Barclays 2014 Annual Report Download - page 265

barclays.com/annualreport Barclays PLC Annual Report 2014 I 263
1 Significant accounting policies continued
(iii) Financial assets and liabilities
The Group applies IAS 39 Financial Instruments: Recognition and Measurement the recognition, classification and measurement, and
derecognition of financial assets and financial liabilities, the impairment of financial assets, and 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 18.
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 or a substantive qualitative amendment – is accounted for as an extinguishment of the original financial liability and the
recognition of a new financial liability.
Critical accounting estimates and judgements
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 AGM 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.
5. New and amended standards and interpretations
The accounting policies adopted are consistent with those of the previous financial year, except where new standards and amendments to IFRS
effective as of 1 January 2014 have resulted in changes in accounting policy. The only new amended standard that had a material impact on
Barclays accounting policies was IAS 32, Amendments to Offsetting Financial Assets and Financial Liabilities which clarified the circumstances
in which netting is permitted, in particular what constitutes a currently legally enforceable right of set-off and the circumstances in which gross
settlement systems may be considered equivalent to net settlement.
The effect of the adoption of these new or amended standards on the Group’s financial position, performance and cash flows is disclosed on
page 339. All relevant comparatives have been revised to reflect these changes.
6. Future accounting developments
There have been and are expected to be a number of significant changes to the Group’s financial reporting after 2014 as a result of amended or
new accounting standards that have been or will be issued by the IASB. The most significant of these are as follows:
In 2014, the IASB issued IFRS 9, Financial Instruments which will replace IAS 39 Financial Instruments: Recognition and Measurement. It will
lead to significant changes in the accounting for financial instruments. The key changes relate to:
Q Financial assets: Financial assets will be held at either fair value or amortised cost, except for equity investments not held for trading and
certain debt instruments, which may be held at fair value through other comprehensive income;
Q Financial liabilities: Gains and losses arising from changes in own credit on non-derivative financial liabilities designated at fair value through
profit or loss will be excluded from the income statement and instead taken to other comprehensive income;
Q Impairment: Credit losses expected at the balance sheet date (rather than only losses incurred in the year) on loans, debt securities and loan
commitments not held at fair value through profit or loss will be reflected in impairment allowances; and
Q Hedge accounting: Hedge accounting will be more closely aligned with financial risk management.
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