Annual Report 2005/06 THE WORLD OF SOUND - Sonova

Notes to the ConsolidatedFinancial Statements1. Corporate informationThe Phonak Group (the “Group”) specializes in the development,manufacture, and distribution of technologically advancedhearing systems for adults and children with hearing impairment.The Group operates worldwide and distributes its products in over70 countries through its own distribution network and throughindependent distributors. The ultimate parent company is PhonakHolding AG, a limited liability company incorporated inSwitzerland. Phonak Holding AG’s registered office is locatedat Laubisrütistrasse 28, CH-8712 Stäfa, Switzerland.2. Changes in accounting policiesThe International Accounting Standards Board (IASB) issueda revised version of IAS 32 “Financial Instruments: Disclosure andPresentation”, a revised version of IAS 39 “Financial Instruments:Recognition and Measurement” and a general revision of itsInternational Accounting Standards (IAS) which included revisionsof 14 existing standards published in 2003. In 2004, the IASBpublished the standards IFRS 2 “Share-based payment”, IFRS 3“Business Combinations”, IFRS 4 “Insurance Contracts”,IFRS 5 “Non-Current Assets Held for Sale and DiscontinuedOperations”, IAS 36 “Impairment of Assets” and IAS 38“Intangible Assets” as well as further additions to IAS 39.The Phonak Group has applied these standards from April 1,2005, with the exception of IFRS 3, IAS 36 (revised) andIAS 38 (revised) which had already been applied in financialyear 2004/05.IAS 1 (revised) Presentation of Financial Statements.As well as introducing other changes, this revised standardrequires minority interests in consolidated entities to bepresented as a component of consolidated equity, rather thanas a separate category on the face of the balance sheet, andminority interests in the net income of consolidated entities tobe presented as a component of consolidated net income.In the course of the changes of IAS 1 (revised), sales-relatedcosts are no longer shown as a separate line in the consolidatedincome statement. Sales-related costs in the total amount ofCHF 28.1 million (previous year 26.7 million) have been nettedwith sales in the amount of CHF 19.4 million (previous year18.4 million), and reclassified to cost of sales CHF 2.0 million(previous year 1.9 million), sales and marketing CHF 4.8 million(previous year 4.5 million) and to general and administrationCHF 1.9 million (previous year 1.9 million).IFRS 2 Share-based Payment. This new standard requiresthat the fair value of all equity compensation plan awardsgranted to employees be estimated at grant date and recordedas an expense over the vesting period. The expense is chargedagainst the appropriate income statement heading. The standardrequires retrospective application, to all awards granted afterNovember 7, 2002 which had not vested prior to April 1, 2005,within certain transitional requirements. The impact of IFRS 2is detailed in Note 32.In addition, the Group decided to early adopt the amendmentto IAS 21 “The effects of Changes in Foreign Exchange Rates:Net investment in a Foreign Operation” which is effective sinceJanuary 1, 2006 and requires to record exchange differencesthat arise on all monetary items that form part of an entity’s netinvestment in a foreign operation in a separate component ofequity in the consolidated financial statement. In the last financialyear, only monetary items that were denominated in thefunctional currency of the borrower or lender were recognizeddirectly in equity.Changes in accounting policies that arise from the applicationof new or revised standards and interpretations areapplied retrospectively, unless otherwise specified in the transitionalrequirements of the particular standard or interpretation.Retrospective application requires that the results of thecomparative period and the opening balances of that period arerestated as if the new accounting policy had always been applied.The Phonak Group has assessed the impact of the otherrevised and newly applicable standards, and has concluded thatthey have no significant effect on the consolidated financialstatements, apart from additional disclosures.The following new or revised IFRS standards will becomeeffective for financial periods starting on or after January 1,2006 or 2007:50Consolidated Financial Statements