Aviva 2009 Annual Report Download - page 142

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Aviva plc Accounting policies continued
Annual Report and Accounts 2009
Long-term business deferred acquisition costs are amortised systematically over a period no longer than that in which they are
expected to be recoverable out of these future margins. Deferrable acquisition costs for non-participating investment and
investment fund management contracts are amortised over the period in which the service is provided. General insurance and
health deferred acquisition costs are amortised over the period in which the related revenues are earned. The reinsurers’ share of
deferred acquisition costs is amortised in the same manner as the underlying asset.
Deferred acquisition costs are reviewed by category of business at the end of each reporting period and are written-off where
they are no longer considered to be recoverable.
Other assets include vehicles which are subject to repurchase agreements and inventories of vehicle parts. The former are
carried at the lower of their agreed repurchase price or net realisable value, whilst the latter are carried at the lower of cost and net
realisable value, where cost is arrived at on the weighted average cost formula or “first in first out” (FIFO) basis. Provision is made
against inventories which are obsolete or surplus to requirements.
(X) Statement of cash flows
Cash and cash equivalents
Cash and cash equivalents consist of cash at banks and in hand, deposits held at call with banks, treasury bills and other short-term
highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of
change in value. Such investments are those with less than three months’ maturity from the date of acquisition, or which are
redeemable on demand with only an insignificant change in their fair values.
For the purposes of the statement of cash flows, cash and cash equivalents also include bank overdrafts, which are included
in payables and other financial liabilities on the statement of financial position.
Operating cash flows
Purchases and sales of investment property, loans and financial investments are included within operating cash flows as the
purchases are funded from cash flows associated with the origination of insurance and investment contracts, net of payments of
related benefits and claims.
(Y) Leases
Leases, where a significant portion of the risks and rewards of ownership is retained by the lessor, are classified as operating leases.
Assets held for use in such leases are included in property and equipment, and are depreciated to their residual values over their
estimated useful lives. Rentals from such leases are credited to the income statement on a straight-line basis over the period of the
relevant leases. Payments made as lessee under operating leases (net of any incentives received from the lessor) are charged to the
income statement on a straight-line basis over the period of the relevant leases.
(Z) Provisions and contingent liabilities
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is more
probable than not that an outflow of resources embodying economic benefits will be required to settle the obligation, and a
reliable estimate of the amount of the obligation can be made. Where the Group expects a provision to be reimbursed, for
example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is
virtually certain.
The Group recognises a provision for onerous contracts when the expected benefits to be derived from a contract are less than
the unavoidable costs of meeting the obligations under the contract. Contingent liabilities are disclosed if there is a possible future
obligation as a result of a past event, or if there is a present obligation as a result of a past event but either a payment is not
probable or the amount cannot be reasonably estimated.
(AA) Employee benefits
Annual leave and long service leave
Employee entitlements to annual leave and long service leave are recognised when they accrue to employees. A provision is made
for the estimated liability for annual leave and long service leave as a result of services rendered by employees up to the statement
of financial position date.
Pension obligations
The Group operates a large number of pension schemes around the world, whose members receive benefits on either a defined
benefit basis (generally related to a member’s final salary and length of service) or a defined contribution basis (generally related to
the amount invested, investment return and annuity rates), the assets of which are generally held in separate trustee-administered
funds. The pension plans are generally funded by payments from employees and the relevant Group companies.
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. 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 statement of financial position.
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 (when the employer materially
reduces the number of employees covered by the scheme) or on settlements (when a scheme’s obligations are transferred outside