Aviva 2007 Annual Report Download - page 120
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Please find page 120 of the 2007 Aviva annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Associates and joint ventures
Associates are entities over which the Group has
significant influence, but which it does not control.
Generally, it is presumed that the Group has significant
influence if it has between 20% and 50% of voting rights.
Joint ventures are entities whereby the Group and other
parties undertake an economic activity which is subject to
joint control arising from a contractual agreement. In a
number of these, the Group’s share of the underlying
assets and liabilities may be greater than 50% but the
terms of the relevant agreements make it clear that control
is not exercised. Such jointly-controlled entities are referred
to as joint ventures in these financial statements.
Gains on transactions between the Group and its
associates and joint ventures are eliminated to the extent
of the Group’s interest in the associates and joint ventures.
Losses are also eliminated, unless the transaction provides
evidence of an impairment of the asset transferred
between entities.
Investments in associates and joint ventures are accounted
for using the equity method of accounting. Under this
method, the cost of the investment in a given associate or
joint venture, together with the Group’s share of that
entity’s post-acquisition changes to shareholders’ funds,
is included as an asset in the consolidated balance sheet.
As explained in policy N, the cost includes goodwill
identified on acquisition. The Group’s share of their
post-acquisition profits or losses is recognised in the
income statement and its share of post-acquisition
movements in reserves is recognised in reserves. Equity
accounting is discontinued when the Group no longer has
significant influence over the investment.
If the Group’s share of losses in an associate or joint
venture equals or exceeds its interest in the undertaking,
the Group does not recognise further losses unless it has
incurred obligations or made payments on behalf of the
entity.
The Company’s investments
In the Company balance sheet, subsidiaries and joint
ventures are stated at their fair values, estimated using
applicable valuation models underpinned by the
Company’s market capitalisation. These investments are
classified as available for sale (AFS) financial assets, with
changes in their fair value being recorded in a separate
investment valuation reserve within equity.
(E) Foreign currency translation
Income statements and cash flows of foreign entities
are translated into the Group’s presentation currency at
average exchange rates for the year while their balance
sheets are translated at the year end exchange rates.
Exchange differences arising from the translation of the
net investment in foreign subsidiaries, associates and
joint ventures, and of borrowings and other currency
instruments designated as hedges of such investments,
are taken to the currency translation reserve within equity.
On disposal of a foreign entity, such exchange differences
are transferred out of this reserve and are recognised in
the income statement as part of the gain or loss on sale.
The cumulative translation differences were deemed to
be zero at the transition date to IFRS.
Foreign currency transactions are accounted for at the
exchange rates prevailing at the date of the transactions.
Gains and losses resulting from the settlement of such
transactions, and from the translation of monetary assets
and liabilities denominated in foreign currencies, are
recognised in the income statement.
Translation differences on debt securities and other
monetary financial assets measured at fair value and
designated as held at fair value through profit or loss (FV)
(see policy S) are included in foreign exchange gains and
losses in the income statement. For monetary financial
assets designated as AFS, translation differences are
calculated as if they were carried at amortised cost and so
are recognised in the income statement, whilst foreign
exchange differences arising from fair value gains and
losses are included in the investment valuation reserve
within equity. Translation differences on non-monetary
items, such as equities which are designated as FV, are
reported as part of the fair value gain or loss, whereas
such differences on AFS equities are included in the
investment valuation reserve.
(F) Product classification
Insurance contracts are defined as those containing
significant insurance risk if, and only if, an insured event
could cause an insurer to make significant additional
payments in any scenario, excluding scenarios that lack
commercial substance, at the inception of the contract.
Such contracts remain insurance contracts until all rights
and obligations are extinguished or expire. Contracts can
be reclassified as insurance contracts after inception if
insurance risk becomes significant. Any contracts not
considered to be insurance contracts under IFRS are
classified as investment contracts.
Some insurance and investment contracts contain a
discretionary participating feature, which is a contractual
right to receive additional benefits as a supplement to
guaranteed benefits. These are referred to as participating
contracts.
As noted in policy A above, insurance contracts and
participating investment contracts in general continue to
be measured and accounted for under existing accounting
practices at the later of the date of transition to IFRS or
the date of the acquisition of the entity. Accounting for
insurance contracts is determined in accordance with the
Statement of Recommended Practice issued by the
Association of British Insurers in December 2005, as
amended in December 2006. However, in certain
businesses, the accounting policies or accounting estimates
have been changed, as permitted by IFRS 4 and IAS 8
respectively, to remeasure designated insurance liabilities
to reflect current market interest rates and changes to
regulatory capital requirements.
Aviva plc
Annual Report and
Accounts 2007
116
Financial
statements
Accounting policies continued