2. Basis of preparation

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(a) Statement of compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board and in accordance with the Federal Law No. 208 — FZ “On consolidated financial statements”.

(b) Basis of measurement

The consolidated financial statements are prepared on the historical cost basis except that investments available-for-sale and derivative financial instruments are stated at fair value; property, plant and equipment was revalued to determine deemed cost as part of the adoption of IFRS as of 1 January 2005.

(c) Functional and presentation currency

The national currency of the Russian Federation is the Russian Rouble (“RUB”), which is the functional currency of the Parent and its subsidiaries. All financial information presented in RUB has been rounded to the nearest million, except per share amounts. These consolidated financial statements are presented in RUB.

The translation from USD into RUB, where applicable, was performed as follows:

  • Assets and liabilities as of 31 December 2012 were translated at the closing exchange rate of RUB 30.3727 for USD 1 (31 December 2011: RUB 32.1961 for USD 1);
  • Profit and loss items were translated at the average exchange rate for 2012 of RUB 31.0930 for USD 1 (2011: RUB 29.3874 for USD 1).
  • Equity items, which were recognised at the date of adoption of IFRS, 1 January 2005, were translated at the exchange rate of RUR 27.7487 for USD 1. Equity items arising during the year are recognised at the exchange rate ruling at the date of transaction.
  • The resulting foreign exchange difference is recognised in other comprehensive income.

(d) Use of estimates and judgments

The preparation of consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from those estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements is included in the following notes:

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