Fiat Group

fiat Group’s first

-time adoption of IFRS

1

In June 2002, the Council of the European Union adopted new regulations that requiredcompanies listed in the E.U. to prepare their consolidated financial statements in accordance withInternational Financial Reporting Standards (IFRS). According to the new rules, companies mustapply 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 inaccordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP) to apply IFRS ineither 2006 or 2007.The decision of the European Council also affected Italy-based car manufacturer Fiat, whichhad its shares traded on the Italian Stock Exchange and reported its financial statements inaccordance with Italian accounting standards (henceforth Italian GAAP). The Fiat Group decidednot to apply IFRS earlier than required and reported its first IFRS-based annual report in fiscalyear 2005.

Business description and financial performance

2

In 2005 the Italy-based Fiat Group generated its revenues primarily from the production andsales of passenger vehicles, tractors, agricultural equipment, and light commercial vehicles. Itsportfolio of passenger car brands included large-volume brands such as Fiat, Alfa Romeo, andLancia (generating €19.5 billion in revenues), as well as luxury, high-margin brands such asMaserati 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. Thecompany’s pretax profit was €1 billion.

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