Recently issued accounting standards

First-time adoption and applicable standards

• “Amendments to IAS 1 – Presentation of financial statements”. This introduces a new method of presentation of financial statements, with a particular impact on the presentation of income statement data for the period through “comprehensive income”, which provides for separate reporting of profit and loss for the period and of profit and loss recognized as a change in equity (“other comprehensive income”). The standard gives companies the options of presenting this information in one “statement of comprehensive income”, or in two separate statements presented together:
  • one statement (“income statement”), which shows the components of profit and loss for the period; and
  • a second statement (“statement of comprehensive income”) which, starting with the net income (loss) for the period, includes gains and losses recognized directly in equity (OCI - other comprehensive income).

Enel has elected to present two separate statements. The Revised IAS 1 also eliminated the option of disclosing changes in shareholders’ equity items and transactions with owners in the notes to the financial statements and rather requires this information to be presented in a separate statement.

• “Amendments to IAS 23 - Borrowing costs”. This eliminates the option which allowed the expensing of borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset and requires their capitalization as part of the cost of that asset. The application of the standard on a prospective basis did not have an impact for the separate financial statements of Enel SpA.

• “Amendments to IAS 32 and IAS 1 - Puttable financial instruments and obligations arising on liquidation”. The amendments introduce an exception to the definition of equity instruments by extending the definition to encompass puttable financial instruments where the instruments impose obligations on the entity in the event of liquidation, provided the instruments have certain characteristics and meet certain conditions. The retrospective application of the amendments did not have an impact for Enel SpA.

• “Amendments to IFRS 1 First-time adoption of international financial reporting standards and IAS 27 Consolidated and separate financial statements – Cost of an investment in a subsidiary, jointly-controlled entity or associate”. The amendments establish that in the separate financial statements on first-time adoption of IFRS/IAS, the cost of an investment in a subsidiary, associate company or jointly-controlled entity can be measured at cost as provided for by IAS 27 or else at its deemed cost, which shall either be the fair value of the investment at the transition date or its carrying amount as determined under the previous accounting standards. Furthermore, the amendments to IAS 27 mentioned above also establish that dividends received from a subsidiary, associate or jointly-controlled entity shall be recognized as income in the separate financial statements. This eliminates the rule in the previous version of the standard that had restricted dividend recognition in profit or loss to dividends distributed from post-acquisition earnings (cost method).

• “Amendments to IAS 39 and IFRS 7 Reclassification of financial assets - Effective date and transition”. This amendment modified the sections concerning the effective date of the amendments to IAS 39 and IFRS 7 issued by the IASB and endorsed by the European Commission in October 2008 concerning the reclassification of financial assets, improving the provisions in order to eliminate a number of presentation inconsistencies. More specifically, the IASB specified that reclassifications made as from November 1, 2008 shall be effective as from the date of reclassification. No reclassifications can be applied retrospectively with effect before July 1, 2008.

• “Amendments to IFRIC 9 - Reassessment of embedded derivatives” and “Amendments to IAS 39 Financial instruments - Recognition and measurement”. The amendments require companies that intend to reclassify a financial instrument designated as at fair value through profit or loss under the provisions of the amendments of IAS 39 endorsed by the European Commission in October 2008 to reassess the contract to determine whether an embedded derivative should be measured separately. If the company is unable to measure the derivative separately, the financial instrument many not be reclassified out of the FVTPL category. The retrospective application of the interpretation did not have an impact for Enel as no such reclassifications were made.

• “Amendments to IFRS 2 - Share-based payment”. The amendments set out the accounting treatment to be used in respect of “non-vesting conditions” that may apply to a share-based payment. Furthermore, the changes extend the IFRS 2 rules governing cancellation of stock option plans by an entity to include cases in which the entity did not itself decide the cancellation or settlement during the vesting period. The retrospective application of the amendments did not have an impact for Enel SpA.

