2) Summary of accounting and valuation principles

Preparation of financial statements

The consolidated financial statements of the Repower Group have been prepared in accordance with the International Financial Reporting Standards (IFRS) promulgated by the International Accounting Standards Board (IASB). All current standards and interpretations were applied in preparing the consolidated financial statements, which provide a true and fair view of the financial position, results of operations and cash flows of the Repower Group and comply with Swiss law.

The reporting currency for the consolidated financial statements is the Swiss franc (CHF). With the exception of items designated otherwise, all figures are rounded in thousands of Swiss francs (CHF thousands).

The consolidated financial statements were prepared on the basis of historical costs, with the exception of specific positions such as replacement values in respect of held-for-trading positions, inventories as well as securities and other financial instruments for which IFRS requires other valuation methods. These are explained in the following accounting and valuation principles.

The accounting and valuation principles used correspond to the principles applied in the previous year. All standards and interpretations in force on the balance sheet date were applied when preparing the consolidated financial statements.

Significant new and revised accounting and valuation principles

New and revised standards and interpretations which came into force on 1 January 2013 are listed in the following table and are explained in more detail if they have a significant impact on the consolidated financial statements of the Repower Group.

IAS 1 requires OCI (other comprehensive income) items to be presented separately depending on whether they may be reclassified or not. To reflect the change to IAS 1 “Presentation of Items of Other Comprehensive Income (OCI)”, the Repower Group revised how other comprehensive income is presented in the statement of comprehensive income. Greater weight is ascribed to other comprehensive income when it is grouped into items that are subsequently reclassified (recycling) in the income statement for specific reasons and into items that are not subsequently reclassified in the income statement and when greater volatility is expected in shareholders' equity with the application of the revised IAS 19 “Employee Benefits”. The statement of comprehensive income includes the two reporting components “Consolidated income statement” and “Consolidated statement of comprehensive income”. The presentation of the previous year's figures has been adjusted.

The Repower Group applied the revised IAS 19 “Employee Benefits”, published in June 2011, for the first time in its 2013 Semi-Annual Report. As a result, the opening balances as at 1 January 2012 and the prior-year period have been adjusted. Up to now, application of the corridor approach has meant that actuarial gains and losses have been largely unrecognised. Actuarial gains and losses result from adjustments to actuarial parameters (e.g. discount rate, changes in the value of externally financed plan assets, retirement age, life expectancy, changes in salaries and pension trends). The actuarial gains and losses must now be recognised under other comprehensive income in the period in which they are incurred. Recognition of these gains or losses increases or decreases obligations and thus makes shareholders' equity more volatile. Interest expense and the expected return on plan assets were previously recognised under pension costs (personnel expenses). The interest rate used to calculate the expected return on plan assets must now correspond to the discount rate for benefit obligations. The net interest expense/income is made up of the net pension obligation/asset and the interest rate used to discount the obligation. This net interest component corresponds to the effect of the compounded interest of the non-current net pension obligation or the non-current net pension asset. From the Repower Group's standpoint, this net interest component should be allocated to the financial result and is reported there. The difference between this amount and the effective return on plan assets is recognised in other comprehensive income via the revaluation component. The pension provisions are still shown as a separate balance sheet item. The presentation of the previous year's figures has been adjusted accordingly.

The restatement and the financial effects of the revised standard can be seen in the table below:

Effects on the consolidated income statement:

Effects on the consolidated statement of comprehensive income

Effects on the consolidated balance sheet

Effects on the consolidated cash flow statement:

The amendments to IFRS 7 require additional disclosures, in particular a reconciliation between the gross and net amounts set off.

The core (unchanged) principle of IFRS 10 is that a parent entity which controls one or more other entities must present consolidated financial statements. The principle whereby the parent entity and its subsidiaries must present consolidated financial statements as a single entity, as well as the applicable consolidation methods, remain unchanged. IFRS 10 changes the definition of “control“. Control exists when the entity has the power to decide on the relevant processes and activities of another entity, is exposed to variable returns from its involvement, and has the ability to affect those returns through its power over the other entity. The new standard has no significant impact on the consolidated financial statements of the Repower Group.

