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3 Significant accounting policies (continued)
Ahold Annual Report 2012
Notes to the consolidated
financial statements
Ahold at a glance
Our strategy
Past service costs are recognized immediately to the extent that the associated benefits are
already vested, and are otherwise amortized on a straight-line basis over the average period until
the associated benefits become vested. Results from curtailments or settlements, including the
related portion of net unrecognized actuarial gains and losses, are recognized immediately.
Contributions to defined contribution plans are recognized as an expense when they are due.
Post-employment benefits provided through industry multi-employer plans, managed by third
parties, are generally accounted for under defined contribution criteria.
For other long-term employee benefits, such as long-service awards, provisions are
recognized on the basis of discount rates and other estimates that are consistent with
the estimates used for the defined benefit obligations. For these provisions the corridor
approach is not applied and all actuarial gains and losses are recognized in the income
statement immediately.
Provisions
Provisions are recognized when (i) the Company has a present (legal or constructive)
obligation as a result of past events, (ii) it is more likely than not that an outflow of resources
will be required to settle the obligation, and (iii) the amount can be reliably estimated. The
amount recognized is the best estimate of the expenditure required to settle the obligation.
Provisions are discounted whenever the effect of the time value of money is significant.
The provision for the Company's self-insurance program is recorded based on claims filed
and an estimate of claims incurred but not yet reported. The provision includes expenses
incurred in the claim settlement process that can be directly associated with specific claims.
Other expenses incurred in the claim settlement process are expensed when incurred. The
Company's estimate of the required liability of such claims is recorded on a discounted basis,
utilizing an actuarial method, which is based upon various assumptions that include, but are
not limited to, historical loss experience, projected loss development factors and actual
payroll costs.
Restructuring provisions are recognized when the Company has approved a detailed formal
restructuring plan and the restructuring either has commenced or has been announced to
those affected by it. Onerous contract provisions are measured at the amount by which the
unavoidable costs to fulfill agreements exceeds the expected benefits from such agreements.
New accounting policies not yet effective for 2012
The IASB issued several standards, or revisions to standards, and Interpretations that are not
yet effective for 2012 but will become effective in coming years.
The amendment to IAS 1, "Presentation of Financial Statements" as part of the "Annual
Improvements to IFRSs 2009-2011 Cycle" issued in May 2012, requires the Company to
group the items in other comprehensive income on the basis of whether they are potentially
able to be subsequently reclassified to profit or loss (reclassification adjustments). The
application of the amendments to IAS 1 does not result in any impact on profit or loss, other
comprehensive income or total comprehensive income. The amendment to IAS 1 was
endorsed by the EU in 2012 and the Company will adopt the amendment in 2013.
Our performance
Governan
Financials
Investors
IAS 19, "Employee benefits," was amended in June 2011 and endorsed by the EU in June
2012. The amendment will be effective for the Company as of January 1, 2013. The main
changes in the revised IAS 19 are to eliminate the corridor approach and recognize all
actuarial gains and losses in other comprehensive income as they occur, to immediately
recognize all past service costs, and to replace interest cost and expected return on plan assets
with a net interest amount that is calculated by applying the discount rate to the net defined
benefit liability (asset).
The amendments to IAS 19 require retrospective application. Based on the Company's
preliminary assessment, when the Company applies the amendments to IAS 1 9 for the first
time for the year ending December 29, 2013, an adjustment will be made to recognize the
January 12012, opening balances of actuarial gains and losses and past service costs. This
will result in a reduction in accumulated other comprehensive income (€39 million), a
decrease in the opening balance of net pension assets (€122 million, which includes a €27
million adjustment for future employee contributions reducing the defined benefit obligation)
and an increase in deferred tax assets (€83 million). The profit after income tax for the year
ended December 30, 2012, will be increased by €86 million and other comprehensive
income for the year will be decreased by €1,203 million (€873 million after tax) with the
corresponding adjustments being recognized within pension assets and provisions as well as
income tax assets and liabilities. The adjustment to accumulated other comprehensive income
as of December 30, 2012, amounts to €912 million. The net effect of these changes reflects
a number of adjustments, including their income tax effects: a) full recognition of actuarial
gains through other comprehensive income and decrease in the net pension asset; b)
immediate recognition of past service costs in profit or loss and an increase in the net pension
asset; and c) reversal of the difference between the gain arising from the expected rate of
return on pension plan assets and the discount rate through other comprehensive income.
IFRS 9, "Financial instruments," addresses the classification, measurement and recognition of
financial assets and financial liabilities. The IASB is adding to the standard as it completes the
various phases of its comprehensive project on financial instruments, and it will eventually form
a complete replacement for IAS 39 "Financial Instruments: Recognition and Measurement."
Phases two and three of the financial instruments project, the impairment of financial assets
and hedge accounting phases, respectively, are still a work in progress. IFRS 9 was issued in
parts in November 2009 and October 2010 and amended in 2011. It replaces the parts of
IAS 39 that relate to the classification and measurement of financial instruments. The main
change is that, in cases where the fair value option is taken for financial liabilities, the part of a
fair value change that is due to an entity's own credit risk is recorded in other comprehensive
income rather than in the income statement. The Company has yet to assess IFRS 9's full
impact. The standard will be effective for the Company as of January 1, 2015, subject to
EU endorsement.
