Annual Financial Statements > Accounting policies

Basis of preparation

The consolidated financial statements have been prepared in accordance with the historical cost convention, except for certain financial assets and liabilities which are measured at fair value.

The consolidated financial statements are presented in South African Rand and all values are rounded to the nearest million (Rm) except when otherwise indicated.

Statement of compliance

The financial statements of Aveng Limited and all its subsidiaries have been prepared in accordance with the International Financial Reporting Standards (IFRS).

Changes in accounting policies

The accounting policies adopted are consistent with those of the previous financial year.

The Group has adopted the following new standards, interpretations and amendments during the year. Adoption of these standards, interpretations and amendments did not have any material effect on the financial statements of the Group other than giving rise to additional disclosures where necessary.

IAS 18 – Revenue: Agency relationship
The amendment gives guidance to determine whether an agency relationship exists or not. This interpretation has had no effect on the Group’s financial statements.

IAS 39 – Financial Instruments: Recognition and Measurement – Eligible Hedged Items (Amendment)
The aim of the amendment is to clarify which risks associated with a portion of the cash flows or fair value of a financial instrument an entity is permitted to designate as a hedged item. As the Group does not apply hedge accounting, it will not have an impact on the Group.

IAS 39 – Financial Instruments: Recognition and Measurement and IFRS 7 – Financial Instruments: Disclosures (Amendment)
These amendments were issued in October 2008 in response to the global market credit crisis. The amendments allow entities to reclassify certain financial assets out of held for trading if they are no longer held for the purpose of being sold or repurchased in the near term. The standard was effective retrospectively from 1 July 2008 up until 1 November 2008. Thereafter, retrospective application was not permitted. Similarly, IFRS 7 was amended for disclosure requirements in respect of the assets reclassified. As the group has no held for trading financial instruments, this amendment has no impact on the Group.

Embedded Derivatives (Amendments to IFRIC 9 and IAS 39)
The amendment to IFRIC 9 requires an entity to assess whether an embedded derivative is required to be separated from a host contract when the entity reclassifies a hybrid financial asset out of the fair value through profit or loss category. IAS 39 is also amended to state that, if the fair value of the embedded derivative that would have to be separated on reclassification cannot be reliably measured, the entire hybrid (combined) contract must remain classified as at fair value through profit or loss. An entity shall apply the amendments for annual periods ending on or after 30 June 2009. This interpretation has had no effect on the Group’s financial statements.

IFRIC 12 – Service Concession Arrangements
This interpretation gives guidance on the accounting by operators for public-to-private service concession arrangements. This interpretation has had no effect on the group’s financial statements.

IFRIC 13 – Customer loyalty programmes
This interpretation requires customer loyalty award credits to be accounted for as a separate component of the sales transaction. This interpretation has had no impact on the Group’s financial statements.

IFRIC 14 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction
This interpretation provides guidance on how to assess the limit on the amount of surplus in a defined benefit scheme that can be recognised as an asset under IAS 19 – Employee Benefits. This Interpretation has had no impact on the financial position or performance of the Group.

Basis of consolidation

The consolidated financial statements include the results and financial position of Aveng Limited and its subsidiaries up to 30 June each year.

Subsidiaries or special purpose entities classified as such in accordance with SIC 12 Consolidation - Special Purpose Entities, are those companies in which the Group has an interest of 50% or more of the voting rights or otherwise has the power to exercise control over the operations and derive the benefits therefrom.

The results of any subsidiaries acquired or disposed of during the year are included from the effective dates of acquisition and up to the effective dates of disposal, being the dates on which the Group obtains or ceases to have control.

Subsidiaries within the Group have uniform year-ends.

Should a subsidiary apply accounting policies that are materially different to those adopted by the Group, adjustments are made to the financial statements of the subsidiary, prior to consolidation.

All intergroup transactions and balances are eliminated on consolidation. Unrealised profits or losses are also eliminated, unless they reflect impairment in the assets so disposed of.

Minority interests represent the portion of profit or loss and net assets not held by the Group and presented separately in the profit or loss and within equity in the consolidated balance sheet, separately from parent shareholders’ equity. Acquisitions of minority interests are accounted for using the parent-equity extension method, whereby, the difference between the consideration and the book value of the share of the net assets acquired is recognised as goodwill.

Supplementary information

The Group’s presentation currency is South African Rand. The supplementary information provided in US$ is translated at the closing rate for the balance sheet and at the average annual rate for the profit or loss. Equity is stated at historical rates.

Associated companies

An associated company is one in which the Group exercises significant influence, but not control or joint control over the financial and operating policies of that company.

The Group’s share of post-acquisition reserves of these companies is included in the Group financial statements on the equity accounting method.

In the balance sheet, the investment in the associate is carried at cost plus post-acquisition changes in the Group’s share of the net assets of the associates, less any impairment. Goodwill relating to the associate is included the carrying amount of the investment and is not amortised.

In the profit or loss, profit from associates after tax reflects the share of the operations of the associate.

In the statement of changes in equity, the Group recognises its share of the changes where a charge has been recognised directly in the associate’s equity.

Unrealised profits or losses resulting from transactions between the Group and the associated companies are eliminated to the extent of the interest in the associated companies.

If an associated company applies accounting policies that are materially different to those adopted by the Group, adjustments are made to the financial statements of the associated company, prior to equity accounting the investment.

Borrowing costs

Borrowing costs are written off in the year in which they are incurred.

Contracts in progress

Contracts in progress and contract receivables, are carried at cost, plus profit recognised, less billings and recognised losses at balance sheet date.

Contract costs include costs that relate directly to the contract as a result of contract activity in general, and those costs that can be allocated to the contract together with any other costs which are specifically chargeable to the customer in terms of the contract.

Progress billings not received are included in contract debtors. Where progress billings exceed the aggregate of costs, plus profit, less losses, the net amounts are carried and shown as trade and other payables.

Contracting profit or loss recognition

Profit is recognised on an individual contract basis using the percentage of completion method, measured by the proportion that costs incurred to date bear to the estimated total costs of the contract, and management’s judgement of the outstanding risks. Where a loss is anticipated on any particular contract, provision is made in full for such loss.

Deferred tax

Deferred tax is provided using the liability method on all temporary differences at the balance sheet date. Temporary differences are differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax base.
Deferred income tax liabilities are recognised for all taxable temporary differences, except:
  • where the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
  • in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred income tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised except:

  • where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
  • in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred income tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities using tax rates that are expected to apply to the year when the asset is realised or the liability is settled based on enacted or substantively enacted tax rates at the balance sheet date.

Deferred tax is charged to profit or loss except to the extent that it relates to a transaction that is recognised directly in equity, or a business combination that is an acquisition.

The effect on deferred tax of any changes in tax rates is recognised in profit or loss, except to the extent that it relates to items previously charged or credited directly to equity.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that the related tax benefit will be realised. Unrecognised deferred tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that the future taxable profit will allow the deferred tax asset to be recovered.

Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.