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.
The fair value of investments reported by the fund manager has been compared with Finnfund’s balance sheet value of the investment. When necessary, payments to investments made after the report have been added to the fair value reported by the fund manager, in order to ensure its comparability with the value of Finnfund’s investment. The balance sheet value of investments may not exceed 100% of the valuation by the fund manager. As a result of misinterpreted and incomplete inputs during the previous year, unrestricted equity and, correspondingly, the values of current assets have been reduced by EUR 787,342.82.
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 that were indemnified before the deadline remain within this class afterwards. The indemnified investments and loans were 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 or at lower value.
In the financial statements for 2017, the presentation of derivatives has been changed to comply with the IFRS standards on fair value principles. The IFRS treatment of derivatives is based on chapter 5, section 2 of the Finnish Accounting Act (1336/1997) and a statement issued by the Accounting Board in December 2016 (KILA 1963/2016). As the change in accounting principles had only minor effect on the reference data for the 2016 financial year, equity for the comparative period was not adjusted. Statements on derivatives for the comparative period have also been changed to comply with IFRS requirements. Forward exchange agreements, interest rate swaps and currency and interest rate swaps were initially recorded at fair value on the date of agreement and valued to their fair value in the financial statement. In the valuation to fair value, valuation reports issued by banks have been used to perform a recalculation using accepted valuation methodologies. Positive and negative changes to fair value have been recorded as financial income and expenses in the profit and loss account. In the balance sheet, derivatives are listed under other receivables and other creditors. Although its derivatives are acquired for the purpose of hedging, Finnfund does not practice hedge accounting under IFRS.
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.