Case Fiat

case

Fiat Group’s first-time adoption of IFRS

In June 2002, the Council of the European Union adopted new regulations that required companies listed in the E.U. to prepare their consolidated financial statements in accordance with International Financial Reporting Standards (IFRS). According to the new rules, companies must apply IFRS no later than in the fiscal year starting in 2005. Member states of the E.U. could, however, allow companies that were listed outside the E.U. and prepared their statements in accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP) to apply IFRS in either 2006 or 2007.

The decision of the European Council also affected Italy-based car manufacturer Fiat, which had its shares traded on the Italian Stock Exchange and reported its financial statements in accordance with Italian accounting standards (henceforth Italian GAAP). The Fiat Group decided not to apply IFRS earlier than required and reported its first IFRS-based annual report in fiscal year 2005.

Business description and financial performance

In 2005 the Italy-based Fiat Group generated its revenues primarily from the production and sales of passenger vehicles, tractors, agricultural equipment, and light commercial vehicles. Its portfolio of passenger car brands included large-volume brands such as Fiat, Alfa Romeo, and Lancia (generating €19.5 billion in revenues), as well as luxury, high-margin brands such as Maserati and Ferrari (generating €1.8 billion in revenues). In addition to these activities, the Fiat Group produced components and production systems, provided administrative and financial services to its group companies, published a daily newspaper (La Stampa), and sold advertising space for multimedia customers. Total revenues amounted to €46.5 billion in 2005. The company’s pretax profit was €1 billion.

The Fiat Group had its ordinary shares traded on the Italian Stock Exchange and had American Depository Receipts (ADRs) traded on the New York...