BP 2005 Annual Report Download - page 105

50 First-time adoption of International Financial Reporting Standards
INTRODUCTION
For all periods up to and including the year ended 31 December 2004, BP prepared its financial statements in accordance with UK generally
accepted accounting practice (UK GAAP). BP, together with all other European Union (EU) companies listed on an EU stock exchange, was required
to prepare consolidated financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU with
effect from 1 January 2005. The Annual Report and Accounts for the year ended 31 December 2005 comprises BP’s first consolidated financial
statements prepared under IFRS. The financial statements of the parent company are still prepared under UK GAAP.
In preparing these financial statements, the group has complied with all IFRSs applicable for periods beginning on or after 1 January 2005.
In addition, BP has also decided to adopt early IFRS 6 ‘Exploration for and Evaluation of Mineral Resources’, the amendment to IAS 19 ‘Amendment
to International Accounting Standard IAS 19 Employee Benefits: Actuarial Gains and Losses, Group Plans and Disclosures’, the amendment to
IAS 39 ‘Amendment to International Accounting Standard IAS 39 Financial Instruments: Recognition and Measurement: Cash Flow Hedge
Accounting of Forecast Intragroup Transactions’ and IFRIC 4 ‘Determining whether an Arrangement contains a Lease’. The EU has adopted all
standards and interpretations adopted by BP for its 2005 reporting.
The general principle that should be applied on first-time adoption of IFRS is that standards in force at the first reporting date (for BP,
31 December 2005) should be applied retrospectively. However, IFRS 1 ‘First-time Adoption of International Financial Reporting Standards’
(IFRS 1) contains a number of exemptions which companies are permitted to apply. BP has taken the following exemptions:
••• Comparative information on financial instruments is prepared in accordance with UK GAAP and the group has adopted IAS 32 ‘Financial Instruments:
Disclosure and Presentation’ (IAS 32) and IAS 39 ‘Financial Instruments: Recognition and Measurement’ (IAS 39) from 1 January 2005.
••• IFRS 3 ‘Business Combinations’ has not been applied to acquisitions of subsidiaries or of interests in jointly controlled entities and associates
that occurred before 1 January 2003.
••• Cumulative currency translation differences for all foreign operations are deemed to be zero at 1 January 2003.
••• The group has recognized all cumulative actuarial gains and losses on pensions and other post-retirement benefits as at 1 January 2003 directly in equity.
••• IFRS 2 ‘Share-based Payment’ has been applied retrospectively to all share-based payments that had not vested before 1 January 2003.
As indicated above, BP adopted IAS 32 and IAS 39 with effect from 1 January 2005 and, as permitted under IFRS 1, the group has not restated
comparative information. Had IAS 32 and IAS 39 been applied from 1 January 2003, the following adjustments would have been necessary in the
financial statements for the years ended 31 December 2004 and 2003:
••• All derivatives, including embedded derivatives, would have been brought on to the balance sheet at fair value.
••• Available-for-sale investments would have been carried at fair value rather than at cost.
The principal differences for the group between reporting on the basis of UK GAAP and IFRS are as follows:
••• Ceasing to amortize goodwill.
••• Setting up deferred taxation on: acquisitions; inventory valuation differences; unremitted earnings of subsidiaries, jointly controlled entities
and associates.
••• Expensing a greater proportion of major maintenance costs.
••• No longer recognizing dividends proposed but not declared as a liability at the balance sheet date.
••• Recognizing an expense for the fair value of employee share option schemes.
••• Recording asset swaps on the basis of fair value.
••• Recognizing changes in the fair value of embedded derivatives in the income statement.
The new accounting policies adopted by the group are summarized on pages 30-38.
The financial information presented in this note does not take account of the Innovene operations treated as discontinued in 2005.
BP Annual Report and Accounts 2005 103