Barclays 2009 Annual Report Download - page 200

198 Barclays PLC Annual Report 2009 www.barclays.com/annualreport09
Consolidated accounts Barclays PLC
Accounting policies
continued
In the case of available for sale equity securities, a significant or
prolonged decline in the fair value of the security below its cost is also
considered in determining whether impairment exists. Where such evidence
exists, the cumulative net loss that has been previously recognised directly
in equity is removed from equity and recognised in the income statement.
In the case of debt instruments classified as available for sale, impairment
is assessed based on the same criteria as all other financial assets. Reversals
of impairment of debt instruments are recognised in the income statement.
Reversals of impairment of equity shares are not recognised in the income
statement, increases in the fair value of equity shares after impairment are
recognised directly in equity.
9. Sale and repurchase agreements (including stock borrowing and
lending)
Securities may be lent or sold subject to a commitment to repurchase them
(a repo). Such securities are retained on the balance sheet when
substantially all the risks and rewards of ownership remain with the Group,
and the counterparty liability is included separately on the balance sheet
when cash consideration is received.
Similarly, where the Group borrows or purchases securities subject to
a commitment to resell them (a reverse repo) but does not acquire the risks
and rewards of ownership, the transactions are treated as collateralised
loans when cash consideration is paid, and the securities are not included
in the balance sheet.
The difference between sale and repurchase price is accrued over the
life of the agreements using the effective interest method. Securities lent
to counterparties are also retained in the financial statements. Securities
borrowed are not recognised in the financial statements, unless these
are sold to third parties, at which point the obligation to repurchase the
securities is recorded as a trading liability at fair value and any subsequent
gain or loss included in net trading income.
10. Securitisation transactions
The Group enters into securitisation transactions in respect of its own
financial assets and to facilitate client transactions as described in Note 29
to the accounts.
All financial assets continue to be held on the Group balance sheet, and
a liability recognised for the proceeds of the funding transaction, unless:
a) substantially all the risks and rewards associated with the financial
instruments have been transferred, in which case, the assets are
derecognised in full; or
b) if a significant portion, but not all, of the risks and rewards have been
transferred, the asset is derecognised entirely if the transferee has the
ability to sell the financial asset, otherwise the asset continues to be
recognised only to the extent of the Group’s continuing involvement.
Where a) or b) above applies to a fully proportionate share of all or
specifically identified cash flows, the relevant accounting treatment is
applied to that proportion of the asset.
11. Collateral and netting
The Group enters into master agreements with counterparties whenever
possible and, when appropriate, obtains collateral. Master agreements
provide that, if an event of default occurs, all outstanding transactions with
the counterparty will fall due and all amounts outstanding will be settled on
a net basis.
Collateral
The Group obtains collateral in respect of customer liabilities where this is
considered appropriate. The collateral normally takes the form of a lien over
the customer’s assets and gives the Group a claim on these assets for both
existing and future customer liabilities.
The Group also receives collateral in the form of cash or securities in
respect of other credit instruments, such as stock borrowing contracts, and
derivative contracts in order to reduce credit risk. Collateral received in the
form of securities is not recorded on the balance sheet. Collateral received
in the form of cash is recorded on the balance sheet with a corresponding
liability. These items are assigned to deposits received from bank or other
counterparties. Any interest payable or receivable arising is recorded as
interest expense or interest income respectively except for funding costs
relating to trading activities which are recorded in net trading income.
Netting
Financial assets and liabilities are offset and the net amount reported on the
balance sheet if, and only if, there is a legally enforceable right to set off the
recognised amounts and there is an intention to settle on a net basis, or to
realise an asset and settle the liability simultaneously. In many cases, even
though master netting agreements are in place, the lack of an intention to
settle on a net basis results in the related assets and liabilities being
presented gross on the balance sheet.
12. Hedge accounting
Derivatives are used to hedge interest rate, exchange rate, commodity, and
equity exposures and exposures to certain indices such as house price
indices and retail price indices related to non-trading positions.
Where derivatives are held for risk management purposes, and when
transactions meet the required criteria, the Group applies fair value hedge
accounting, cash flow hedge accounting, or hedging of a net investment in
a foreign operation as appropriate to the risks being hedged.
When a financial instrument is designated as a hedge, the Group
formally documents the relationship between the hedging instrument and
hedged item as well as its risk management objectives and its strategy for
undertaking the various hedging transactions. The Group also documents
its assessment, both at hedge inception and on an ongoing basis, of
whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in fair values or cash flows of hedged items.
The Group discontinues hedge accounting when:
a) it is determined that a derivative is not, or has ceased to be, highly
effective as a hedge;
b) the derivative expires, or is sold, terminated, or exercised;
c) the hedged item matures or is sold or repaid; or
d) a forecast transaction is no longer deemed highly probable.