BP 2015 Annual Report Download - page 111

Notes on financial statements
1. Significant accounting policies, judgements, estimates and assumptions
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 2015 were approved and signed by the group chief executive
and chairman on 4 March 2016 having been duly authorized to do so by the board of directors. BP p.l.c. is a public limited company incorporated and
domiciled in England and Wales. 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 UK Companies Act 2006. IFRS as adopted by the EU differs in certain respects from IFRS as issued by the IASB. The
differences have no impact on the group’s consolidated financial statements for the years presented. The significant accounting policies and
accounting judgements, estimates and assumptions of the group are set out below.
Basis of preparation
The consolidated financial statements have been prepared on a going concern basis and in accordance with IFRS and IFRS Interpretations Committee
(IFRIC) interpretations issued and effective for the year ended 31 December 2015. 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.
Significant accounting policies: use of judgements, estimates and assumptions
Inherent in the application of many of the accounting policies used in preparing the financial statements is the need for BP management to make
judgements, estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities,
and the reported amounts of revenues and expenses. Actual outcomes could differ from the estimates and assumptions used. The accounting
judgements and estimates that could have a significant impact on the results of the group are set out in boxed text below, and should be read in
conjunction with the information provided in the Notes on financial statements. The areas requiring the most significant judgement and estimation in
the preparation of the consolidated financial statements are: accounting for interests in other entities; oil and natural gas accounting, includingthe
estimation of reserves; the recoverability of asset carrying values; derivative financial instruments, including the application of hedge accounting;
provisions and contingencies, in particular provisions and contingencies related to the Gulf of Mexico oil spill; pensions and other post-retirement
benefits; and taxation.
Basis of consolidation
The group financial statements consolidate the financial statements of BP p.l.c. and its subsidiaries drawn up to 31 December each year. 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. Intra-group balances and transactions, including unrealized profits arising from intra-group transactions, have been eliminated.
Unrealized losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. Non-controlling interests
represent the equity in subsidiaries that is not attributable, directly or indirectly, to BP shareholders.
Interests in other entities
Goodwill
Goodwill is initially measured as the excess of the aggregate of the consideration transferred, the amount recognized for any non-controlling interest
and the acquisition-date fair values of any previously held interest in the acquiree over the fair value of the identifiable assets acquired and liabilities
assumed at the acquisition date. At the acquisition date, any goodwill acquired is allocated to each of the cash-generating units, or groups of cash-
generating units, expected to benefit from the combination’s synergies. Following initial recognition, goodwill is measured at cost less any
accumulated impairment losses. Goodwill arising on business combinations prior to 1 January 2003 is stated at the previous carrying amount under UK
generally accepted accounting practice, less subsequent impairments.
Goodwill may also arise upon investments in joint ventures and associates, being the surplus of the cost of investment over the group’s share of the
net fair value of the identifiable assets and liabilities. Such goodwill is recorded within the corresponding investment in joint ventures and associates.
Interests in joint arrangements
The results, assets and liabilities of joint ventures are incorporated in these financial statements using the equity method of accounting as described
below.
Certain of the group’s activities, particularly in the Upstream segment, are conducted through joint operations. BP recognizes, on a line-by-line basis in
the consolidated financial statements, its share of the assets, liabilities and expenses of these joint operations incurred jointly with the other partners,
along with the group’s income from the sale of its share of the output and any liabilities and expenses that the group has incurred in relation to the joint
operation.
Interests in associates
The results, assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting as described below.
Significant estimate or judgement: accounting for interests in other entities
Judgement is required in assessing the level of control obtained in a transaction to acquire an interest in another entity; depending upon the facts
and circumstances in each case, BP may obtain control, joint control or significant influence over the entity or arrangement. Transactions which give
BP control of a business are business combinations. If BP obtains joint control of an arrangement, judgement is also required to assess whether the
arrangement is a joint operation or a joint venture. If BP has neither control nor joint control, it may be in a position to exercise significant influence
over the entity, which is then accounted for as an associate.
Since 21 March 2013, BP has owned 19.75% of the voting shares of OJSC Oil Company Rosneft (Rosneft), a Russian oil and gas company. The
Russian federal government, through its investment company OJSC Rosneftegaz, owned 69.5% of the voting shares of Rosneft at 31 December
2015. BP uses the equity method of accounting for its investment in Rosneft because under IFRS it is considered to have significant influence.
Significant influence is defined as the power to participate in the financial and operating policy decisions of the investee but is not control or joint
control. IFRS identifies several indicators that may provide evidence of significant influence, including representation on the board of directorsofthe
investee and participation in policy-making processes. BP’s group chief executive, Bob Dudley, has been a member of the board of directors of
BP Annual Report and Form 20-F 2015 107
Financial statements