Barclays 2011 Annual Report Download - page 248

Notes to the financial statements
For the year ended 31 December 2011 continued
29 Provisions
Accounting for provisions
The Group applies IAS 37 Provisions, Contingent Liabilities and Contingent Assets in accounting for non-financial liabilities.
Provisions are recognised for present obligations arising as consequences of past events where it is more likely than not that a transfer of economic
resources will be necessary to settle the obligation, which can be reliably estimated. Provision is made for the anticipated cost of restructuring,
including redundancy costs when an obligation exists, i.e. when the Group has a detailed formal plan for restructuring a business and has raised
valid expectations in those affected by the restructuring by announcing its main features or starting to implement the plan. Provision is made for
undrawn loan commitments if it is probable that the facility will be drawn and result in the recognition of an asset at an amount less than the
amount advanced.
Provisions expected to be recovered or settled within no more than 12 months after 31 December 2011 were £1,260m (2010: £658m). Provisions
relating to taxation are included in current and deferred tax disclosures on pages 213 to 216.
Onerous
contracts
£m
Redundancy
and re-
structuring
£m
Undrawn
contractually
committed
facilities and
guarantees
provided
£m
Payment
Protection
Insurance
redress
£m
Litigation
£m
Sundry
provisions
£m
Total
£m
As at 1 January 2011 74 177 229 – 151 316 947
Additions 71 330 111 1,000 176 36 1,724
Amounts utilised (31) (257) (2) (435) (104) (64) (893)
Unused amounts reversed – (31) (109) – (73) (13) (226)
Exchange and other movements 2 (3) 1 – (10) (13) (23)
As at 31 December 2011 116 216 230 565 140 262 1,529
As at 1 January 2010 68 162 162 – 27 171 590
Additions 36 139 118 – 130 403 826
Amounts utilised (28) (68) (8) – (4) (225) (333)
Unused amounts reversed (4) (56) (50) – (5) (48) (163)
Exchange and other movements 2 –7 –3 15 27
As at 31 December 2010 74 177 229 – 151 316 947
Critical accounting estimates and judgements
On 20 April 2011, the judicial review proceedings brought by the British Bankers’ Association in October 2010 against the FSA and the Financial
Ombudsman Service regarding the assessment and redress of PPI complaints were dismissed. On 9 May 2011, Barclays announced that it would not
be participating in any application for permission to appeal against the High Court judgment and that Barclays had agreed with the FSA that it would
process all on-hold and any new complaints from customers about PPI policies that they hold. Barclays also announced that, as a goodwill gesture, it
would pay out compensation to customers who had PPI complaints put on hold during the judicial review. Barclays took a provision of £1bn in the
second quarter of 2011 to cover the cost of future redress and administration.
As at 31 December 2011, following payments made during the year, the provision was £565m, and represents management’s best estimate of the
remaining anticipated costs of related customer redress, including administration expenses. The provision requires significant judgement by
management in determining appropriate assumptions. The key assumptions include:
– Customer claims – the volume and timing of actual customer claims. The assumption is based upon recent experience of claims received and has
factored in a component for the amount of duplicate or non-PPI eligible requests that have been submitted. In addition, expectations in relation to
claims management companies and other such activity have been considered.
– Uphold rates – the percentage of claims that are upheld as being valid upon review. The rate considers recent experience and excludes “gestures of
goodwill” paid without challenge by the Group for claims received during the Judicial Review period and not processed until the Review was
completed.
–A
verage payment – this is the expected average payment to customers for upheld claims. The assumption is based upon recent experience and the
calculation of payment requirements as defined by the agreements and the FSA Policy Paper.
246 Barclays PLC Annual Report 2011 www.barclays.com/annualreport