• “Amendments to IFRS 7 Financial instruments - Disclosures” and "Amendments to IFRS 4 Insurance contracts”. The amendments introduce a three-level hierarchy for classifying assets and liabilities measured at fair value and providing the related disclosures. The three-level hierarchy classifies financial instruments recognized at fair value in consideration of the inputs used to determine such value. Level 1 includes financial instruments measured at fair value on the basis of quoted prices in active markets for such assets or liabilities. Level 2 comprises financial instruments whose fair value was determined with a valuation technique using directly or indirectly observable market inputs connected with the assets or liabilities being measured. Level 3 includes financial instruments whose fair value was calculated using inputs not based on observable market data. This hierarchy reflects the availability of observable market data to be used in determining fair value. The amendments also introduce new disclosure requirements, with the information to be presented in table form, for assets and liabilities measured at fair value for each of the three levels in the hierarchy, with the extension of disclosure requirements for financial assets measured at fair value on the basis of inputs not based on observable market data (Level 3). The disclosure requirements for liquidity risk were also amended to reflect the manner in which such risk is managed. The application of the amendments on a prospective basis did not have a material impact for the company.

• “IFRIC 11 IFRS 2 - Group and treasury share transactions”. The interpretation establishes that:
  • for payments to employees of subsidiaries involving own shares granted by the parent company, the subsidiary must measure the services received by the employees as share-based payments;
  • for payments by subsidiaries to their employees involving shares of the parent company, the subsidiary must account for transactions with its employees as cash-settled transactions, regardless of the manner in which the shares used to settle the payment obligation were acquired.

The retrospective application of the interpretation had the following impact, as indicated in the “basis of presentation” section:

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  • a reduction in operating expenses for 2008, with a consequent increase in “net income (loss) for the year” in the amount of €3.1 million;
  • an increase in the value of “equity investments” at December 31, 2008 (and January 1, 2009) in the amount of €6.3 million as the result of the above two adjustments.

• “IFRIC 13 – Customer loyalty programs”: the interpretation governs the accounting treatment of the obligation to provide prizes to customers as part of customer loyalty programs and establishes that the fair value of the obligations to provide the awards must be accounted for separately from revenues from sales and deferred until the obligation to the customer is extinguished or the customer’s right lapses or is not exercised. The retrospective application of the interpretation did not have a material impact for Enel SpA.

• “IFRIC 14 – IAS 19 The limit on a defined benefit asset, minimum funding requirements and their interaction”: the interpretation provides guidance for the application of the rules contained in IAS 19 relating to the “asset ceiling”. It also defines the effects of a minimum funding requirement on liabilities and/or assets held in relation to a defined benefit plan or other long-term benefits (contractually or legally established minimum amount of assets required to service the plan). The application of the interpretation on a prospective basis did not have a material impact for Enel SpA.

• “Improvements to International Financial Reporting Standards”: these comprise a series of amendments to individual standards concerning the presentation, recognition and measurement of items in the financial statements, as well as terminological or editorial changes, that had no impact on measurement for accounting purposes. Following the changes to presentation requirements (IAS 1 - Presentation of financial statements), the classification criteria for non-current and current financial assets and liabilities were clarified, specifying that financial assets and liabilities designated as at fair value through profit or loss with a maturity of more than 12 months that are held for operational hedging purposes and that the company intends to hold for at least 12 months as from the reporting date shall be classified as non-current. The retrospective application of this change involved the reclassification, with regard to the comparative figures for December 31, 2008, of derivatives measured at fair value through profit or loss with the above characteristics from current to non-current. Accordingly, reclassifications were made to:
  • non-hedge (for IAS purposes) trading derivatives under assets expiring at more than 12 months in the amount of €660.2 million at December 31, 2008 (€146.4 million at January 1, 2008), from “current financial assets” to “non-current financial assets”;
  • and non-hedge (for IAS purposes) trading derivatives under liabilities expiring at more than 12 months in the amount of €702.4 million at December 31, 2008 (€153.1 million at January 1, 2008), from “current financial liabilities” to “non-current financial liabilities”.