Equities and fund investments as well as loan receivables are valued at the lower of the acquisition cost or fair value in the financial statements. The value of investment is based on risk classification and other factors affecting the value. The value of the investments is monitored continuously.
Some of capital loans are in practice equity investments. Income from these investments is paid only when the company's financial situations allows. Interest from such capital loans is recorded in accounting only when paid. Also a part of interest income from loans that are written off is recorded only when paid.
In the profit and loss statement write-offs and their cancellations have been included in the item of Reduction in value of investments.
In the beginning of the accounting period the accounting principles regarding fund investments has been changed so that the payments for investments have been included in the value of investment in the balance sheet whereas the fees paid to the fund as well as investment income from the fund has been recorded in the profit and loss statement. The fair value of the fund's investments estimated by the fund manager has been compared to Finnfund's balance sheet value including additional investments made after the report. The balance sheet value of the investments can be 100% of the fair value reported by the manager at the highest. Earlier the management fees were included in the acquisition cost of the investment during the investment period. The balance sheet value was then decreased by the amounts received from the fund so that the fund's balance sheet value in Finnfund's books was maximum 90% of the fair value reported by the manager, the exceeding amount was recorded as income in the profit and loss statement. Based on the changes in accounting principles retained earnings and values of fund investments have been decreased by EUR 18 223 639,04 million.
Special risk finance
Special risk finance is the term used to describe the class of projects in which Finnfund has been indemnified, by a decision of the Finnish government on 20 September 2012 and in force until 31 December 2015, against investment losses or write-offs. Projects indemnified before the deadline remain within this class afterwards. To be subject to indemnification, investments and loans must be separately approved by the Board of Directors.
Projects with the company’s risk classification of C, CC or CCC were eligible for special risk finance. The corresponding level of losses indemnified by the government will be 40%, 50% and 60%. The investment risk is carried partly by Finnfund and partly by the government. Government's share of the risk is a percentage of the disbursed investments deducted by repayments. Yearly write-offs and their cancellations of the projects included in the special risk finance class are made using the same principles as for other investments.
The deferred value of claims on the government for its share of net losses from special risk finance projects is stated separately in the company’s accounts. Separate application must be presented to the government for payment of the indemnity, which cannot exceed EUR 5 million annually.
Other investments in current assets
Securities have been valued at the acquisition cost.
Derivatives include foreign exchange forwards, interest rate swaps and cross currency swaps. The fair values of these derivatives are the banks' mark-to-market valuations on the balance sheet date. Negative changes in fair values from open derivative contracts are recognised as expenses on the profit and loss account under the other financial expenses/income. Interest rate swaps are shown as off balance sheet items due to their positive fair value. Foreign exchange forwards and cross currency swaps are used to hedge the principals of the loan investments. Interest rate swaps are used to hedge interest rate risk arising from mismatch between assets and liabilities.
Items denominated in foreign currencies
Receivables and payables denominated in foreign currencies have been translated to EUR using the exchange rates at the end of the accounting period.
Intangible and tangible assets
Intangible and tangible assets are entered in the balance sheet at their acquisition cost less depreciation according to plan.
Other capitalised long-term expenses 3-5 years
Machinery and equipment 3-4 years
Pensions for the company’s employees have been arranged in an external pension insurance company. Pension expenditure is booked in the year of accrual.
The managing director’s pension liability is covered partly by an existing group pension insurance and partly by an annual reserve in the company’s balance sheet. The annual payment is 26.51% of the managing director’s gross annual earnings.