Survey of Use of IFRS by Polish Listed Companies Fair Value Measurement Prepared by David Cairns

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1 Survey of Use of IFRS by Polish Listed Companies Fair Value Measurement Prepared by David Cairns This survey is the result of a review of the use of fair value measurement in the 2010 IFRS consolidated financial statements of the 19 Polish companies included in the WIG20, the main index of the Warsaw stock exchange 1. The review was carried out on the English language versions of the financial statements. The objective of the survey is to identify current practices and the possible extent of changes required on the implementation of new and revised IFRS. The survey does not express an opinion on whether current practices do, or do not, comply with IFRS. The results of the survey may be affected by the use by companies of boilerplate accounting policies which use standard wording derived from IFRS and which do not deal with the specific events and circumstances of companies. Many companies include accounting policies on items which do not arise in their financial statements. This is a particular problem with respect to the accounting policies for financial assets and financial liabilities. This problem is not unique to Polish companies; it arises in many countries. Use of Fair Value Measurement at the Reporting Date (see page 2) Eighteen of the 19 companies use fair value measurement at the reporting date for some assets and liabilities in their IFRS consolidated financial statements (see page 2). However, the use of the cost model predominates in the consolidated financial statements of all 19 companies. Financial Assets and Financial Liabilities In accordance with IAS 39, 17 companies use fair value measurement for derivatives, 11 for investments in listed equity securities and 10 for investments in debt instruments. Four companies use fair value measurement for investments in unlisted equity securities. Seven companies disclose that investments in unlisted equity securities are measured at cost because fair values cannot be determined (this is permitted under IAS 39 but not by IFRS 9). 1 The twentieth company in the index is a Ukrainian company.

2 Fair Value Measurement at the reporting date Financial Assets and Financial Liabilities Derivatives Equity securities Debt Investment Listed Not listed instruments property Asseco Poland IT services Bank Handlowy Warszawie Bank Bank PEKAO Bank BRE Bank Bank Globe Trade Centre Property Getin Holding Capital Bank JSW Coal KGHM Polska Miedz Metals and mining Grupa LOTOS Petroleum Lubelski Wegiell "Bogdanka" Mining and coal PBG Engineering PGE Polkska Grupa Energetyczna Electricity PGNiG Natural gas PKN Orlen Oil PKO Bank Polski Bank PZU Insurance Tauron Polska Energia Coal and electricity Telekomunikacja Polska Telecoms TVN Television Total

3 There are some disclosures about valuation techniques and inputs to those techniques in the financial statements of banks and other companies with extensive items for which fair value measurement is required. Bank Pekao BRE Bank 3

4 KGHM PGNiG 4

5 Investment Property Seven companies use fair value measurement for investment property (IAS 40). Six use the IAS 40 fair value model while one discloses fair vale amounts in conjunction with its use of the cost model. PGE (an electricity company) uses the cost model but does not disclose fair values because investment property is not material. Globe Trade Centre 5

6 PZU Use of Fair Value Measurement for Transactions and Other Events (see page 7) Business Combinations In their 2010 financial statements, five companies used fair value measurement in the context of current year business combinations; the other companies were not involved in business combinations in The acquired assets in business combinations include many intangible assets (brands, trademarks, software etc.) as well as tangible and financial assets. Revenue: Barter Transactions Both Telekomunikacja Polska (TP) and TVN refer to the use of fair values to measure revenue on exchanges of dissimilar goods and services (barter transactions) including advertising barter transactions. TP states that the revenue from barter transactions involving advertising is measured in accordance with SIC 31 Revenue Barter Transactions Involving Advertising Services. TVN recognises revenue from barter transactions (advertising time provided in exchange for goods and services) when commercials are broadcast and measures the revenue at the estimated fair value of the programming, merchandise or services received. 6

7 Fair value measurement for transactions and other events Current Business IFRIC 18 Emission Energy Combinations rights certificates Asseco Poland IT services Bank Handlowy Warszawie Bank Bank PEKAO Bank BRE Bank Bank Globe Trade Centre Property Getin Holding Capital Bank JSW Coal KGHM Polska Miedz Metals and mining Grupa LOTOS Petroleum Lubelski Wegiell "Bogdanka" Mining and coal PBG Engineering PGE Polkska Grupa Energetyczna Electricity PGNiG Natural gas PKN Orlen Oil PKO Bank Polski Bank PZU Insurance Tauron Polska Energia Coal and electricity Telekomunikacja Polska Telecoms TVN Television Total The survey did not cover the use of fair values in the measurement of share-based payment (IFRS 2). 7