THE WALL STREET JOURNAL: Shell To Adopt IFRS For 2005 Results: “The Royal Dutch / Shell Group will say Monday that the adoption of International Financial Reporting Standards (IFRS) and aspects of Netherlands Generally Accepted Accounting Principles (GAAP) and U.S. GAAP will not impact on the financial framework or cash flow of the company.” (ShellNews.net) 22 Nov 04
DOW JONES NEWSWIRES
November 22, 2004
Edited Press Release
LONDON -- The Royal Dutch / Shell Group will say Monday that the adoption of International Financial Reporting Standards (IFRS) and aspects of Netherlands Generally Accepted Accounting Principles (GAAP) and U.S. GAAP will not impact on the financial framework or cash flow of the company.
The European Union has endorsed regulations that require listed European companies to comply with IFRS in 2005. The Royal Dutch / Shell Group will implement IFRS for publication of their financial statements in 2005 and provide comparative data for 2004. The 2005 Form 20-F will provide reconciliation to U.S. GAAP.
Impacts from IFRS arise from first time adoption choices and differences in accounting policies between U.S. GAAP and IFRS.
There is no impact on the Group strategy.
The net assets on the balance sheet at transition, Jan. 1 2004, are expected to decrease by approximately $4.7bn and total debt to increase by approximately $0.2bn. This has a positive effect on ROACE on a net income basis.
There is no impact on the actuarial position or funding of the pension funds, which continue to be well funded. Unrecognised gains and losses at the date of transition (1 January 2004) will be recognised in the 2004 opening balance sheet with a corresponding reduction of retained earnings of $4.9bn.
The use of the fair value of plan assets (rather than market-related value) to calculate annual expected investment returns and the changed approach to amortisation of investment gains/losses can be expected to increase volatility in net income going forward.
At transition (Jan. 1, 2004), the composition of net equity changes because cumulative currency translation differences (CCTD) will be recorded as part of retained earnings.
Retained earnings are increased by approximately $1.2bn. Net equity and net capital employed are not impacted.
IFRS and Netherlands GAAP require the use of discounted cash flows for impairment testing and reversals. If discounted cash flows exceed book value and impairment has previously been taken, a reversal is required.
Under this methodology, certain Exploration and Production assets (Aera and Venezuela), previously impaired, will be reversed in 2004 and certain U.S. tolling assets in Gas & Power require impairment in 2004.
This has no impact on net income under U.S. GAAP.
There is no significant net impact expected on 2004 Netherlands GAAP net income.
Major inspection costs will be capitalised using the 'Solomon' industry definition of major inspection. At transition (1 January 2004), net assets increase by approximately $0.4 billion.
Impact on quarterly net income going forward is reflected in lower operating costs and an increase in depreciation.
The upstream joint venture in the Netherlands will be accounted for under the equity method under IFRS and proportionately consolidated under U.S. GAAP.
There is no impact on net income or net assets.
Share options awards made after Nov. 7 2002 and not vested at Jan. 1, 2005 will be expensed rather than the current practice of pro forma disclosure in the notes to the financial statements. 2004 net income will be reduced by approximately $ 0.1bn.
Share option awards continue to be economically hedged through treasury stock.