The consolidated financial statement was prepared as per Swedish law and the International Financial Reporting Standards (IFRS), published by the International Accounting Standards Board (IASB), and interpretive statements from the International Financial Reporting Interpretation Committee (IFRIC), which were approved by the European Community Commission for application within the EU as of 31 December 2005. Standards and interpretations published after this date were not implemented. The Swedish Financial Accounting Standards Council's recommendation RR 30 (Additional accounting rules for group companies) was also implemented.

The parent company's annual report is prepared as per Swedish law and applies the Swedish Financial Accounting Standards Council's recommendation RR 32 for legal entities and the Emerging Issues Task Force's pronouncements. So IFRS valuation and disclosure rules are generally implemented. Some exceptions and additions are made to these rules in RR 32 due to statutory provisions, mostly in the Annual Accounts Act, and in the relationship between accounting and taxation.

The parent company's functional currency is the Swedish krona, which is also the presentation currency for the parent company and Group. So financial presentations are in Swedish kronor, rounded to the nearest thousand unless otherwise specified.

Important estimates and assessments

To prepare the financial reports, as per IFRS, requires that management and the board make assessments and assumptions that affect application of accounting policies and recognised amounts of assets, liabilities, revenue and expenses, along with other submitted information.

These assessments and assumptions are based on historical experiences and several other factors that management and the board determine to be probable under the prevailing circumstances. Resulting conclusions form the basis for decisions on the recognised value of assets and liabilities that other sources would not otherwise reveal. The actual outcome can differ from these estimates and assessments.

When implementing IFRS, management-made assessments can have a key impact on financial presentations, and any estimates made can lead to substantial adjustments to the following year's financial presentations. These assessments can have a significant effect on the Group's profit/loss and financial position, especially within revenue recognition and bad debts, measurement of intangible and other non-current assets, as well as taxes. See the applicable note.

Consolidated accounts

The parent company and its subsidiaries are included in the consolidated accounts. The financial reports for the parent company and subsidiaries included in the consolidated accounts cover the same period and are prepared as per accounting policies that pertain to the Group. All internal Group balances, revenue, expenses, profits or losses that arise in transactions between companies that are included in the consolidated accounts are entirely eliminated.

A subsidiary is included in the consolidated accounts from the date of acquisition, which is the day the parent company takes control, to the date that control is terminated.

Acquired subsidiaries are included in the consolidated accounts as per the acquisition method. So acquisition cost is divided into acquired assets, assumed commitments, and liabilities on the date of acquisition based on their actual value.

When a subsidiary is sold during the year, profit/loss is included for the ownership period, and its income and expenses are recognised in the consolidated income statement. Capital gains and losses are calculated within the Group as the difference between the selling price and the consolidated value of the subsidiary's net assets.

When translating income statements and balance sheets of foreign subsidiaries, all subsidiaries' assets and liabilities are translated using the closing day rate, while income statements are translated using the average exchange rate. Equity was translated at the historical rate. Translation differences had no impact on profit or loss; they are booked directly to equity.

Joint ventures

The Group's holdings in jointly-held businesses are reported using proportional consolidation. The Group merges their portion of sales and costs, assets and liabilities, and cash flow from the joint venture with the corresponding entries in its own consolidated accounts.

The Group reports the portion of the profit/loss from its sale of assets in a joint venture that corresponds to the other owners' holdings. The Group does not report its portion of profit/loss in a joint venture that are the result of the Group's purchase of assets in the joint venture before the assets are resold to an independent party. But the transaction is immediately reported as a loss if the loss means that an asset is reported at an inflated value.

Segment reporting

Business segments contain products or services that are subject to risks and returns that vary from other business segments. Geographic markets offer products or services within a specific economic environment that are subject to risks and returns, which vary from the risks and returns that apply to units operating in other economic environments. The Group's segments are divided as per the geographic market in which they operate, so there is now only one segment in the Group: geographic markets.

Revenue recognition

The Group's revenue primarily comes from consulting services, which account for 97% of sales. Other revenue makes up 3% of Group sales. Revenue consists of the actual value of sold goods and services excluding VAT and discounts, and after elimination of internal Group sales.

Revenue is recognised as:

Service assignments on running accounts

Running account assignments are recognised as profit/loss at the rate that the assignments are performed, i.e., revenues and expenses are recognised for the period in which they were earned or incurred. Non-invoiced revenue earned on the closing day is recognised as accrued income under the heading for other receivables.

