Aviva 2001 Annual Report Download - page 47

J – Tax
The tax charge in the non-technical account is based on the
taxable profits for the year, after any adjustments in respect of
prior years. Tax, including tax relief for losses if applicable, is
allocated over profits on ordinary activities and amounts charged
or credited to reserves. In the long-term business technical
account, the tax charge is based on the method of assessing
tax for long-term funds applicable in the relevant country of
operation. Any part of the balance on the long-term business
technical account that is computed on an after tax basis is grossed
up at the effective rate of tax in the non-technical account.
Provision is only made for deferred tax where it is expected that
a liability will crystallise in the foreseeable future. No provision
is made for tax that might arise if profits retained by overseas
subsidiary and associated undertakings were remitted to the
United Kingdom. As explained in accounting policy B, the
requirements of FRS19 will be reflected in the Company’s
2002 accounts.
K – Goodwill
Goodwill arising on the acquisition of subsidiary undertakings
is carried on the balance sheet as a separate intangible asset.
Goodwill arising on the acquisition of associated undertakings
is included within the carrying value of associated undertakings.
All goodwill is amortised on a straight-line basis over its useful
economic life, and its carrying value is reviewed regularly for
impairment. On subsequent disposal of the underlying
investment, any goodwill not yet amortised will be taken to
the profit and loss account when calculating the profit or loss
on disposal.
Goodwill arising before 1 January 1998 was eliminated against
reserves and has not been reinstated. Goodwill previously written
off to reserves will be taken to the profit and loss account
when calculating the profit or loss on any disposal of the
underlying investment.
L – Investments
Investments are stated at their current values at the end of the
year, with the exception of most non-linked long-term business
debt securities and fixed income securities which are shown at
amortised cost, as this basis more closely corresponds with the
valuation of the relevant long-term liabilities. Current values, for
this purpose, are: stock exchange mid-market values for listed
securities; average trading prices for unlisted securities where a
market exists; and directors’valuations for other unlisted
securities, and for mortgages and loans.
All properties are valued annually by qualified external valuers
or members of staff, at market value. No depreciation is provided
on properties held for own use since such depreciation is
immaterial. No depreciation is provided on investment properties
as the directors consider that, as these properties are held
for investment, to depreciate them would not give a true
and fair view.
M – Derivative instruments
The Group uses derivative instruments, including forward foreign
exchange contracts, interest rate swaps, futures and options
for hedging purposes. Derivative instruments are accounted for
as follows:
• forward foreign exchange contracts. The interest rate differential
is included in investment income, while the effect of the
currency movements on these contracts is treated as an
exchange difference;
• cross-currency swaps related to the Group’s borrowings.
These are valued at the year end rates and disclosed as part
of borrowings;
• interest rate swaps. The interest payable and receivable is
included within investment expenses or investment income
as appropriate;
• futures contracts and purchased options. These are included
at market value and shown under the category of investments
to which the contracts relate. No adjustment is made to the
classification of existing investments to reflect the effect of the
future settlement of these transactions.
N – Consolidation of subsidiary undertakings
The results of all material subsidiary undertakings are consolidated
using audited accounts prepared to 31 December, either from
1 January or the effective date of acquisition. A number of
overseas subsidiary undertakings, which do not represent a
material part of the Group’s income or assets, have not been
consolidated but have been treated as investments and included
within other participating interests. In the Company balance
sheet, subsidiary undertakings are stated at current value which,
for this purpose, is net asset value.
O – Participating interests
Participating interests are investments in which the Group has a
long-term equity holding of over 20% and not more than 50%.
Where the interests are beneficial and significant influence is
exercised, such interests are classified as associated undertakings.
The appropriate proportion of the profit or loss on ordinary
activities before tax of associated undertakings is shown
separately in the non-technical account, except where associated
undertakings are held by the long-term businesses, in which case
the profit is included within investment income in the long-term
technical account. The appropriate proportion of the shareholders’
funds of associated undertakings is included in the consolidated
balance sheet. A number of associated undertakings, which do
not represent a material part of the Group’s income or assets,
have been treated as investments and are included within other
participating interests.
P – Additional value of in-force long-term business
The valuation of long-term business included in the Group’s
balance sheet comprises two elements: the net assets of the
long-term business operations, stated in accordance with United
Kingdom accounting principles; and an additional asset, called
the additional value of in-force long-term business, which is
shown separately and represents the difference between the total
embedded value of the long-term operations and their net assets
included in these accounts. Movements in the additional value of
internally-generated in-force long-term business are taken to the
revaluation reserve.
The additional value of in-force long-term business arising on
acquisitions is recognised in the balance sheet, and is amortised
over the useful lifetime of the related contracts in the portfolio
on a systematic basis. The rate of amortisation is chosen by
considering the profile of the in-force business acquired and the
expected depletion in its value. The value of purchased in-force
long-term business is reviewed annually for any diminution in
value and any reductions are charged to the long-term business
technical account.
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