Note 2 – General accounting principles

This note sets forth general accounting principles applied in the preparation of the annual report, to the extent these are not disclosed in the following notes. The majority of the accounting principles used can be found under the respective note. Unless otherwise stated below, all accounting principles in this annual report have been applied consistently for all presented years.

The consolidated financial statements cover Duni AB and its subsidiaries. The Parent Company applies the Swedish Annual Accounts Act and RFR 2, Accounting for Legal Entities. In those cases where the Parent Company applies different accounting principles than the Group, such fact is stated separately in Section 2.5, Parent Company’s accounting principles.

2.1 Bases for preparation of the financial statements

2.1.1 Compliance with IFRS

The consolidated financial statements for Duni AB and its subsidiaries have been prepared in accordance with the Swedish Annual Accounts Act, RFR 1, ”Supplementary Accounting Rules for Groups”, and the International Financial Reporting Standards (IFRS) and interpretations from the IFRS Interpretations Committee (IFRSIC) as adopted by the EU.

2.1.2 Cost method

The consolidated financial statements have been prepared in accordance with the cost method, except for:

  • financial assets and liabilities (including derivative instruments) measured at fair value through profit or loss,
  • and financial assets and liabilities (including derivative instruments) classified as hedge instruments and
  • defined benefit pension plans – the plan assets are measured at fair value through other comprehensive income.

The preparation of financial statements in compliance with IFRS requires the use of a number of important estimates for accounting purposes. Furthermore, when applying the Group’s accounting principles, management must make certain judgments. The areas involving a high degree of judgment, complexity or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in the notes.

2.2 Changes in accounting principles and disclosures

Duni Group applies the new and amended IASB standards and interpretations and IFRIC pronouncements adopted by the EU that are mandatory from January 1, 2021. The following standards and amendments are applied by the Group for the first time for fiscal years beginning on or after January 1, 2021:

  • COVID-19-Related Rent Concessions – amendments to IFRS 16
  • Interest Rate Benchmark Reform 2– amendments to IFRS 9, IAS 39 and IFRS 7

The amendments listed above did not have any material impact on the Group’s financial statements.

A number of new standards, changes to the standards and interpretations enter into force with regard to fiscal years beginning after January 1, 2021, and these have not been applied in conjunction with the preparation of this financial report. These new standards and interpretations are not expected to have a material impact on the Group’s financial statements in the current or future periods, nor on future transactions.

2.3 Consolidated financial statements

2.3.1 Subsidiaries

A subsidiary is a company in which another company holds a controlling interest. An investor has a controlling interest over the investee when the investor is exposed to, or is entitled to variable returns from, the investment in the investee and can influence the amount of the returns using its controlling interest over the investee. Subsidiaries are included in the consolidated financial statements commencing on the day on which the controlling influence is transferred to the Group. They are removed from the consolidated financial statements as of the day on which the controlling influence ceases.

The acquisition method is used for reporting the Group’s business acquisitions. The consideration for the acquisition of a subsidiary consists of the fair value of transferred assets, liabilities and the shares issued by the Group. The consideration also includes the fair value of all assets or liabilities which are a consequence of an agreement regarding a conditional purchase price and/or liability to minority shareholders. Acquisition-related costs are expensed when incurred. Identifiable acquired assets and assumed liabilities in a business acquisition are initially measured at fair value on the acquisition date. For each acquisition, it is determined whether non-controlling interests in the acquired company are recognized at fair value or at the interest’s proportional share in the net assets of the acquired company.

The amount by which the consideration, any non-controlling interests, and the fair value on the acquisition date of earlier shareholdings exceeds the fair value of the Group’s share of identifiable acquired net assets is recognized as goodwill. If the amount is less than fair value for the assets of the acquired subsidiary, in the event of a “bargain purchase”, the difference is reported directly in the Consolidated statement of comprehensive income.

Intra-group transactions, balance sheet items and unrealized gains on transactions between Group companies are eliminated. Unrealized losses are also eliminated, but any losses are regarded as an indication of possible impairment. Where appropriate, the accounting principles for subsidiaries have been changed to ensure consistent application of the Group’s principles.

2.3.2 Changes in ownership stake in a subsidiary without a change in controlling interest

The Group applies the principle of reporting transactions with non-controlling interests that do not lead to a loss of control as equity transactions, i.e., transactions with owners in their role as shareholders. Upon acquisitions from non-controlling interests, the difference between the consideration paid and the actual acquired share of the carrying amount of the subsidiary’s net assets is recognized in equity. Gains or losses upon divestments to non-controlling interests are also recognized in equity. Non-controlling interests in an acquired company are recognized either at fair value or at the holding’s proportionate share of the identifiable net assets of the acquired company. This choice of principle is made for each individual business combination.

In cases where there are call options for remaining shareholdings, the companies are recognized as if they were fully consolidated and a liability is simultaneously recognized amounting to the discounted expected redemption price of the options. The non-controlling interest attributable to the option is thus eliminated. The difference between the liability for the option and the non-controlling interest to which the option related is recognized directly in equity and separated from other changes in equity. The liability to minority shareholders is recognized as a derivative instrument, and the revaluation is recognized in equity.

