Holiday Inn 2006 Annual Report Download - page 50

Corporate information and accounting policies
Corporate information
The consolidated financial statements of InterContinental Hotels
Group PLC (the Group or IHG) for the year ended 31 December 2006
were authorised for issue in accordance with a resolution of the
Directors on 19 February 2007. InterContinental Hotels Group PLC
(the Company) is incorporated in Great Britain and registered
in England and Wales.
Summary of significant accounting policies
Basis of preparation
The consolidated financial statements are presented in sterling
and all values are rounded to the nearest million (£m) except where
otherwise indicated.
Statement of compliance
The consolidated financial statements of IHG have been prepared
in accordance with International Financial Reporting Standards
(IFRS) as adopted by the European Union (EU) and as applied in
accordance with the provisions of the Companies Act 1985.
New accounting standards and interpretations issued by the
International Accounting Standards Board (IASB) and the
International Financial Reporting Interpretations Committee (IFRIC),
becoming effective during the year, have not had a material impact
on the Group’s financial statements.
The principal accounting policies of the Group are set out below.
Basis of consolidation
The Group financial statements comprise the financial statements
of the parent company and entities controlled by the Company. All
inter-company balances and transactions have been eliminated.
The results of those businesses acquired or disposed of are
consolidated for the period during which they were under the
Group’s control.
Foreign currencies
Transactions in foreign currencies are translated to the functional
currency at the exchange rates ruling on the dates of the
transactions. Monetary assets and liabilities denominated in
foreign currencies are retranslated to the functional currency at
the relevant rates of exchange ruling at the balance sheet date. All
foreign exchange differences arising on translation are recognised
in the income statement except on foreign currency borrowings that
provide a hedge against a net investment in a foreign operation.
These are taken directly to the currency translation reserve until
the disposal of the net investment, at which time they are recycled
against the gain or loss on disposal.
The assets and liabilities of foreign operations, including goodwill, are
translated into sterling at the relevant rates of exchange ruling at the
balance sheet date. The revenues and expenses of foreign operations
are translated into sterling at weighted average rates of exchange
for the period. The exchange differences arising on the retranslation
are taken directly to the currency translation reserve. On disposal
of a foreign operation, the cumulative amount recognised in the
currency translation reserve relating to that particular foreign
operation is recycled against the gain or loss on disposal.
Derivative financial instruments and hedging
Interest arising from currency swap agreements is taken to
financial income or expense on a gross basis over the term of
the relevant agreements. Interest arising from other currency
derivatives and interest rate swaps is taken to financial income
or expense on a net basis over the term of the agreement.
Foreign exchange gains and losses on currency instruments are
recognised in financial income and expense unless they form part
of effective hedge relationships.
Derivatives designated as hedging instruments are accounted for
in line with the nature of the hedging arrangement. The Group’s
detailed accounting policies with respect to hedging instruments
are set out in note 21. Documentation outlining the measurement
and effectiveness of the hedging arrangement is maintained
throughout the life of the hedge relationship. Any ineffective
element of a hedge arrangement is recognised in financial income
or expense.
The fair value of derivatives is calculated by discounting the
expected future cash flows at prevailing interest rates.
Property, plant and equipment
Property, plant and equipment are stated at cost less depreciation
and any impairment.
Borrowing costs are not capitalised. Repairs and maintenance
costs are expensed as incurred.
Land is not depreciated. All other property, plant and equipment
are depreciated to a residual value over their estimated useful lives,
namely:
• Buildings – lesser of 50 years and unexpired term of lease;
• Fixtures, fittings and equipment – 3 to 25 years; and
• Plant and machinery – 4 to 20 years.
All depreciation is charged on a straight line basis. Residual value
is reassessed annually.
Property, plant and equipment are reviewed for impairment when
events or changes in circumstances indicate that the carrying
value may not be recoverable. Assets that do not generate
independent cash flows are combined into cash-generating units.
If carrying values exceed estimated recoverable amount, the assets
or cash-generating units are written down to their recoverable
amount. Recoverable amount is the greater of fair value less cost
to sell and value in use. Value in use is assessed based on
estimated future cash flows discounted to their present value using
a pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset.
Goodwill
Goodwill arises on consolidation and is recorded at cost, being
the excess of the cost of acquisition over the fair value at the date
of acquisition of the Group’s share of identifiable assets, liabilities
and contingent liabilities. Following initial recognition, goodwill is
measured at cost less any accumulated impairment losses.
Goodwill is tested for impairment at least annually by comparing
carrying values of cash-generating units with their recoverable
amounts.
48 IHG Annual report and financial statements 2006