BP 2008 Annual Report Download - page 109

BP Annual Report and Accounts 2008
Notes on financial statements
1. Significant accounting policies
Authorization of financial statements and statement of compliance
with International Financial Reporting Standards
The consolidated financial statements of the BP group for the year ended
31 December 2008 were authorized for issue by the board of directors
on 24 February 2009 and the balance sheet was signed on the board’s
behalf by P D Sutherland and Dr A B Hayward. BP p.l.c. is a public limited
company incorporated and domiciled in England and Wales. The
company’s ordinary shares are traded on the London Stock Exchange.
The consolidated financial statements have been prepared in accordance
with International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB), IFRS as adopted by the
European Union (EU) and in accordance with the provisions of the
Companies Act 1985. IFRS as adopted by the EU differs in certain
respects from IFRS as issued by the IASB, however, the differences
have no impact on the group’s consolidated financial statements for
the years presented. The significant accounting policies of the group
are set out below.
Basis of preparation
The consolidated financial statements have been prepared in accordance
with IFRS and International Financial Reporting Interpretations
Committee (IFRIC) interpretations issued and effective for the year ended
31 December 2008, or issued and early adopted.
Standards and interpretations adopted in the year had no
significant impact on the financial statements.
Subsequent to releasing our preliminary announcement of the
fourth quarter 2008 results on 3 February 2009, an adjustment has been
made to correct for a $560 million overstatement of the deferred tax
liability in the balance sheet as at 31 December 2008 with a
corresponding adjustment to the foreign currency translation reserve in
equity. There was no impact on profit for the year.
The accounting policies that follow have been consistently applied
to all years presented.
The consolidated financial statements are presented in US dollars
and all values are rounded to the nearest million dollars ($ million), except
where otherwise indicated.
For further information regarding the key judgements and
estimates made by management in applying the group’s accounting
policies, refer to Critical accounting policies on pages 61 to 63, which
forms part of these financial statements.
Basis of consolidation
The group financial statements consolidate the financial statements
of BP p.l.c. and the entities it controls (its subsidiaries) drawn up to
31 December each year. Control comprises the power to govern the
financial and operating policies of the investee so as to obtain benefit
from its activities and is achieved through direct and indirect ownership
of voting rights; currently exercisable or convertible potential voting
rights; or by way of contractual agreement. Subsidiaries are consolidated
from the date of their acquisition, being the date on which the group
obtains control, and continue to be consolidated until the date that such
control ceases. The financial statements of subsidiaries are prepared for
the same reporting year as the parent company, using consistent
accounting policies. All intercompany balances and transactions, including
unrealized profits arising from intragroup transactions, have been
eliminated in full. Unrealized losses are eliminated unless the transaction
provides evidence of an impairment of the asset transferred. Minority
interests represent the portion of profit or loss and net assets in
subsidiaries that is not held by the group.
Interests in joint ventures
A joint venture is a contractual arrangement whereby two or more parties
(venturers) undertake an economic activity that is subject to joint control.
Joint control exists only when the strategic financial and operating
decisions relating to the activity require the unanimous consent of the
venturers. A jointly controlled entity is a joint venture that involves the
establishment of a company, partnership or other entity to engage in
economic activity that the group jointly controls with its fellow venturers.
The results, assets and liabilities of a jointly controlled entity are
incorporated in these financial statements using the equity method of
accounting. Under the equity method, the investment in a jointly
controlled entity is carried in the balance sheet at cost, plus post-
acquisition changes in the group’s share of net assets of the jointly
controlled entity, less distributions received and less any impairment in
value of the investment. Loans advanced to jointly controlled entities are
also included in the investment on the group balance sheet. The group
income statement reflects the group’s share of the results after tax of
the jointly controlled entity. The group statement of recognized income
and expense reflects the group’s share of any income and expense
recognized by the jointly controlled entity outside profit and loss.
Financial statements of jointly controlled entities are prepared for
the same reporting year as the group. Where necessary, adjustments are
made to those financial statements to bring the accounting policies used
into line with those of the group.
Unrealized gains on transactions between the group and its
jointly controlled entities are eliminated to the extent of the group’s
interest in the jointly controlled entities. Unrealized losses are also
eliminated unless the transaction provides evidence of an impairment
of the asset transferred.
The group assesses investments in jointly controlled entities
for impairment whenever events or changes in circumstances indicate
that the carrying value may not be recoverable. If any such indication
of impairment exists, the carrying amount of the investment is
compared with its recoverable amount, being the higher of its fair value
less costs to sell and value in use. Where the carrying amount exceeds
the recoverable amount, the investment is written down to its
recoverable amount.
The group ceases to use the equity method of accounting on the
date from which it no longer has joint control or significant influence over
the joint venture, or when the interest becomes held for sale.
Certain of the group’s activities, particularly in the Exploration and
Production segment, are conducted through joint ventures where the
venturers have a direct ownership interest in and jointly control the
assets of the venture. The income, expenses, assets and liabilities of
these jointly controlled assets are included in the consolidated financial
statements in proportion to the group’s interest.
Interests in associates
An associate is an entity over which the group is in a position to exercise
significant influence through participation in the financial and operating
policy decisions of the investee, but that is not a subsidiary or a jointly
controlled entity.
The results, assets and liabilities of an associate are incorporated
in these financial statements using the equity method of accounting
as described above for jointly controlled entities.
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