BasWare Corporations' financial statements have been prepared according to the International Financial Reporting Standards (IFRS), approved to be used in EU countries, with the standards and interpretations valid on December 31, 2005. The Group’s Financial Statements are presented in euro thousand and they are based on acquisition costs unless otherwise stated in the accounting principles.
BasWare Group transferred to reporting according to IFRS as of January 1, 2005. The transition date to IFRS was January 1, 2004. Prior to that, the Group’s financial statements were prepared according to the Finnish Accounting Standards (FAS). The 2004 comparison data has been changed to comply with IFRS standards.
In accordance with the exception included in the IFRS 1 the acquisitions prior to the IFRS transition date have not been restated but the previous values are taken as the deemed cost. Moreover, the cumulative translation differences of the shareholders’ equity have been recognized to accrued profits as permitted in the exemptions.
Principles of consolidation
Group financial statements include the parent company BasWare Corporation and the subsidiaries under its authority. The parent company’s authority is based on full ownership of the share capital of all the subsidiaries.
The subsidiaries have been merged to the Group financial statements as of the acquisition date. Group companies’ mutual share ownership has been eliminated by way of purchase method. Acquired companies are accounted for using the purchase method according to which the assets and liabilities of the acquired company are measured at their fair value at the date of acquisition. Deferred taxes of the acquisition cost adjustments have been booked according to the valid tax base and the remainder has been recognized as Group business value on the balance sheet.
The Group’s internal business transactions as well as internal receivables and liabilities have been eliminated in the Group financial statements.
Segments
The risks and profitability related to the products and services vary according to the Group’s geographical segments. Likewise, the risks and profitability related to business operations vary according to products, services and maintenance.
In segment reporting, the geographical segment has been defined as the primary segment and business operations as the secondary segment. The segment division coincides with the Group’s internal reporting structure.
The geographical segments are Finland, Scandinavia, Europe and other areas. Business operations segments are product sales, consulting and services, maintenance and support as well as other operations.
Pricing between segments follows the same principles as with external resellers.
Transactions in foreign currencies
Transactions in foreign currencies are recorded at the rates of exchange prevailing at the dates of the individual transactions. In practice, a rate that is close enough to the rate of transaction date is used. At the end of the accounting period, the unsettled balances on foreign currency receivables and liabilities are valued at the rates of exchange prevailing at the end of the accounting period. Exchange differences for transactions are entered in the appropriate income statement account before operating profit.
On the Group financial statements, income statements of the foreign subsidiaries are converted to euros according to the median exchange rate of the financial period whereas the balance sheets are converted according to the exchange rate on the last day of the financial period. Foreign exchange differences due to different rates of exchange on the income statement and balance sheet are entered in translation differences of the retained earnings. From the transition date onwards exchange differences arising on the translation of the net investment are recorded in translation difference, which is a separate component of equity.
Revenue recognition
The sale of licenses is recognized in phases with relation to when the usage rights for the software have been granted, installation has occurred and the delivery has been accepted. The sales are recorded when the sales can be defined as reliable and the financial impact relating to the business operation is expected to benefit the company.
Maintenance revenue is allocated to a contract period and service revenue is recognized at the time of delivery. When calculating net sales, sales revenue is adjusted according to the exchange rate differences in the sales currency.
Other operating income
Other operating income includes proceeds from the sale of fixed assets and rental revenue.
Measurement principles
The Group performs an annual impairment test of goodwill and those intangible assets that have limitless useful lives in case of possible impairments. Additionally regular evaluation of indications of impairment is performed. Recoverable amounts of cash-generating units are determined based on calculations of value in use. In the Financial Statements, all assets and liabilities are measured in the original cost.
Impairment
The book values of the assets are valued when closing the accounts in order to discover possible indications of impairment. In case of such indications, the recoverable amount of the cash-generating unit or asset is evaluated. Additionally, annual evaluation of recoverable amount is performed for the following assets despite of impairment indications: goodwill and intangible assets that have limitless useful lives.
An impairment loss is recognized whenever the carrying amount of asset or cash-generating unit exceeds the recoverable amount. If there is a positive change in the estimated recoverable amount of money, depreciation loss related to tangible fixed assets and other intangible assets, excluding goodwill, is nullified. An impairment loss is only reversed to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. Additionally, the impairment loss of equity instruments that are recorded for available-for-sale financial assets is not reversed through profit and loss.