Fixed price services

If a fixed price service assignment outcome can be reliably estimated, then the assignment's revenue and expenses are recognised as revenue and expenses, respectively, regarding the assignment's degree of completion on the closing day (the percentage of completion method). The number of utilised hours on the closing day, in relation to the assignment's estimated total, mainly determines the percentage of completion.

If estimation difficulties occur (e.g., a project is in an early phase) and if the customer will cover accrued expenses, then income is recognised on the closing day at an amount that corresponds to the assignment's accrued expenses, so no profit is recognised.

If an assignment's profit and loss cannot be reliably estimated, then only anticipated customer-defrayed expenses are reported as income. If an assignment's profit and loss cannot be reliably estimated, then only anticipated customer-defrayed expenses are reported as income. Suspected loss is booked immediately as an expense, in as much as it can be estimated.

Assignments performed on a fixed-price basis now represent 46% (42) of Group sales. Fees on fixed-price assignment invoices for services not yet performed are recognised as advances from customers.

Borrowing costs

The Group is financed by its own means and has no debts to credit institutes. If debt is incurred, borrowing costs burden profit/loss for the period they relate to.

Recognition of allocations and untaxed reserves

Tax legislation in Sweden and some other countries allows for deferment of tax payments through allocation of untaxed reserves in the balance sheet via the income statement's allocations item. Consolidated accounts do not include appropriations and untaxed reserves.

After elimination, the untaxed reserves are split into deferred tax liabilities and balanced profit/loss. Deferred tax on untaxed reserves is estimated without discounting, based on actual tax expense for the next year. For 2006, 28% of untaxed reserves relate to deferred tax and 72% to equity.

Intangible assets

Intangible assets are included in the balance sheet at acquisition cost with deductions for estimated residual value (normally 0) and for scheduled, accumulated amortisation and impairment losses. Scheduled amortisation is based on acquisition cost of non-current assets. Amortisation is linear and based on the assets' economic lifespan. These amortisation periods were applied:

License rights4-5 years
Goodwill (up to 2003)5-10 years
Capitalised expenses for software development3 years
Acquired trademarks10 years
Patents5 years

License rights

Acquired software licenses are capitalised based on expenses incurred when the software application was acquired and put into use. These expenses are amortised during the estimated economic lifespan.

Goodwill

Goodwill represents the amount with which the acquisition cost exceeds the actual value of the Group's share of the acquired subsidiary's net assets upon acquisition. Goodwill on acquisition of subsidiaries is recognised as an intangible non-current asset. Goodwill that arises from acquisition of a foreign operation is translated to the closing day rate, and the translation difference is recognised in equity.

Goodwill is tested annually (or when there are signs of decline) to identify possible impairment requirements. Goodwill is recognised as a cost less accumulated write-downs. Goodwill amortisation was discontinued on 31 December 2003.

Capitalised software development expenses

Ordinarily, expenses for software development and maintenance are booked immediately, but expenses directly related to identifiable, unique software products that the Group controls and that probably provide financial benefit that exceeds cost after one year, are capitalised as intangible assets. Direct costs include personnel expenses for programme development staff and a reasonable share of relevant indirect costs.

Expenses that increase performance or extend the software's lifespan beyond its original level are recognised as improvement expenses, which increase the original acquisition cost. Development was financed with the Group's own assets, so no interest was capitalised.

There were no expenses for development, and no research is done within the Group.

Acquired trademarks

A comparison, using an internal trademark valuation, determines acquisition costs for acquired trademarks, which are amortised during the estimated useful life of 10 years.

Patents

Acquisition costs for patents are based on the cost of patent registration. Patents are amortised over a period of five years.

Property, plant, and equipment

Equipment is included in the balance sheet at historical cost with deductions for scheduled, accumulated depreciation and any impairment losses. Scheduled depreciation is based on the historical cost of the non-current assets. Depreciation occurs based on the economic lifespan of the assets.

This depreciation period was applied:

Computers and other equipment, 3-5 years.

Income taxes

Reported income taxes comprise tax that will be paid or recovered for the current year, adjustments to the actual tax of previous years, and changes in deferred tax.

A valuation of all tax liabilities/prepaid taxes is calculated at a nominal amount as per tax regulations and established tax rates or proposed tax rates that will probably be adopted.

The balance sheet method is used to calculate deferred tax on all temporary differences that arise between the recognised and fiscal values of assets and liabilities. The temporary differences primarily arose through changes in untaxed reserves and tax deficits.

