Aviva 2013 Annual Report Download - page 123

Strategic report Governance IFRS Financial statements Other information
Aviva plc
Annual report and accounts 2013
121
Accounting policies continued
For the purposes of the statement of cash flows, cash and cash
equivalents also include bank overdrafts, which are included in
payables and other financial liabilities on the statement of
financial position.
Operating cash flows
Purchases and sales of investment property, loans and financial
investments are included within operating cash flows as the
purchases are funded from cash flows associated with the
origination of insurance and investment contracts, net of
payments of related benefits and claims.
(Z) Leases
Leases, where a significant portion of the risks and rewards of
ownership is retained by the lessor, are classified as operating
leases. Where the Group is the lessee, payments made under
operating leases (net of any incentives received from the lessor)
are charged to the income statement on a straight-line basis
over the term of the relevant leases.
Where the Group is the lessor, lease income from operating
leases is recognised in the income statement on a straight-line
basis over the lease term.
When assets are subject to finance leases, the present value
of the lease payments, together with any unguaranteed residual
value, is recognised as a receivable. The Group has not entered
into any material finance lease arrangements either as lessor
or lessee.
(AA) Provisions and contingent liabilities
Provisions are recognised when the Group has a present legal
or constructive obligation as a result of past events, it is more
probable than not that an outflow of resources embodying
economic benefits will be required to settle the obligation, and
a reliable estimate of the amount of the obligation can be
made. Restructuring provisions comprise lease termination
penalties and employee termination payments. They include
only the direct expenditures arising from the restructuring,
which are those that are necessarily entailed by the
restructuring; and not associated with the ongoing activities of
the entity. The amount recorded as a provision is the best
estimate of the expenditure required to settle the present
obligation at the balance sheet date. Where the effect of the
time value of money is material, the provision is the present
value of the expected expenditure. Provisions are not recognised
for future operating losses.
Where the Group expects a provision to be reimbursed, for
example under an insurance contract, the reimbursement is
recognised as a separate asset but only when the
reimbursement is virtually certain.
The Group recognises a provision for onerous contracts
when the expected benefits to be derived from a contract are
less than the unavoidable costs of meeting the obligations
under the contract. Contingent liabilities are disclosed if there is
a possible future obligation as a result of a past event, or if
there is a present obligation as a result of a past event but either
a payment is not probable or the amount cannot be reasonably
estimated.
(AB) Employee benefits
Annual leave
Employee entitlements to annual leave are recognised when
they accrue to employees. A provision is made for the estimated
liability for annual leave as a result of services rendered by
employees up to the statement of financial position date.
Pension obligations
The Group operates a number of pension schemes, whose
members receive benefits on either a defined benefit or defined
contribution basis. Under a defined contribution plan, the
Group’s legal or constructive obligation is limited to the amount
it agrees to contribute to a fund and there is no obligation to
pay further contributions if the fund does not hold sufficient
assets to pay benefits. A defined benefit pension plan is a
pension plan that is not a defined contribution plan and typically
defines the amount of pension benefit that an employee will
receive on retirement.
The defined benefit obligation is calculated by independent
actuaries using the projected unit credit method. The pension
obligation is measured as the present value of the estimated
future cash outflows, using a discount rate based on market
yields for high-quality corporate bonds that are denominated in
the currency in which the benefits will be paid and that have
terms to maturity approximating to the terms of the related
pension liability. The resultant net surplus or deficit recognised
as an asset or liability on the statement of financial position is
the present value of the defined benefit obligation at the end of
the reporting period less the fair value of plan assets.
If the fair value of plan assets exceeds the present value of
the defined benefit obligation, the resultant asset is limited to
the asset ceiling defined as present value of economic benefits
available in the form of future refunds from the plan or
reductions in contributions to the plan. In order to calculate the
present value of economic benefits, consideration is given to
any minimum funding requirements that apply to any plan in
the Group.
Remeasurements of defined benefit plans comprise actuarial
gains and losses arising from experience adjustments and
changes in actuarial assumptions, the return on plan assets
(excluding net interest) and the effect of the asset ceiling (if
any). The Group recognises remeasurements immediately in
other comprehensive income and does not reclassify them to
the income statement in subsequent periods.
Service costs comprising current service costs, past service
costs, gains and losses on curtailments and net interest
expense/(income) are charged or credited to the income
statement.
Past service costs are recognised at the earlier of the date
the plan amendment or curtailment occurs or when related
restructuring costs are recognised.
The Group determines the net interest expense/(income) on
the net defined benefit liability/(asset) for the period by applying
the discount rate used to measure the defined benefit
obligation at the beginning of the annual period of the net
defined benefit liability/(asset). Net interest expense is charged
to finance costs, whereas net interest income is credited to
investment income.
For defined contribution plans, the Group pays contributions
to publicly or privately administered pension plans. Once the
contributions have been paid, the Group, as employer, has no
further payment obligations. The Group’s contributions are
charged to the income statement in the year to which they
relate and are included in staff costs.
Other post-employment obligations
Some Group companies provide post-employment healthcare or
other benefits to their retirees. The entitlement to these benefits
is usually based on the employee remaining in service up to
retirement age and the completion of a minimum service
period. Unlike the pension schemes, no assets are set aside in
separate funds to provide for the future liability but none of
these schemes is material to the Group. The costs of the
Canadian scheme are included within those for the defined
benefit pension schemes in that country. For such schemes in
other countries, provisions are calculated in line with local
regulations, with movements being charged to the income
statement within staff costs.
Equity compensation plans
The Group offers share award and option plans over the
Company’s ordinary shares for certain employees, including a