In preparing the attached tables and the notes to these financial statements, it was deemed necessary to use estimates and assumptions in order to calculate, in particular, the provisions for returns relative to the sale of editorial products, the provisions for bad debt, inventory obsolescence and risks, employee termination benefits and taxation, and the value of some current and non current activities under intangible assets and goodwill.
These estimates are periodically reviewed and any effects are recognised under income statement.
Final data could differ, even significantly, from estimates as a result of possible changes in the assumptions first made .
The most significant accounting estimates that involve a high level of subjective opinion are outlined below:
Goodwill and intangible assets
The value reduction relative to goodwill and intangible assets is tested for impairment by comparing the book value of the Cash Generating Unit and the relevant recoverable value, represented by the higher between fair value and the value in use. This process includes, among others, the application of methods such as the discounted cash flow with the relevant assumptions.
Bad debt provision
The ability to recover bad debt is calculated by taking into account the risk for collection failure, the period of time receivables have been outstanding and any losses sustained in the past on similar debts.
Inventory write-down provision
The Group estimates the amount of inventory to subject to write-down based on specific analyses ascertaining finished product marketability and the relevant turnover rates, and, for orders in progress, the Gropu considers the relevant risk of failed completion.
Future returns
In the publishing sector it is accepted practice that unsold books and magazines are returned to the publisher under pre-established conditions.
As a result, at year end the Group makes an estimate of the quantity that is presumably expected to be returned in the following year. Such estimate is based on historical statistics and also takes individual print runs into account.
Provision for risks
Provisions made in relation to judicial, fiscal and arbitration disputes are based on complex estimates that take into account the probability of losing the disputes.
Provision for employees termination benefits
Provisions made in relation to funds in favour of employees are based on actuarial estimates, any changes in the underlying assumptions may have significant effects on them.
Income taxes
Income taxes (both current and deferred) are calculated in each country in which the Group operates and are based on prudent interpretations of currently applicable tax laws.