2.3.3 Affiliated companies

Affiliated companies are all companies in which the Group has a significant, but not controlling, influence, which generally is the case with shareholdings corresponding to between 20% and 50% of the voting rights. Participations in affiliated companies are reported in accordance with IAS 28 applying the equity method and are initially reported in the Group’s balance sheet at cost.

2.4 Translation of foreign currency

2.4.1 Functional currency and reporting currency

Items included in the financial statements for the various units in the Group are valued in the currency which is used in the economic environment in which the relevant company primarily operates (functional currency). In the consolidated financial statements, the Swedish crowns (SEK) is used; this is the Parent Company’s functional currency and reporting currency.

2.4.2 Transactions and balance sheet items

Transactions in foreign currency are translated to the functional currency in accordance with the exchange rates applicable on the transaction date. Exchange rate gains and losses which arise in conjunction with payments of such transactions and in conjunction with translation of monetary assets and liabilities in foreign currency at the exchange rate on the balance sheet date are recognized in the income statement. Exchange rate differences on lending and borrowing are recognized in net financial items, while other exchange rate differences are included in operating income. Exceptions apply when the transactions constitute hedging which satisfies the conditions for hedge accounting of cash flows or of net investments, since gains /losses are recognized in other comprehensive income. The Group applies hedge accounting via interest rate swaps, with part of the interest rate risk hedged at a fixed rate.

2.4.3 Group companies

The results of operations and financial position of all Group companies (of which none has a high inflation currency as their functional currency) which have a functional currency other than the reporting currency are translated to the Group’s reporting currency as follows:

  1. assets and liabilities for each of the balance sheets are translated at the closing day rate
  2. revenue and expenses for each of the income statements are translated at the average exchange rate
  3. all exchange rate differences which arise are reported in other comprehensive income

Upon consolidation, exchange rate differences which arise as a consequence of translation of net investments in foreign operations are transferred to the Consolidated statement of comprehensive income. Upon the full or partial divestment of a foreign business, the exchange rate differences which are recognized in other comprehensive income are transferred to the income statement and recognized as a part of capital gains/losses.

Goodwill and adjustments of fair value which arise upon the acquisition of a foreign business are treated as assets and liabilities of such business and translated using the exchange rate at the balance sheet date.

2.5 The Parent Company’s accounting principles

The Parent Company prepares its annual report pursuant to the Swedish Annual Accounts Act and the Swedish Financial Reporting Board’s Recommendation RFR 2, Accounting for Legal Entities. RFR 2 entails that the Parent Company’s annual report for the legal entity shall apply all IFRSs and statements approved by the EU, insofar as possible within the scope of the Swedish Annual Accounts Act and taking into consideration the connection between accounting and taxation. The Recommendation states which exceptions and supplements are to be made compared with accounting pursuant to IFRS.

The principles regarding the Parent Company are unchanged compared with the preceding year.

2.5.1 Differences between the accounting principles of the Group and the Parent Company

Differences between the accounting principles of the Group and the Parent Company are set forth below. The accounting principles stated below have been applied consistently to all periods presented in the Parent Company’s financial statements.

Subsidiaries

Participating interests in subsidiaries are reported in the Parent Company pursuant to the purchase method. in the Parent Company, acquisition costs are recognized as shares in subsidiaries. Received dividends and Group contributions are recognized as financial income.

Associated Companies

Participating interests in subsidiaries are reported in the Parent Company pursuant to the purchase method. The shares are reported as “Participations in associated companies” and dividends received are reported as revenue.

Liability for put option of minority owners

The liability for put options to minority shareholders is recognized in the Parent Company at the lower of cost or net realizable value. The Group recognizes this liability as a derivative liability.

Intangible assets

Intangible fixed assets in the Parent Company are reported at acquisition value less deduction for accumulated amortization and any impairment. Goodwill recognized in the Parent Company is acquisition goodwill; the useful life is thus estimated by company management to be no more than 20 years. Amortization of goodwill takes place on a straight-line basis over an estimated useful life of 20 years.

Tangible assets

Tangible assets in the Parent Company are recognized at cost less accumulated depreciation and any impairment losses in the same manner as for the Group, but any write-ups are added.

Leased assets

All lease agreements are recognized in the Parent Company pursuant to the rules for operating leases, in accordance with the simplification rule in RFR 2.

Pension provisions

The Parent Company recognizes pension liabilities based on a calculation pursuant to the Swedish Pension Obligations (Security) Act.

Income tax

Due to the connection between accounting and taxation, the deferred tax liability on untaxed reserves in the Parent Company is recognized as a part of the untaxed reserves.

Dividend income

Dividend income is recognized when the right to receive the payment has been established.

Presentation of income statement and balance sheet

The Parent Company complies with the form for presentation of income statements and balance sheets as set forth in the Swedish Annual Reports Act. This entails, among other things, a different presentation regarding equity and that provisions are reported as a separate main heading in the balance sheet.

2.6 Significant estimates and judgments for accounting purposes

Estimates and judgments are evaluated regularly based on historical experience and other factors, including expectations of future events which may be deemed reasonable under prevailing circumstances. The Group makes estimates and judgments regarding the future. By definition, the estimates for accounting purposes which follow therefrom rarely correspond to the actual outcome. The estimates and judgments which entail a significant risk of material adjustments in the carrying amounts of assets and liabilities are specified on an ongoing basis in the notes.