Barclays 2010 Annual Report Download - page 272

Notes to the financial statements
For the year ended 31st December 2010 continued
45 Critical accounting estimates continued
Retirement benefit obligations
The Group provides pension plans for employees in most parts of the world. Arrangements for staff retirement benefits vary from country to country
and are made in accordance with local regulations and customs. For defined contribution schemes, the pension cost recognised in the income
statement represents the contributions payable to the scheme. For defined benefit schemes, actuarial valuation of each of the scheme’s obligations
using the projected unit credit method and the fair valuation of each of the scheme’s assets are performed annually in accordance with the requirements
of IAS 19.
The actuarial valuation is dependent upon a series of assumptions, the key ones being interest rates, mortality, investment returns and inflation.
Mortality estimates are based on standard industry and national mortality tables, adjusted where appropriate to reflect the Group’s own experience.
The returns on fixed interest investments are set to market yields at the valuation date (less an allowance for risk) to ensure consistency with the asset
valuation. The returns on UK and overseas equities are based on the long-term outlook for global equities at the calculation date having regard to current
market yields and dividend growth expectations. The inflation assumption reflects long-term expectations of retail price inflation.
The Group’s IAS 19 pension deficit across all schemes as at 31st December 2010 was £2,896m (2009: £3,946m). There are net recognised liabilities
of £239m (2009: £698m) and unrecognised actuarial losses of £2,657m (2009: £3,248m). The net recognised liabilities comprised retirement benefit
liabilities of £365m (2009: £769m) and assets of £126m (2009: £71m).
The Group’s IAS 19 pension deficit in respect of the main UK scheme as at 31st December 2010 was £2,552m (2009: £3,534m). The reduction in the
deficit resulted principally from better than expected asset performance, contributions paid in excess of the pension expense and a credit to past service
costs following amendments to the treatment of minimum defined benefits.
Further information on retirement benefit obligations, including the sensitivity of principal assumptions, is included on pages 228 to 233.
Derecognition of financial assets
The Group derecognises a financial asset, or a portion of a financial asset, where the contractual rights to that asset have expired. Derecognition is also
appropriate where the rights to further cash flows from the asset have been transferred to a third party and, with them, either:
(i) substantially all the risks and rewards of the asset; or
(ii) significant risks and rewards, along with the unconditional ability to sell or pledge the asset.
Where significant risks and rewards have been transferred, but the transferee does not have the unconditional ability to sell or pledge the asset, the
Group continues to account for the asset to the extent of its continuing involvement (‘continuing involvement accounting’).
To assess the extent to which risks and rewards have been transferred, it is often necessary to perform a quantitative analysis. Such an analysis will
compare the Group’s exposure to variability in asset cash flows before the transfer with its retained exposure after the transfer.
A cash flow analysis of this nature typically involves significant judgement. In particular, it is necessary to estimate the asset’s expected future cash flows
as well as potential variability around this expectation. The method of estimating expected future cash flows depends on the nature of the asset, with
market and market-implied data used to the greatest extent possible. The potential variability around this expectation is typically determined by
stressing underlying parameters to create reasonable alternative upside and downside scenarios. Probabilities are then assigned to each scenario.
Stressed parameters may include default rates, loss severity or prepayment rates.
Where neither derecognition nor continuing involvement accounting is appropriate, the Group continues to recognise the asset in its entirety and
recognises any consideration received as a financial liability.
Income taxes
The Group is subject to income taxes in numerous jurisdictions and the calculation of the Group’s tax charge and worldwide provisions for income taxes
necessarily involves a degree of estimation and judgement. There are many transactions and calculations for which the ultimate tax treatment is uncertain
and cannot be determined until resolution has been reached with the relevant tax authority. The Group recognises liabilities for anticipated tax audit issues
based on estimates of whether additional taxes will be due after taking into account external advice where appropriate. Where the final tax outcome of
these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and
liabilities in the period in which such determination is made. These risks are managed in accordance with the Group’s Tax Principal Risk Framework.
46 Events after the balance sheet date
On 22 February 2011, the US Bankruptcy Court for the Southern District of New York issued its opinion in relation to Lehman Brothers Holdings Inc..
Further information is provided on page 227.
On 1st March 2011, Barclays agreed to acquire Egg’s UK credit card assets. Under the terms of the transaction, Barclays will purchase Egg’s UK credit
card accounts, consisting of approximately 1.15 million credit card accounts with approximately £2.3bn of gross receivables. Completion is subject to
competition clearance, and is expected to occur during the first half of 2011.
270 Barclays PLC Annual Report 2010 www.barclays.com/annualreport10