Aviva 2009 Annual Report Download - page 134

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Aviva plc Accounting policies continued
Annual Report and Accounts 2009
Group holds minority stakes in PLPs, with no disproportionate influence, the relevant investments are carried at fair value through
profit and loss within financial investments.
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 statement of financial position. 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 statement of financial position, 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 recognised in other comprehensive income and 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 statements of financial position 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 recognised in other comprehensive income and 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 recognised
in other comprehensive income and 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, in accordance with IFRS 4. Accounting for insurance contracts in UK companies is determined in accordance with the
Statement of Recommended Practice issued by the Association of British Insurers, the most recent version of which was issued in
December 2005 and amended in December 2006. 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. When accounting policies or accounting estimates have been
changed, and adjustments to the measurement basis have occurred, the financial statements of that year will have disclosed the
impacts accordingly.
One such example is our adoption of Financial Reporting Standard 27,
Life Assurance , (FRS 27) which was issued by the UK’s
Accounting Standards Board (ASB) in December 2004. Aviva, along with other major insurance companies and the ABI, signed a