Accounting principles

As from January 1, 2005, AB Volvo applies the International Financial Reporting Standards (IFRS) as adopted by the EU, for the group consolidation. The accounting principles, which were applied during the preparation of this report, are described in Note 1 to the consolidated financial statements, which is included in the 2010 Annual Report for the Volvo Group. This interim report has been prepared in accordance with IAS 34, Interim Financial Reporting and the Annual Accounts Act.

The financial reporting of the parent company has been prepared in accordance with the Annual Accounts Act and RFR 2 Reporting for legal entities. Application of RFR 2 entails that in interim reporting for legal entities, the parent company is to apply all IFRSs and interpretations approved by the EU as far as possible within the framework of the Swedish Annual Accounts Act, the Pension Obligations Vesting Act, and taking into account the connection between accounting and taxation.

New accounting principles in 2011
In accordance with considerations presented in the Annual Report, Note 3, regarding new accounting principles for 2011, a number of new standards and IFRIC interpretations became effective January 1, 2011. They are expected not to have a significant effect on the financial statements of the Group.

Otherwise, accounting principles and methods of calculations have remained essentially unchanged from those applied in the 2010 Annual Report.

Hedging of commercial currency flows
Volvo only hedges firm flows whereof the major part is realized within 6 months. Hedge accounting is not applied and unrealized gains and losses from fluctuations in the fair values of the contracts are reported in the income statement, this has negatively affected the Group’s operating income in the third quarter 2011 by SEK 378 M. As from January 1, 2011 unrealized changes in fair value of commercial derivates related to a receivable or payable is reported in the respective business area and is during the third quarter amounting to SEK 166 M. All other unrealized changes in fair value of commercial derivates, SEK 212 M in the third quarter 2011, are reported in the income statement in the segment Group functions and others.  During the third quarter of 2010 the total effect reported in the segment Group functions and others was positive in an amount of SEK 598 M.

Group functions and other
As from January 1, 2011 Volvo reports some selected entities in the segment Group functions and other. As from January 1, 2011 Volvo Rents is reported in this segment. The reason for the change in segment is to strengthen the profile of Volvo Rents and make the operation more independent from Volvo CE.