Aviva 2009 Annual Report Download - page 139

137
Performance review
Aviva plc Accounting policies continued
Corporate responsibility
Annual Report and Accounts 2009
Governance
Shareholder information
Financial statements IFRS
Financial statements MCEV
Other information
(P) Investment property
Investment property is held for long-term rental yields and is not occupied by the Group. Completed investment property is stated
at its fair value, which is supported by market evidence, as assessed by qualified external valuers or by local qualified staff of the
Group in overseas operations. Changes in fair values are recorded in the income statement in net investment income.
(Q) Impairment of non-financial assets
Property and equipment and other non-financial assets are reviewed for impairment losses whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by
which the carrying amount of the asset exceeds its recoverable amount, which is the higher of an asset’s net selling price and value
in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable
cash flows.
(R) Derecognition and offset of financial assets and financial liabilities
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised where:
— The rights to receive cash flows from the asset have expired.
— The Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without
material delay to a third party under a “pass-through” arrangement;.
— The Group has transferred its rights to receive cash flows from the asset and has either transferred substantially all the risks
and rewards of the asset, or has neither transferred nor retained substantially all the risks and rewards of the asset, but has
transferred control of the asset.
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.
Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a
legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset
and settle the liability simultaneously.
(S) Financial investments
The Group classifies its investments as either financial assets at fair value through profit or loss (FV) or financial assets available
for sale (AFS). The classification depends on the purpose for which the investments were acquired, and is determined by local
management at initial recognition. The FV category has two subcategories – those that meet the definition as being held for
trading and those the Group chooses to designate as FV (referred to in this accounting policy as “other than trading”).
In general, the FV category is used as, in most cases, the Group’s investment or risk management strategy is to manage its
financial investments on a fair value basis. Debt securities and equity securities, which the Group buys with the intention to resell in
the short term, are classified as trading, as are non-hedge derivatives (see policy T below). All other securities in the FV category are
classified as other than trading. The AFS category is used where the relevant long-term business liability (including shareholders’
funds) is passively managed, as well as in certain fund management and non-insurance operations.
Purchases and sales of investments are recognised on the trade date, which is the date that the Group commits to purchase
or sell the assets, at their fair values. Debt securities are initially recorded at their fair value, which is taken to be amortised cost,
with amortisation credited or charged to the income statement. Investments classified as trading, other than trading and AFS are
subsequently carried at fair value. Changes in the fair value of trading and other than trading investments are included in the
income statement in the period in which they arise. Changes in the fair value of securities classified as AFS are recognised in other
comprehensive income and recorded in a separate investment valuation reserve within equity.
Investments carried at fair value are measured using a fair value hierarchy, described in note 24(b), with values based on
quoted bid prices or amounts derived from cash flow models. Fair values for unlisted equity securities are estimated using
applicable price/earnings or price/cash flow ratios refined to reflect the specific circumstances of the issuer.
When securities classified as AFS are sold or impaired, the accumulated fair value adjustments are transferred out of the
investment valuation reserve to the income statement with a corresponding movement through other comprehensive income.
Financial guarantees are recognised initially at their fair value and are subsequently amortised over the duration of the
contract. A liability is recognised for amounts payable under the guarantee if it is more likely than not that the guarantee will be
called upon.
Impairment
The Group reviews the carrying value of its investments on a regular basis. If the carrying value of an investment is greater than
the recoverable amount, the carrying value is reduced through a charge to the income statement in the period of impairment.
The following policies are used to determine the level of any impairment, some of which involve considerable judgement:
AFS debt securities: An AFS debt security is impaired if there is objective evidence that a loss event has occurred which has
impaired the expected cash flows, ie where all amounts due according to the contractual terms of the security are not considered
collectible. An impairment charge, measured as the difference between the security’s fair value and amortised cost, is recognised
when the issuer is known to be either in default or in financial difficulty. Determining when an issuer is in financial difficulty
requires the use of judgement, and we consider a number of factors including industry risk factors, financial condition, liquidity
position and near-term prospects of the issuer, credit rating declines and a breach of contract. A decline in fair value below
amortised cost due to changes in risk-free interest rates does not necessarily represent objective evidence of a loss event.
Financial statements IFRS