Critical accounting policies
Since the initial listing of ASMI on Nasdaq Global Select Market in the United States of America, ASMI has followed accounting principles generally accepted in the United Stated of America ('US GAAP'), both for internal as well as external purposes. We are required by European Regulations to also publish Consolidated financial statements in accordance with International Financial Reporting Standards ('IFRS') from 2005 onwards. The accompanying Consolidated financial statements, prepared for statutory purposes, have been prepared in accordance with IFRS as endorsed by the European Union.
For ASMI, the principal differences per December 31, 2014 between US GAAP and IFRS relate to accounting for goodwill, accounting for development expenses, accounting for inventory obsolescence reserve, pensions and accounting for debt issuance fees.
Our discussion and analysis of our financial condition and results of operations are based upon our Consolidated financial statements, which have been prepared in accordance with IFRS. We apply the going concern basis in preparing our Consolidated financial statements. Historical cost is used as the measurement basis unless otherwise indicated. The preparation of consolidated financial statements and related disclosures in conformity with IFRS requires management to make judgments, assumptions and estimates that affect the amounts reported. Note 1 of Notes to Consolidated financial statements describes the significant accounting policies used in the preparation of the Consolidated financial statements. Certain of these significant accounting policies are considered to be critical accounting policies.
Critical accounting policies and estimates
The preparation of Consolidated financial statements and related disclosures in conformity with IFRS requires management to make judgments, assumptions and estimates that affect the amounts reported. Note 1 of Notes to Consolidated financial statements provides a summary of our significant accounting policies used in the preparation of the consolidated financial statements. Some of these significant accounting policies are considered to be critical accounting policies.
A critical accounting policy is defined as one that is both material to the presentation of ASMI’s consolidated financial statements and that requires management to make difficult, subjective or complex judgments that could have a material effect on ASMI’s financial condition or results of operations. Specifically, these policies have the following attributes: (1) ASMI is required to make assumptions about matters that are highly uncertain at the time of the estimate; and (2) different estimates ASMI could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on ASMI’s financial condition or results of operations.
Estimates and assumptions about future events and their effects cannot be determined with certainty. ASMI bases its estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as ASMI’s operating environment changes. These changes have historically been minor and have been included in the Consolidated financial statements as soon as they became known. In addition, management is periodically faced with uncertainties, the outcomes of which are not within its control and will not be known for prolonged periods of time. These uncertainties include those discussed in the chapter Risk management. Based on a critical assessment of its accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that ASMI’s Consolidated financial statements are fairly stated in accordance with IFRS, and provide a meaningful presentation of ASMI’s financial condition and results of operations. An analysis of specific sensitivity to changes of estimates and assumptions is included in the notes to the financial statement.
Management believes that the following are critical accounting policies:
- revenue recognition;
- warranty allowance:
- evaluation of long-lived assets for impairment;
- evaluation of investments in associates for impairment;
- contingencies and litigation; and
- income taxes.
For information regarding new accounting pronouncements, see Note 1 to our Consolidated financial statements.