Aviva 2005 Annual Report Download - page 100

Financial statements continued
Notes to the consolidated financial statements
1 – First time adoption of International Financial Reporting Standards continued
(iii) Notes to the analysis of adjustments to the balance sheets as at 1 January and 31 December 2004 as a result of the
transition to IFRS
The UK GAAP balance sheet has been presented in a format consistent with IFRS. The only significant change in heading is that the Fund
for Future Appropriations is now renamed the Unallocated Divisible Surplus.
The basis for the material adjustments between UK GAAP and IFRS is as follows:
(1) Investment valuation
The adjustments in respect of investment valuation arise from the following:
1 January 31 December
2004 2004
£m £m
Increase in valuation of debt securities 1,718 2,459
Change in valuation of certain mortgages 113 119
Other sundry adjustments 23 21
1,854 2,599
The principal changes are discussed further below:
a) Debt securities Under UK GAAP, equity securities and unit trusts are carried at current value. Debt and other fixed income securities are
carried at current value, with the exception of many non-linked long-term business debt securities and fixed income securities, which are
carried at amortised cost.
As a result of applying IAS 39, the Group now carries all investments in debt and equity securities at fair value. The change in valuation
of debt securities from amortised cost to fair value increases the valuation of investments by £1,718 million at 1 January 2004 and
£2,459 million at 31 December 2004. This change in the valuation of debt securities is largely offset by corresponding movements in the
unallocated divisible surplus and technical liabilities. The net impact on shareholders’ funds at 1 January 2004 and 31 December 2004 is
to increase them by £191 million and £284 million respectively.
b) Commercial mortgages backing certain annuity business Under IFRS, the Group has chosen to move certain of its commercial
mortgage portfolio to an active fair valuation basis in accordance with IAS39, which has increased the value of investments by
£113 million at 1 January 2004 and £119 million at 31 December 2004. The annuity liabilities which are backed by these assets
have been correspondingly revalued, with the result that there is an insignificant impact on shareholders’ funds at either date.
c) Revaluation reserve Under IFRS, certain investment gains are recorded as a separate component of shareholders’ equity, whereas under
UK GAAP they would be included in retained earnings.
Separate revaluation reserves are created for:
– Changes in the fair value of securities classified as available for sale;
– Changes in the value of owner-occupied property;
– Exchange differences arising from the translation of the net investment in foreign subsidiaries, associates and joint ventures and from
borrowings designated as hedges of such items; and
– Changes in the fair value of derivatives that are designated and qualify as cash flow hedges.
The amounts included in the above reserves are, where appropriate, net of deferred tax and impairment losses.
The above requirements have resulted in transfers from retained earnings into separate revaluation reserves of £543 million and
£736 million at 1 January 2004 and 31 December 2004 respectively.
(2) Insurance changes
The impact on shareholders’ funds of insurance changes is as follows:
1 January 31 December
2004 2004
£m £m
Derecognition of claims equalisation provision 364 388
Change in the value of reinsurance treaties (48) (34)
Application of an active liability valuation basis in the Netherlands (7) (52)
Change in value of non-participating investment contracts and other sundry items (67) (136)
242 166
The principal changes to the Group’s insurance accounting upon transition to IFRS are discussed further below.
Aviva plc 2005 Financial statements
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