The deferred tax asset relating to tax deficits or other tax deductions are recognised to the extent that it is probable that deductions can be applied against future tax surpluses. Please see supplementary information in note 20.

The parent company recognises deferred tax on untaxed reserves as part of the untaxed reserves because of the connection between accounting and taxation.

Determining (1) current tax liabilities and prepaid taxes and (2) provisions for deferred tax liability and deferred tax assets - particularly the valuation of deferred tax assets - requires considerable management assessment. This process includes determining tax allocation in each of the jurisdictions where the Group has operations. It also includes estimating exposure to current tax and determining temporary differences that occur due to certain assets and liabilities being valued differently in the accounting records and income tax returns. Management must also estimate the likelihood of realising deferred tax assets through future taxable revenue. The actual outcome could vary from these estimates due to (1) future business climate changes (2) currently unknown tax legislation changes or (3) tax authority's or courts' final audit of submitted returns.

Provisions

Obligations are recognised as provisions if they are attributable to this financial year or earlier financial years and if on the closing day, they are certain or likely to occur but are uncertain in terms of amount or when they will be fulfilled. Provisions are recognised as current or non-current depending on due date.

Impairment

When there is an indication that the value of an asset has diminished, an evaluation of the asset's recognised value occurs. In those cases when an asset's recognised value exceeds its calculated recovery value, the asset is immediately depreciated to its recovery value. Cybercom evaluated cash-generating units as per IAS 36 (Impairment losses). Upon calculation of the remaining value in use for goodwill or shares in subsidiaries, an 11% cost-of-capital rate before tax was applied.

Receivables

Receivables are valued individually and requisite allowances are made.

Receivables and liabilities in foreign currency

Current receivables and liabilities were translated using the closing day rate. Exchange rate differences for financial receivables and liabilities are recognised in the income statement under financial items; other exchange rate differences are under operating profit/loss and recognised under the other operating revenue or other operating expenses headings. See the Financial risk management section for a description of hedging.

Current investments

Current investments are recognised at market value on the balance sheet date.

Leasing contracts

All leasing contracts are based on individual evaluations and recognised as operational leasing agreements. The lessor and/or the lessee decide on the classification of leasing contracts, based on scope of financial risks and benefits that are associated with ownership of the leased object. To guarantee this, individual examinations of all contracts are done during the year. In 2006, there were only the usual operational leasing contracts, such as for renting premises and copy machines. Payments made during the lease term are amortised in the income statement linearly over the term of the lease. No significant leasing contracts were entered into during the year.

Group contributions

Cybercom follows the Swedish Financial Accounting Standards Council's Emerging Issues Task Force's statement on recognition of Group contributions, so recognition of Group contributions is based on the contributions' financial implications and consequences. Group contributions paid and received, to minimise the Group's tax, are recognised as a decrease or an increase in unrestricted equity.

Cash flow statement

The indirect method is used to develop the cash flow statement. Recognised cash flow covers only transactions that lead to incoming or outgoing payments.

Besides cash and bank balances, cash and cash equivalents include short-term financial investments that:

Financial instruments

The Group classifies financial instruments in these categories: (1) financial assets assessed at fair value via the income statement (2) financial assets available for sale and (3) accounts receivable. Presentation (classification) depends on the purpose for which the instrument was acquired. Management determines the presentation (classification) of the instrument at the first accounting and re-examines this decision at each presentation opportunity.

Financial assets assessed at fair value via the income statement

Includes two subcategories: (1) financial assets held for trade and (2) financial assets that are initially assigned to the assessed-at-fair-value category via the income statement. A financial asset is classified in this category if it is acquired mainly to be sold rather soon or if management determines this classification.

Derivative instruments are also categorised as trade holdings if they are not identified as hedges. Assets in this category are classified as current assets if they are held for trade or are expected to be sold within 12 months from the balance sheet date.

As per the transition rules, earlier periods need not be recalculated. Instead, the application effect of IAS 39 is recognised directly in initial equity. Due to this, equity was reduced by SEK 619 thousand as per 1 January 2005 for currency forward contracts held. Conversion to fair value is recognised further in the income statement among the financial items. Derivative instruments are included in current assets or current liabilities and recognised in the other receivables or other current liabilities items on the balance sheet.

Financial assets available for sale

Financial assets available for sale are non-derivative assets that were assigned to this category or were not classified in any other category. They are included in non-current assets if management does not intend to sell the asset within 12 months after the balance sheet day.