The new IFRS 11 standard “Joint Arrangements” has resulted in a revision of the existing accounting regulations for joint arrangements. The standard distinguishes between joint operations and joint ventures. Joint operations are joint arrangements whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Under such arrangements, the joint operator must account for its share of the assets, liabilities, income and expenses relating to its involvement in a joint operation. In the case of joint ventures, the parties that exercise joint control have a right to the net assets arising from the arrangement. Joint ventures of this type are accounted for using the equity method in accordance with IAS 28. The criterion for a joint operation is that the parties are bound by a contractual arrangement that gives them joint control. In addition to being governed by an explicit arrangement, joint control can also be implicit, i.e. indirect, based on the ownership ratio. The introduction of the new standard prompted the Repower Group to re-assess and review its arrangements with partner plants. With the exception of Grischelectra AG, there is no contractual arrangement governing the Repower Group's control over the main activities of the partner plants. Repower exerts a significant influence over these companies and will continue to account for them using the equity method. Grischelectra AG is managed jointly with the Canton of Graubünden. Energy procurement rights are bundled in Grischelectra AG. The Repower Group administers all procurement rights related to Grischelectra and classifies this joint arrangement as a joint operation. All assets, liabilities, income and expenses of the company must therefore be recognised on a proportional basis rather than accounted for using the equity method. The new standard is applied retrospectively. The financial effects on the consolidated financial statements as at 31 December 2013 are insignificant.

IFRS 12 consolidates the disclosure requirements of several standards concerning an entity's investments in other entities, and defines additional requirements. The objective of IFRS 12 is to require disclosure of the nature of, and measurement of the risks associated with, an entity's interests in other entities, and the effects of those interests on its financial position, financial performance and cash flows.

IFRS 13 has now also been revised. IFRS 13 defines fair value, provides guidelines for measuring fair value, and requires disclosures about fair value measurements. This standard serves as the sole mechanism for determining fair value when another standard requires fair value measurements and requires the application of IFRS 13 in determining fair value. It is applicable for financial as well as non-financial assets and liabilities. IFRS 13.91ff. now requires, in particular, the notes to the financial statements to include information on how fair value is determined. The standard distinguishes between fair value measurements on a recurring and non-recurring basis. More extensive details must be provided for recurring measurements as well as for measurements categorised within Level 3. Moreover, all assets and liabilities measured at fair value must be disclosed by class. Application will be made prospectively.

The Repower Group is currently analysing and assessing the impact of the following new or revised standards and interpretations whose adoption in the Repower Group's consolidated financial statements is not yet compulsory. They will be adopted no later than the financial year beginning on the date given in the table.

In November 2013 an amendment to IAS 19 was published, under which companies with contributions linked to the number of years of service (typical of Swiss BVG pension plans) may opt whether or not to apply risk sharing. Specifically, paragraph 93 on the accounting for employee contributions was amended and extended. The new standard must be adopted for periods beginning on or after 1 July 2014, with due consideration to IAS 8. However, companies may also opt for early adoption, in which case they could also exercise the right to apply risk-sharing as from 31 December 2013. The Repower Group has opted against early adoption.

The amendments to IAS 32 will not have any significant impact on the consolidated financial statements of the Repower Group. It is still only possible to offset financial instruments if there is a legally enforceable right to offset the amounts and the intention to settle on a net basis or to realise the asset and settle the liability simultaneously. A clarification was also issued to the effect that offsetting is only possible if no further offsetting requirements are outstanding on the balance sheet date. In general, this affects unconditional netting rights. In the case of conditional netting rights, offsetting is permitted only if these rights have been complied with on the balance sheet date. The 2013 consolidated financial statements of the Repower Group take into account both the current provisions of IAS 32 and the clarification which is applicable for annual periods beginning on or after 1 January 2014.

The impact on the consolidated financial statements of IFRS 9 “Financial Instruments” cannot yet be reliably determined. The Repower Group is currently analysing this standard and the related interpretations and expects to see a change in its reporting at the present point in time.