruments measured at fair value;
- impaired assets.
These consolidated financial statements of PGE Group have been prepared on the basis of the financial statements of the parent company and the financial statements of its subsidiaries, associates and joint ventures. The financial statements of consolidated entities are prepared for the same reporting period, based on unified accounting principles.
All balances, income and expenses arising between the Group entities and unrealized gains from intra-group transactions, were fully eliminated.
Subsidiaries are consolidated from the date of taking control over them by the Group until the date on which control ends. Control by a parent company occurs when this company owns, directly or indirectly through its subsidiaries, more than half of votes in the entity unless it is possible to prove that such ownership does not constitute control. Exercising control occurs when the company, due to its involvement in another entity holds the rights to variable financial results and has the power to influence the amount of financial results by controlling the entity. Exercising control may also occur when the parent company does not own half of votes in a subsidiary.
Accounting for the formation of PGE Group and later Group transformations in the consolidated financial statements
Issues related to the mergers and acquisitions of business units are generally regulated by International Financial Reporting Standard 3 Business Combinations. However, the scope of this standard does not include transactions among entities under common control. The entities that later formed PGE Group were controlled by the State Treasury. This transaction thus, according to the Company, meets the definition of transaction under joint control and is therefore excluded from IFRS 3.
The aforementioned mergers of the entities under common control were accounted for by the pooling of interests method and thus the consolidated financial statements reflect the fact of the common control continuity and does not present the changes in the net asset value to fair value (or recognition of new assets), or valuation of the goodwill.
Further mergers and acquisitions within PGE Group were recognised as transactions concluded between jointly controlled entities, therefore should be accounted within the equity of PGE Group, not affecting the goodwill.
The purchase of companies from third parties is accounted for using the acquisition method in line with IFRS 3.
Joint contractual arrangements and joint control
In connection with participation in a joint venture (a joint contractual arrangement giving the right to the net assets of the arrangement), in these financial statements this stake is recognised as investment and is accounted for using the equity method.
In connection with participation in a joint operation, each partner recognises its share of assets and liabilities, revenue and costs.
Joint control is the contractually agreed sharing of control in the framework of the contractual arrangement, which exists only when decisions about relevant activities require the unanimous consent of the parties who share control.
Investments in associates
Associates are entities over which the parent company directly, or through the subsidiary, has significant influence and that are neither controlled nor jointly controlled. Investments in associates are recognised using the equity method.
Measurement of fair values of acquired assets and liabilities, goodwill calculation
PGE Group identifies acquired assets and liabilities, measures their fair value and recognizes goodwill or gain on bargain purchase in accordance with IFRS 3 Business combinations. Measurement is based on a number of assumptions, which include inter alia: application of appropriate valuation method, management’s plans relating to the use of acquired assets, financial projections (including price forecasts influencing main positions of revenues and expenses), changes in laws and regulations and other. On the other hand, accounting for the transaction is also influenced by the appropriate determination of the purchase price (including the contingent part). Assumptions applied may significantly impact fair values of acquired assets and liabilities, and calculation of goodwill or gain on bargain purchase. Goodwill is tested for impairment together with the respective cash generating units.
Translation of items denominated in foreign currencies
Transactions denominated in foreign currencies are translated into PLN at the rate on the transaction date. As at the reporting date:
- monetary items are converted using a simplified approach at the closing rate published by the National Bank of Poland,
- non-monetary items are valued at historical cost in foreign currency at an exchange rate on the day of the transaction;
- non-monetary items measured at fair value in foreign currency are translated at an exchange rate on the day of fair value measurement.
Foreign exchange differences resulting from translation are recognised in profit or loss or, in cases specified in the accounting policies applied, recorded in the value of assets.
Exchange differences resulting from translation of non-monetary items, such as equity instruments measured at fair value through profit or loss, are recognised as a change in fair value. Exchange differences arising from non-monetary items, such as equity instruments classified as financial assets available for sale, are recognised in other comprehensive income. Exchange differences arising from the translation of assets and liabilities of foreign entities denominated in a functional currency other than the parent’s functional currency are recognised in a separate item of equity – „Exchange differences from translation.”