Accounts receivable

Accounts receivables are non-derivative financial assets with fixed or ascertainable payments that are not listed on an active market. Characteristically, they arise when the Group provides goods or services directly to a customer without intending to trade with the accrued receivable. They are included in current assets and recognised in the accounts receivable item in the balance sheet.

Purchases and sales of financial instruments are recognised on the trade date, i.e., the date the Group agrees to buy or sell the asset. Financial instruments are initially assessed at fair value plus transaction charges, which apply to all financial assets that are not assessed at fair value via the income statement.

Financial instruments are removed from the balance sheet when the right to secure cash flow from the instrument has expired or been carried forward and the Group has carried forward most of the risks and advantages associated with ownership.

Financial assets assessed at fair value via the income statement and financial assets available for sale are recognised after the acquisition date at fair value. Accounts receivable are recognised at amortised cost when applying the effective interest method.

Realised and unrealised gains and losses due to changes in fair value for non-monetary instruments classified as instruments available for sale are recognised in equity. When instruments classified as instruments available for sale are sold or when write-down requirements exist for them, accumulated adjustments to fair value are carried over to the income statement as revenue from financial instruments.

The fair value for listed investments is based on current bid rates. If the market for a certain financial asset is not active (and for unlisted securities), the Group determines the fair value by applying a valuation technique, such as using information regarding newly made transactions in a similar context. Other valuation techniques that could be used are analysis of discounted cash flows and option valuation models that were refined to reflect the issuer's special circumstances.

On each balance sheet date, the Group assesses whether there is objective evidence that a write-down requirement exists for a financial asset or group of financial assets.

Employee benefits

Pension obligations

The Group has only defined contribution pension plans for which the Group pays fixed fees to publicly or privately administered pension insurance plans on a mandatory, contractual, or voluntary basis. The Group has no further payment obligations after the fees are paid. The fees are recognised as staff costs when they are due. Prepaid fees are recognised as an asset as far as cash reimbursement or reduction of future payments is in the Group's favour.

Other benefits after employment termination

The Group offers no benefits after termination of employment.

Benefits compensation

Benefits compensation ceases when an employee is terminated before normal pension age or when an employee accepts voluntary termination in exchange for such reimbursements. The Group recognises severance pay when it is unquestionably obligated either to (1) terminate employees as per a detailed formal plan without possibility of revocation or to (2) grant compensation at termination due to an offer made to encourage voluntary employment termination.

Profit-sharing and bonus plans

The Group recognises a liability and an expense for bonuses and profit sharing based on a formula that accounts for profit related to the parent company's shareholders after certain adjustments. The Group recognises an allocation when a legal or informal obligation exists, due to previous practices.

Financial risks

Through its operation, the Group is exposed to various financial risks, including effects of changes in exchange rates and interest rates. The board establishes written principles for overall management of risks and for specific areas, such as currency risks, interest risks, credit risks, and use of derivative instruments and placement of extra liquidity. The policy is subject to frequent revision and is revised at least once a year.

Currency

Sales in the foreign subsidiaries in Denmark, India, Norway, Singapore, and the UK amount to about 16% of the Group's total sales. The Group's net assets are exposed to currency conversion risks in British pounds, Danish krone, Indian rupees, Norwegian krone and Singapore dollars. Receivables and cash and cash equivalents can be partially in Swedish currency and partially in foreign. Foreign currency is valued at the closing day rate as per stated accounting policies. Receivables are valued individually and requisite allowances are made. For managing larger exposures to fluctuation risks in foreign currency exchange rates, derivative instruments are used.

Interest

The Group's revenue and cash flow from operations are essentially independent of changes in the market's interest rates. The Group has interest-bearing assets in the form of bank securities.

Credits

The Group had no liabilities to credit institutions at the end of the accounting period.

Cash and cash equivalents

Caution is used when managing liquidity risks, which involves maintaining sufficient cash and cash equivalents and saleable securities. Any excess liquidity is placed in risk-free interest-bearing funds.

Expenses

Staff costs are the company's largest cost item, which is about 63% of total expenses.

Sensitivity analysis

This summary shows the effect on operating profit/loss of a 1% change in certain factors, calculated on the 2006 outcome:

+/-1% SEK million
Price to customer 3.7
Capacity utilisation 2.2
No. of consultants 0.5
Staff costs 3.0

Recognised effects should be seen independently of each other and presume that other factors have not changed.

Accounts and notes Accounting and valuation policies