BP 2015 Annual Report Download - page 202

Notes on financial statements
1. Significant accounting policies, judgements, estimates and assumptions
Authorization of financial statements and statement of compliance with Financial Reporting Standard 101 Reduced Disclosure Framework
(FRS 101)
The financial statements of BP p.l.c. for the year ended 31 December 2015 were approved and signed by the BP group chief executive on 4 March
2016 having been duly authorized to do so by the board of directors. The company meets the definition of a qualifying entity under Financial Reporting
Standard 100 (FRS 100) issued by the Financial Reporting Council. Accordingly, these financial statements were prepared in accordance with Financial
Reporting Standard 101 Reduced Disclosure Framework (FRS 101) and in accordance with the provisions of the Companies Act 2006.
There were no material measurement or recognition adjustments on the adoption of FRS 101. See Note 14 for further information.
Basis of preparation
These financial statements are prepared on a going concern basis and in accordance with the Companies Act 2006 and applicable UK accounting
standards.
The financial statements have been prepared under the historical cost convention. Historical cost is generally based on the fair value of the
consideration given in exchange for the assets.
As permitted by Section 408 of the Companies Act 2006, the profit and loss account of the company is not presented as part of these financial
statements.
The financial statements are presented in US dollars and all values are rounded to the nearest million dollars ($ million).
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 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 company are set out in boxed text below, and should be read in
conjunction with the information provided in the Notes on financial statements.
Investments
Investments in subsidiaries are recorded at cost. The company assesses investments for impairment whenever events or changes in circumstances
indicate that the carrying value of an investment may not be recoverable. If any such indication of impairment exists, the company makes an estimate
of its recoverable amount. Where the carrying amount of an investment exceeds its recoverable amount, the investment is considered impaired and is
written down to its recoverable amount.
Significant estimate or judgement: investments
The recoverable amount, which is often the fair value less costs to sell, may be based upon discounted future cash flows. The assumptions
underlying these calculations, such as the discount rate, future oil and gas prices, and other asset specific factors, are judgemental. Further
information on the assumptions that are used in such calculations are included in Note 1 to the consolidated financial statements.
Foreign currency translation
The functional and presentation currency of the financial statements is US dollars. Transactions in foreign currencies are initially recorded in the
functional currency by applying the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign
currencies are retranslated into the functional currency at the rate of exchange ruling at the balance sheet date. Any resulting exchange differencesare
included in the income statement.
Exchange adjustments arising when the opening net assets and the profits for the year retained by a non-US dollar functional currency branch are
translated into US dollars are taken directly to reserves and reported in other comprehensive income. Income statement transactions are translated into
US dollars using the average exchange rate for the reporting period.
Share-based payments
Equity-settled transactions
The cost of equity-settled transactions with employees of the company and other members of the BP group is measured by reference to the fair value
at the date at which equity instruments are granted and is recognized as an expense over the vesting period, which ends on the date on which the
employees become fully entitled to the award. A corresponding credit is recognized within equity. Fair value is determined by using an appropriate,
widely used, valuation model. In valuing equity-settled transactions, no account is taken of any vesting conditions, other than conditions linked tothe
price of the shares of the company (market conditions). Non-vesting conditions, such as the condition that employees contribute to a savings-related
plan, are taken into account in the grant-date fair value, and failure to meet a non-vesting condition, where this is within the control of the employee,is
treated as a cancellation and any remaining unrecognized cost is expensed.
Cash-settled transactions
The cost of cash-settled transactions is recognized as an expense over the vesting period, measured by reference to the fair value of the corresponding
liability which is recognized on the balance sheet. The liability is remeasured at each balance sheet date until settlement, with changes in fair value
recognized in the income statement.
Pensions
The cost of providing benefits under the company’s defined benefit plans is determined separately for each plan using the projected unit credit
method, which attributes entitlement to benefits to the current period to determine current service cost and to the current and prior periods to
determine the present value of the defined benefit obligation. Past service costs, resulting from either a plan amendment or a curtailment (a reduction
in future obligations as a result of a material reduction in the plan membership), are recognized immediately when the company becomes committed to
a change.
The parent company financial statements of BP p.l.c. on pages 196-213 do not form part of BP’s Annual Report on Form 20-F as filed with the SEC.
198 BP Annual Report and Form 20-F 2015