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SYT » Topics » 34. Effect of new accounting pronouncements

This excerpt taken from the SYT 20-F filed Mar 1, 2006.

34. Effect of new accounting pronouncements

International Financial Reporting Standards

The effect of new and revised standards adopted by Syngenta in these consolidated financial statements, is set out in Note 2 above. The effect of new and revised standards issued, but not yet adopted by Syngenta, is as follows:

Amendment to IAS 19, “Actuarial Gains and Losses, Group Plans and Disclosures”, was issued in December 2004. It will be effective for Syngenta as from January 1, 2006. The amendment allows actuarial gains and losses for defined benefit post employment benefits to be recognized immediately in retained earnings. Syngenta’s existing policy, the 10% corridor method of deferred recognition, continues to be permitted. Syngenta is considering whether to adopt the method of recognizing actuarial gains and losses immediately in retained earnings with effect from January 1, 2006. If Syngenta decides to make this change, this will be accounted for as a voluntary change in accounting policy and applied retrospectively in accordance with IAS 8. The retrospective effect of this policy change on the IFRS figures presented in these financial statements would be as follows:

 
(US$ million)   2005   2004   2003
 
Income Statement      
Increase in operating income and pre–tax income due to elimination of gain/loss      
     amortization from pension and post employment benefit expense   28   24   38
Balance sheet      
(Decrease) in pension asset within non–financial assets   (497 )   (33 )   (126 )
(Increase) in provisions for defined benefit pensions and post–retirement benefits   (320 )   (636 )   (465 )
(Decrease) in retained earnings, excluding tax effect   (817 )   (669 )   (591 )
 

Syngenta has not yet determined the income tax accounting effect of this possible accounting policy change.

The amendment also introduces revised guidance for applying defined benefit accounting to multi-employer plans and requires additional disclosures. Syngenta does not expect those requirements to have a material effect on the financial statements. Many of the additional disclosures are already given by Syngenta in Notes 26 and 33 to these consolidated financial statements.

- IFRIC 4, “Determining whether an Arrangement contains a lease”, was issued in December 2004, and requires contracts for the supply of goods or services which depend upon the use of a specific asset to be treated in certain circumstances as containing a lease of that asset in addition to a supply contract. IFRIC 4 will be mandatory for Syngenta with effect from January 1, 2006. Adoption of IFRIC 4 will have no effect on the periods presented in these financial statements. However, three recently signed contracts which are expected to become operational in 2006 will be accounted for as leases as well as supply contracts in accordance with IFRIC 4. Property, plant and equipment and
   
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  financial debt will increase by US$4 million as a result. It is possible that further similar contracts will be signed which would increase the overall effect of adopting IFRIC 4.
   
- IFRIC 5, “Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation funds”, was issued in December 2004, and requires a contributor to a fund to recognize a liability for decommissioning costs and to recognize separately an asset for its interest in the fund. IFRIC 5 will be mandatory for Syngenta with effect from January 1, 2006. Syngenta estimates that adoption of IFRIC 5 will not have a material effect on its consolidated financial statements.
   
- IFRS 7”, Financial Instruments: Disclosures” was published in August 2005 and requires disclosures about financial instruments additional to those presented in these financial statements, IFRS 7 is not mandatory until January 1, 2007 for Syngenta. However, Syngenta currently intends to adopt IFRS 7 in 2006.
   
- IFRIC 8, “Scope of IFRS 2”, was issued in January 2006, and requires share based payment expense to be recorded when equity instruments are granted at less than fair value in situations where the goods or services received in exchange for the grant cannot be specifically identified. IFRIC 8 will be mandatory for Syngenta with effect from January 1, 2007. None of Syngenta’s share based payment grants made to date are transactions of the type to which IFRIC 8 refers.
This excerpt taken from the SYT 20-F filed Mar 16, 2005.

34. Effect of new accounting pronouncements

International Financial Reporting Standards

The effect of new and revised standards adopted by Syngenta in these consolidated financial statements, is set out in Note 2 above. The effect of new and revised standards issued, but not yet adopted by Syngenta, is as follows:

  –   IAS 16 (revised 2003), “Property Plant and Equipment” and the amendments contained in it to IAS 38, “IntangibleAssets”, require a formal annual review of the useful lives, depreciation and amortization rates and methods andresidual values of all property, plant and equipment and intangible assets. Previously, each asset was required to bereviewed periodically, with the result that not every asset was reviewed in every period. Changes to useful lives,residual values and depreciation methods must be applied prospectively. Syngenta does not believe that any materialeffect on depreciation expense shown in the financial statements will result from adopting this requirement. However,this cannot be determined until the revised review process has been implemented. IAS 16 (revised 2003) alsointroduces revised guidance for accounting, and for replacement of components of an asset. Syngenta has reviewedits accounting policy in these areas in the light of the revised requirements, but does not believe that the carryingamounts of property, plant and equipment or inventories or the amount of depreciation expense will be materiallyaffected. Syngenta will implement IAS 16 (revised 2003) with effect from January 1, 2005.
       
