Aviva 2009 Annual Report Download - page 143

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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
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 other comprehensive income.
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 statement of financial position 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.
Current and deferred tax relating to items recognised in other comprehensive income and directly in equity are similarly
recognised in other comprehensive income and directly in equity respectively. Deferred tax related to fair value re-measurement of
available for sale investments, owner-occupied properties and other amounts charged or credited directly to other comprehensive
income is recognised in the statement of financial position as a deferred tax asset or liability. Current tax on interest paid on Direct
Capital instruments is credited directly in equity.
In addition to paying tax on shareholders’ profits, the Group’s life businesses in the UK, Ireland, Singapore and Australia (prior
to its disposal) pay tax on policyholders’ investment returns (‘policyholder tax’) on certain products at policyholder tax rates.
Policyholder tax is accounted for as an income tax and is included in the total tax expense. The Group has decided to show
separately the amounts of policyholder tax to provide a more meaningful measure of the tax the Group pays on its profits. In the
pro forma reconciliations, operating profit has been calculated after charging policyholder tax.
Financial statements IFRS