Goodwill
Goodwill is measured as the excess of the cost of the acquisition over the acquirer's share of the net fair values of the acquired company's identifiable assets, liabilities and contingent liabilities.
Goodwill is directed to those cash-generating units that are expected to gain from the synergy benefits resulting from combining business operations. Goodwill is not amortized regularly but instead tested annually for impairment; book value of the cash-generating unit and goodwill allocated to the unit are compared to the unit’s recoverable amount (value in use). If the value in use is lower than the book value, the amortization is entered as an expense to the income statement and allocated primarily to goodwill on the balance sheet.
Value in use is based on cash flows according to three year predictions and business plans. The cash flows for the two years following this period are estimated by extrapolating using steady growth expectations. The employed discount taxes reflect the views on risks and time value of money.
Goodwill impairment test has been performed on the IFRS transition date, January 1, 2004, applying IAS 36.
Other intangible assets
Other intangible assets include software and activated research and development costs. Intangible assets are entered on the original acquisition costs less possible impairment and accumulated depreciation according to plan. Public subsidies related to the acquisition of intangible fixed asset commodities are deducted from the acquisition cost of the asset and recognized as income by reducing the depreciation charge of the asset they are related to. The useful lives for intangible assets are 3 to 6 years. Intangible assets are regularly impairment tested.
Research and development costs
Research expenses are booked as an expense as they are incurred. Product development expenses are booked so that development costs of totally new products and product versions with significant new features are capitalized and amortized during their useful lives. When defining the useful lives, the aging of technology and typical product life cycle in the industry is taken into account. Amortization is initiated once the product is launched. Maintenance of existing products and their minor development are booked as an expense as they are incurred. Product development projects prior to 2004 have not been capitalized as the amount of capitalization cannot be reliably determined. Unfinished development projects are impairment tested on the day of closing of the books.
Tangible assets
Tangible assets include machinery and equipment. The balance sheet value of tangible assets is stated at acquisition costs, less accumulated depreciation according to plan and possible impairment. The useful lives for tangible assets are 3 to 5 years.
Leases
Financial lease liabilities are defined as lease agreements of fixed assets of which a significant amount of risks and benefits typical of ownership are transferred to the Group. Finance leases are stated, at inception of the lease, at an amount equal to their fair value or, if lower, the present value of the minimum lease payment. Commodities acquired with financial lease liabilities are amortized according to plan and possible depreciation loss is booked. Leasing liabilities deducted with financing costs are included in other short and long term liabilities.
Other lease agreements have been used to acquire rights to leased cars and office equipment.
Trade and other receivables
Trade and other receivables are entered according to original value. Possible credit losses are booked as expenses.
Cash and cash equivalents
Cash and cash equivalents include cash, bank balances and other liquid investments of which the maturity is less than three months.
Pensions
The compulsory pension coverage of personnel employed by BasWare Corporation (parent company) is provided through insurance policies taken out with a pension institution. Pension coverage for personnel employed by units outside Finland is arranged in line with the requirements of local legislation and social security provisions. Compulsory pension expenses are expensed in the year they are incurred.
Warrants
IFRS 2 Share-based payments standard is adapted to warrants that have been issued after November 7, 2002 and of which the subscription period has not started before January 1, 2005. Such warrants are assessed to fair value on the date when the warrants are granted, and recognized as cost during the vesting period.
Taxation
Income taxes include taxes based on the results of the Group companies and are calculated according to the local tax rules of each country. The balance sheet includes deferred taxes in their entirety and deferred tax assets in the estimated probable amount of the tax benefit.
Accounting principles requiring management’s consideration and key uncertainties relating to the estimates
When preparing the financial statements, estimates and supposition regarding the future have to be made. Realization may however differ from these estimates. The estimates are mainly related to measurement of assets, utilization of deferred tax assets and capitalization of product development expenses.
The Group performs an annual impairment test of goodwill and those intangible assets that have limitless useful lives in case of possible impairments. Indications of impairment are assessed as depicted earlier. Recoverable amounts of cash-generating units have been determined by calculations based on value in use. Product development costs are capitalized in intangible assets regarding new products as well as product versions with significant upgrades and amortized during its useful life after the product has been completed.