  –   IAS 32 (revised 2003), “Financial Instruments: Disclosure and Presentation”, and IAS 39 (revised 2003), “FinancialInstruments: Recognition and Measurement”, were issued in December 2003, and will be mandatory for Syngenta witheffect from January 1, 2005. Syngenta has not adopted the two revised Financial Instruments standards in theseconsolidated financial statements. IAS 39 (revised 2003) states that a significant or prolonged decline in the marketvalue of an available-for-sale financial asset below its original cost is objective evidence of impairment. Previously,these assets were considered impaired only when events such as default, bankruptcy or severe financial difficulty ofthe investee occurred or became probable. Syngenta will adopt the revised rules by restating prior periods to recordimpairment losses on certain quoted available-for-sale financial assets, in accordance with the transition requirementsof the revised standard. Impairment losses of US$53 million in 2002, US$3 million in 2003 and US$1 million in 2004will be recorded. This change of accounting policy will align the IFRS accounting for these assets with the US GAAPaccounting described in Note 33. g (2) above.
       
  –   IAS 39 (revised 2003) also prohibits designation of forecast intercompany transactions as hedged items in cash flowhedges. Syngenta’s past currency risk management practice has been to hedge the currency risk associated withforecast intercompany transactions using currency derivatives. Syngenta has applied cash flow hedge accounting tothese derivatives, in accordance with IAS 39 (December 1998) and the related Implementation Guidance, IGC 137-14. If IAS 39 (revised 2003) is not further amended, Syngenta may have to restate prior periods as if hedge accounting hadnever been permitted for these derivatives. This would have the effect of increasing 2002 pre-tax income by US$25million, 2003 pre-tax income by US$13 million and 2004 pre-tax income by US$10 million. The consolidated balancesheet and cash flow statement would be unaffected. However, the IASB issued an exposure draft, “Cash Flow HedgeAccounting of Forecast Intragroup Transactions” in July 2004, which proposed further changes to the hedgeaccounting rules for these transactions. Syngenta is therefore not able to predict what accounting treatment it willapply to these currency hedges in future periods.
       
  –   As stated in Note 2 above, Syngenta will apply IFRS 3, “Business Combinations”, and the related revisions to IAS 36and IAS 38, to all previous business combinations with effect from January 1, 2005. Goodwill amortization expense willno longer be recorded. Goodwill amortization expense on these acquisitions in 2004 was US$56 million. The relatedtax credit was US$2 million because in most cases the amortization is not tax deductible. Syngenta will test goodwillfor impairment annually.

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Amendment to IAS 19, “Actuarial Gains and Losses, Group Plans and Disclosures”, was issued in December 2004. It will be effective for Syngenta as from January 1, 2006 at the latest. The amendment allows actuarial gains and losses for defined benefit post employment benefits to be recognized immediately in retained earnings. Syngenta’s existing policy, the 10% corridor method of deferred recognition, continues to be permitted. Syngenta has not yet decided whether to adopt the new option to recognize actuarial gains and losses immediately in retained earnings. The amendment also introduces revised guidance for applying defined benefit accounting to multi-employer plans and requires additional disclosures. Syngenta does not expect those requirements to have a material effect on the financial statements. Many of the additional disclosures are already given by Syngenta in Notes 26 and 33 to these consolidated financial statements.

Amendment to IAS 39, “Transition and Initial Recognition of Financial Assets and Financial Liabilities”, was issued in December 2004. It will be effective from Syngenta as from January 1, 2005. The amendment changes the transitional requirements on adoption of IAS 39 (revised December 2003). Syngenta does not expect the amendment to have a material effect on its consolidated financial statements.

IFRIC Amendment to SIC-12, “Special Purpose entities” was published in October 2004, and requires employee share trusts and similar entities established under share participation plans to be consolidated with effect from January 1, 2005. Syngenta operates its employee share participation plans without using entities of this type and the amendment will have no effect on the consolidated financial statements.

IFRIC 3, “Emission rights”, was issued in December 2004, and establishes accounting rules for ‘cap and trade’ emissions control schemes, such as the European ETS. IFRIC 3 requires the grant of allowances as part of such schemes to be recognized in the financial statements as an intangible asset, and as a government grant which is subsequently amortized over the compliance period. A liability for actual emissions is recognized as they occur and is measured at the fair value of the allowances required to settle the liability. Syngenta will adopt IFRIC 3 with effect from January 1, 2005. Syngenta estimates that IFRIC 3 will not have a material effect on its consolidated financial statements.

IFRIC 4, “Determining whether an Arrangement contains a lease”, was issued in December 2004, and requires contracts for the supply of goods or services which depend upon the use of a specific asset to be treated in certain circumstances as containing a lease of that asset in addition to a supply contract. IFRIC 4 will be mandatory for Syngenta with effect from January 1, 2006. During 2005, Syngenta will assess the impact on its consolidated financial statements from adopting IFRIC 4.

IFRIC 5, “Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation funds”, was issued in December 2004, and requires a contributor to a fund to recognize a liability for decommissioning costs and to recognize separately an asset for its interest in the fund. IFRIC 5 will be mandatory for Syngenta with effect from January 1, 2006. Syngenta estimates that adoption of IFRIC 5 will not have a material effect on its consolidated financial statements.

EXCERPTS ON THIS PAGE:

20-F
Mar 1, 2006
20-F
Mar 16, 2005

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