Arla’s Board of Representatives has approved an amendment to the Articles of Association. This means that Arla is to adopt the international accounting standard IFRS. The decision entails some minor technical accounting changes and one major one: Arla will no longer amortise goodwill.
Until now Arla has been using the accounting principles in the Danish Financial Statements Act. But from January 1 2012 the company will use the international accounting standard IFRS. The change will make it easier to compare Arla’s accounts with those of other international companies.
"In recent years, several companies – also within the dairy industry – have begun to apply the IFRS accounting standards. By applying the same standards, it will be easier for Arla to measure ourselves against the rest of the industry,” says Arla’s Chief Financial Officer Frederik Lotz, who believes that the IFRS principles will strengthen Arla internally:
"We believe it will strengthen the Board and the Executive management's supervision, because the principles of IFRS are clear and well-known in other countries and thus easier to understand no matter the country. IFRS will increase transparency internally and externally, because we will have one standard throughout the entire business."
Changed consolidation policy
In keeping with the decision, the Board of Representatives has made a technical change in Arla’s consolidation policy. Applying until 2015, the new policy will be used in connection with the annual profit appropriation. As a result, the amount previously amortised in goodwill will now be consolidated in Arla’s equity. This will create a provision that can be released in the event of major write downs.
• Going forward, Arla’s profit target is a profit of 3 per cent of the turnover.
• Going forward, Arla will consolidate 6 per cent of the Arla earnings.
• Going forward, the overall consolidation will also be divided by 1/3 as individual consolidation (interest-bearing contributed capital) and 2/3 as collective capital.
Arla’s increased profits and consolidation do not impact on the ongoing paid out milk price to the cooperative owners as it is simply an expression for countering the discontinued amortisation of goodwill.
What does IFRS mean?
• International Financial Reporting Standards
• IFRS is a set of acounting principles which are globaly accepted
What is goodwill?
Goodwill is the difference between the price Arla paid for an asset and the book value of the identified assets. To date, Arla has amortised goodwill over a lifetime of up to 20 years.