Barclays 2014 Annual Report Download - page 44

42 I Barclays PLC Annual Report 2014 barclays.com/annualreport
What we did in 2014
Board Audit Committee Report
Governance: Directors’ report
Area of focus Reporting issue Role of the Committee Conclusion/action taken
Valuations
(see Notes 13-18 to
the financial
statements)
Barclays exercises judgement in the
valuation and disclosure of financial
instruments, derivative assets and
certain portfolios, particularly where
quoted market prices are not
available
Q Examined reports from the
Valuations Committee, with
particular focus on mark to market
valuations and the ESHLA portfolio,
any valuation uncertainties and the
proposed disclosure around them
Q Assessed the funding fair value
adjustment applied
Q Debated prudential valuation
adjustments agreed with Barclays’
regulators and regulatory feedback
on Barclays’ valuation processes
and controls
Q Assessed the impact of the Group
Strategy Update and any additional
provisions to be made in trading
businesses to reflect changes in
activity
Q The Committee concluded that the
valuations methodology and process,
including the assumptions made,
were appropriate and that proper
governance was in place to support
the internal price verification
processes for assets where there is a
lack of an active secondary market
and limited trade activity
Q In particular the Committee carefully
considered the rationale and evidence
for the proposed revision to the
valuation methodology for the ESHLA
portfolio (see page 281). It agreed
with the proposal and noted the
consequential reduction in fair value
of £935m compared to applying the
previous methodology as at
31 December 2014. The Committee
determined to keep the basis of
valuation under close review as
market practice and understanding
thereof could develop in the light of
market conditions and as Barclays
continues to dispose of Non-Core
assets
Impairment
(see Note 7 to the
financial statements)
Where appropriate, Barclays models
potential impairment performance,
allowing for certain assumptions and
sensitivities, to agree allowances for
credit impairment, including agreeing
the timing of the recognition of any
impairment and estimating the size,
particularly where forbearance has
been granted
Q Scrutinised the methodologies
applied by management and
assessed any regulatory feedback
on Barclays’ calculations
Q Examined performance and the
level of exposures, particularly in
Russia, Western Europe and Africa
Q Examined any judgements applied
with regard to any post model
adjustments and collateral
valuations
Q The Committee concluded that the
allowances for credit impairment on
loans and advances were appropriate
and supported by model outputs
Tax
(see Note 10 to the
financial statements)
Calculation of the Group’s tax charge
necessarily involves a degree of
judgement with regard to the
assessment of liabilities which are not
yet agreed with tax authorities and
the recognition of deferred tax assets
(DTAs)
Q Evaluated the adequacy of
provisions for open tax returns
having regard to both the drivers of
the underlying tax risks and
ongoing discussions with key tax
authorities
Q Reviewed the basis of recognition
and measurement of material DTAs
Q The Committee agreed that that the
level of provision for open years was
appropriate given the range of
possible outcomes and that the
recovery and measurement of
recognised DTAs was supported by
management’s business forecasts
Adjusting items
(see page 230 for
further information)
Barclays exercises judgement in
presenting adjusted measures
Q Assessed proposals from
management to treat certain
items as adjusting items
Q Established whether these items
were significant and one-off in
nature
Q Evaluated the impact on Barclays’
reported financial statements
Q The Committee endorsed the
proposed adjusting items and the
form of disclosures for Barclays’
published financial statements
Allocations between
Core and Non-Core
businesses
(see pages 24 and 241
for further
information)
Barclays has allocated certain assets
to the Non-Core business following
the Group Strategy Update
Q Examined the restatement of
Barclays’ results following the
resegmentation of the business
as a result of the Group Strategy
Update
Q Assessed the proposed accounting
treatment and write-down of
Barclays’ retail, wealth and certain
corporate banking activities in
Spain following agreement to
dispose of them
Q The Committee approved the
restatement document and
recommended it for publication
Q It also confirmed that Barclays’ retail,
wealth and certain corporate banking
assets in Spain should be fully written
down to fair value less costs to sell,
agreeing that a net loss of £364m
should be recognised in the third
quarter. The full year net loss
recognised was £446m