Barclays 2011 Annual Report Download - page 207

1 Significant accounting policies continued
(ii) Foreign currency translation
The Group applies IAS 21 The Effects of Changes in Foreign Exchange Rates. Transactions in foreign currencies are translated into Sterling or the
relevant functional currency of foreign operations at the rate ruling on the date of the transaction. Foreign currency balances are translated at the
period end exchange rates. Exchange gains and losses on such balances are taken to the income statement.
The Group’s foreign operations (including subsidiaries, joint ventures, associates and branches) based mainly outside the UK may have other
functional currencies than Sterling. The functional currency of an operation is the currency of the main economy to which it is exposed.
Prior to consolidation (or equity accounting) the assets and liabilities of non-Sterling operations are translated at the closing rate and items of
income, expense and other comprehensive income are translated into Sterling at the rate on the date of the transactions. Exchange differences
arising on the translation of foreign operations are included in currency translation reserves within equity. These are transferred to the income
statement when the Group loses control, joint control or significant influence over the foreign operation or on partial disposal of the operation.
(iii) Financial assets and liabilities
The Group applies IAS 39 Financial Instruments: Recognition and Measurement (IAS 39) for the recognition, classification and measurement and
derecognition of financial assets and financial liabilities, for the impairment of financial assets, and for hedge accounting.
Recognition
The Group recognises financial assets and liabilities when it becomes a party to the terms of the contract, which is the trade date or the settlement
date.
Classification and measurement
Financial assets and liabilities are initially recognised at fair value and may be held at fair value or amortised cost depending on the Group’s intention
toward the assets and the nature of the assets and liabilities, mainly determined by their contractual terms.
The accounting policy for each type of financial asset or liability is included within the relevant note for the item. The Group’s policies for determining
the fair values of the assets and liabilities are set out in Note 20.
Derecognition
The Group derecognises a financial asset, or a portion of a financial asset, from its balance sheet where the contractual rights to cash flows from the
asset have expired, or have been transferred, usually by sale, and with them either substantially all the risks and rewards of the asset or significant
risks and rewards, along with the unconditional ability to sell or pledge the asset.
Financial liabilities are de-recognised when the liability has been settled, has expired or has been extinguished. An exchange of an existing financial
liability for a new liability with the same lender on substantially different terms – generally a difference of 10% in the present value of the cash flows
– is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability.
Transactions in which the Group transfers assets and liabilities, portions of them, or financial risks associated with them can be complex and it may
not be obvious whether substantially all of the risks and rewards have been transferred. It is often necessary to perform a quantitative analysis. Such
an analysis compares 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 may require 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.
(iv) Issued debt and equity instruments
The Group applies IAS 32, Financial Instruments: Presentation, to determine whether funding is either a financial liability (debt) or equity.
Issued financial instruments or their components are classified as liabilities if the contractual arrangement results in the Group having a present
obligation to either deliver cash or another financial asset, or a variable number of equity shares, to the holder of the instrument, if this is not the
case, the instrument is generally an equity instrument and the proceeds included in equity, net of transaction costs. Dividends and other returns to
equity holders are recognised when paid or declared by the members at the annual general meeting and treated as a deduction from equity.
Where issued financial instruments contain both liability and equity components, these are accounted for separately. The fair value of the debt is
estimated first and the balance of the proceeds is included within equity.
Barclays PLC Annual Report 2011 www.barclays.com/annualreport 205
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