Aviva 2009 Annual Report Download - page 132

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Aviva plc Accounting policies
Annual Report and Accounts 2009
Aviva plc (the “Company”), a public limited company incorporated and domiciled in the United Kingdom (UK), together with its
subsidiaries (collectively, the “Group” or “Aviva”) transacts life assurance and long-term savings business, fund management,
and most classes of general insurance and health business through its subsidiaries, associates and branches in the UK, Ireland,
continental Europe, United States (US), Canada, Asia, Australia and other countries throughout the world.
The Group is managed on a regional basis, reflecting the management structure whereby a member of the Executive
Management team is accountable to the Group Chief Executive for the operating segment for which he is responsible. Further
details of the reportable segments are given in note 4.
The principal accounting policies adopted in the preparation of these financial statements are set out below.
(A) Basis of presentation
Since 2005, all European Union listed companies have been required to prepare consolidated financial statements using
International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and endorsed by
the European Union (EU). The date of transition to IFRS was 1 January 2004. In addition to fulfilling their legal obligation to comply
with IFRS as adopted by the European Union, the Group and Company have also complied with IFRS as issued by the International
Accounting Standards Board and applicable at 31 December 2009.
In 2008, the IASB issued a revised version of IFRS 3,
Business Combinations , which introduces a number of changes in
accounting for such transactions that will impact the amount of goodwill recognised, the reported results in the period an
acquisition occurs, and future reported results. A consequential amendment to IAS 27,
Consolidated and Separate Financial
Statements
, requires a change in the ownership interest of a subsidiary (without loss of control) to be accounted for as an equity
transaction, rather than giving rise to goodwill or a gain or loss. Other consequential amendments were made to IAS 7,
Statement
of Cash Flows
, IAS 12, Income Taxes , IAS 21, The Effects of Changes in Foreign Exchange Rates , IAS 28, Investments in Associates ,
and IAS 31,
Interests in Joint Ventures . These are applicable prospectively for accounting periods commencing 1 July 2009 or later,
and are therefore not applicable for the current accounting period. On adoption, they will impact the areas noted above in the
Group’s financial reporting.
In 2009, the IASB issued IFRS 9,
Financial Instruments – Classification and Measurement , the first part of a replacement
standard for IAS 39,
Financial Instruments: Recognition and Measurement . This is applicable prospectively for accounting periods
commencing 1 January 2013 or later, and is therefore not applicable for the current accounting period. It has not yet been
endorsed by the EU but, on adoption, will require us to review the classification of certain investments while allowing us to retain
the fair value measurement option as we deem necessary.
During 2008 and 2009, the IASB also issued amendments to IFRS 1,
First Time Adoption of IFRS, IAS 32, Financial Instruments:
Presentation
, IAS 39 and the results of its annual improvements project. Further amendments to IFRS 1, IFRS 2, Share-Based
Payment
, IAS 24, Related Party Disclosures , and the results of its second annual improvements project have been issued but have
not yet been endorsed by the EU. These are applicable prospectively for accounting periods commencing 1 July 2009 or later, and
are therefore not applicable for the current accounting period. On adoption, they will not have any material impact on the Group’s
financial reporting.
IFRIC interpretation 17,
Distributions of Non-cash Assets to Owners , and interpretation 19, Extinguishing Financial Liabilities
with Equity Instruments
, as well as an amendment to interpretation 14, IAS 19 – The Limit on a Defined Benefit Asset, Minimum
Funding Requirements and their Interaction
, were issued during 2008 and 2009 but the latter two have not yet been endorsed
by the EU. These are applicable prospectively for accounting periods commencing 1 July 2009 or later, and are therefore not
applicable for the current accounting period. On adoption, they will not have any impact on our financial reporting.
In accordance with IFRS 4,
Insurance Contracts , the Group has applied existing accounting practices for insurance and
participating investment contracts, modified as appropriate to comply with the IFRS framework and applicable standards.
Further details are given in policy F below.
Items included in the financial statements of each of the Group’s entities are measured in the currency of the primary
economic environment in which that entity operates (the functional currency). The consolidated financial statements are stated
in sterling, which is the Company’s functional and presentation currency. Unless otherwise noted, the amounts shown in these
financial statements are in millions of pounds sterling (£m). As supplementary information, consolidated financial information is
also presented in euros.
The separate financial statements of the Company are on pages 275 to 282.
(B) Operating profit
The long-term nature of much of the Group’s operations means that, for management’s decision-making and internal performance
management, short-term realised and unrealised investment gains and losses are treated as non-operating items. The Group
focuses instead on an operating profit measure that incorporates an expected return on investments supporting its long-term
and non long-term businesses. Operating profit for long-term business is based on expected investment returns on financial
investments backing shareholder and policyholder funds over the reporting period, with allowance for the corresponding expected
movements in liabilities. Variances between actual and expected investment returns, and the impact of changes in economic
assumptions on liabilities, are disclosed separately outside operating profit. For non-long-term business, the total investment
income, including realised and unrealised gains, is analysed between that calculated using a longer term return and short-term
fluctuations from that level. Further details of this analysis and the assumptions used are given in notes 8 and 9.
(C) Critical accounting policies and the use of estimates
The preparation of financial statements requires the Group to select accounting policies and make estimates and assumptions that
affect items reported in the consolidated income statement, statement of financial position, other primary statements and notes to
the financial statements.