Consolidated financial statement
Use of estimates – risks and uncertainties
Preparation of the Consolidated Financial Statements and explanatory notes pursuant to IFRS requires ERG to make estimates and assumptions that affect the carrying values of the assets and liabilities recognised in the Consolidated Financial Statements and disclosures relating to contingent assets and liabilities. Making these estimates involves using information available and subjective judgment.
By their very nature, estimates and assumptions used may vary from year to year, and therefore, it cannot be excluded that in subsequent years the current financial statement values may differ as a result of the change in the subjective assessments used.
The main estimates for which the use of subjective assessments is more heavily required were used, inter alia, for:
- provisions for bad debt, inventory obsolescence and asset write-downs;
- the definition of the useful life of fixed assets and the related amortisation and depreciation; provisions for environmental risks and for liabilities related to legal and fiscal disputes; inparticular, the evaluation processes involve both determining the degree of likelihood of the occurrence of conditions that may entail a financial outlay, and quantifying the related amount;
- deferred tax assets, recognised on the basis of the Group's future taxability of profits as forecast by business plans as well as of the expected composition and renewal of tax consolidation regimes;
- the impairment test for intangible and tangible assets and for other equity investments, described in detail in the Impairment test paragraph, implies – in the estimation of the value in use – the utilisation of the investee companies' business Plans, based on a set of assumptions and hypotheses relating to future events and actions by the investee companies' governing bodies, which may not necessarily occur. Similar estimation procedures are necessary when reference is made to the estimated fair value (net of disposal costs) component due to the uncertainty inherent in any negotiation.
Estimates and assumptions are revised periodically and the effects of each change are reflected in the Income Statement in the period when the change took place.