Aviva 2007 Annual Report Download - page 128
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Please find page 128 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.For defined benefit plans, the pension costs are assessed
using the projected unit credit method. Under this
method, the cost of providing pensions is charged to the
income statement so as to spread the regular cost over the
service lives of employees, in accordance with the advice
of qualified actuaries. The pension obligation is measured
as the present value of the estimated future cash outflows,
using a discount rate based on market yields for high
quality corporate bonds that are denominated in the
currency in which the benefits will be paid and that have
terms to maturity approximating to the terms of the
related pension liability. The resulting pension scheme
surplus or deficit appears as an asset or liability in the
consolidated balance sheet.
Costs charged to the income statement comprise the
current service cost (the increase in pension obligation
resulting from employees’ service in the current period,
together with the schemes’ administration expenses), past
service cost (resulting from changes to benefits with
respect to previous years’ service), and gains or losses on
curtailment (for example, when employees leave the
scheme) or on settlements (for example, when a scheme’s
obligations are transferred outside the Group). In addition,
the difference between the expected return on scheme
assets, less investment expenses, and the interest cost of
unwinding the discount on the scheme liabilities (to reflect
the benefits being one period closer to being paid out) is
credited to investment income. All actuarial gains and
losses, being the difference between the actual and
expected returns on scheme assets, changes in
assumptions underlying the liability calculations and
experience gains or losses on the assumptions made at the
beginning of the period, are recognised immediately in
equity through the Statement of recognised income and
expense.
For defined contribution plans, the Group pays
contributions to publicly or privately administered pension
plans. Once the contributions have been paid, the Group,
as employer, has no further payment obligations. The
Group’s contributions are charged to the income
statement in the year to which they relate and are
included in staff costs.
Other post-employment obligations
Some Group companies provide post-employment
healthcare or other benefits to their retirees. The
entitlement to these benefits is usually based on the
employee remaining in service up to retirement age and
the completion of a minimum service period. Unlike the
pension schemes, no assets are set aside in separate funds
to provide for the future liability but none of these
schemes is material to the Group. The costs of the
Canadian scheme are included within those for the
defined benefit pension schemes in that country. For such
schemes in other countries, provisions are calculated in line
with local regulations, with movements being charged to
the income statement within staff costs.
Equity compensation plans
The Group offers share award and option plans over the
Company’s ordinary shares for certain employees,
including a Save As You Earn plan (SAYE plan), details of
which are given in the Directors’ remuneration report and
in note 29.
The Group accounts for options and awards under equity
compensation plans, which were granted after
7 November 2002, until such time as they are fully vested,
using the fair value based method of accounting (the “fair
value method”). Under this method, the cost of providing
equity compensation plans is based on the fair value of the
share awards or option plans at date of grant, which is
recognised in the income statement over the expected
vesting period of the related employees and credited to the
equity compensation reserve, part of shareholders’ funds.
Shares purchased by employee share trusts to fund these
awards are shown as a deduction from shareholders’
funds at their original cost.
When the options are exercised and new shares are
issued, the proceeds received, net of any transaction costs,
are credited to share capital (par value) and the balance to
share premium. Where the shares are already held by
employee trusts, the net proceeds are credited against the
cost of these shares, with the difference between cost and
proceeds being taken to retained earnings. In both cases,
the relevant amount in the equity compensation reserve is
then credited to retained earnings.
(AB) Income taxes
The current tax expense 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 before taxation and amounts charged or
credited to reserves as appropriate.
Provision is made for deferred tax liabilities, or credit taken
for deferred tax assets, using the liability method, on all
material temporary differences between the tax bases of
assets and liabilities and their carrying amounts in the
consolidated financial statements.
The principal temporary differences arise from depreciation
of property and equipment, revaluation of certain financial
assets and liabilities including derivative contracts, provisions
for pensions and other post-retirement benefits and tax
losses carried forward; and, in relation to acquisitions, on
the difference between the fair values of the net assets
acquired and their tax base. The rates enacted or
substantively enacted at the balance sheet date are used
to determine the deferred tax.
Deferred tax assets are recognised to the extent that
it is probable that future taxable profit will be available
against which the temporary differences can be utilised.
In countries where there is a history of tax losses, deferred
tax assets are only recognised in excess of deferred tax
liabilities if there is convincing evidence that future profits
will be available.
Deferred tax is provided on temporary differences arising
from investments in subsidiaries, associates and joint
ventures, except where the timing of the reversal of the
temporary difference can be controlled and it is probable
that the difference will not reverse in the foreseeable
future.
Deferred taxes are not provided in respect of temporary
differences arising from the initial recognition of goodwill,
or from goodwill for which amortisation is not deductible
for tax purposes, or from the initial recognition of an asset
or liability in a transaction which is not a business
combination and affects neither accounting profit nor
taxable profit or loss at the time of the transaction.
Aviva plc
Annual Report and
Accounts 2007
124
Financial
statements
Accounting policies continued