Aviva 2013 Annual Report Download - page 120

Aviva plc
Annual report and accounts 2013
118
Accounting policies continued
excess of the most recently assessed standard of performance of
the existing asset will flow to the Group and the renovation
replaces an identifiable part of the asset. Major renovations are
depreciated over the remaining useful life of the related asset.
(Q) 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, as assessed by qualified external valuers
or by local qualified staff of the Group. Changes in fair values
are recorded in the income statement in net investment income.
As described in accounting policy P above, investment
properties under construction are included within property and
equipment, and are stated at cost less any impairment in their
values until construction is completed or fair value becomes
reliably measurable.
(R) 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 fair value less costs of
disposal 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. Non-financial assets
except goodwill which have suffered an impairment are
reviewed for possible reversal of the impairment at each
reporting date.
(S) 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.
(T) Financial investments
The Group classifies its investments as either financial assets at
fair value through profit or loss (FVTPL) 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
FVTPL category has two subcategories – those that meet the
definition as being held for trading and those the Group
chooses to designate as FVTPL (referred to in this accounting
policy as ‘other than trading’) upon initial recognition.
In general, the other than trading 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
acquires with the intention to resell in the short term, are
classified as trading, as are non-hedge derivatives (see
accounting policy U below). 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 the
methodology outlined in note 23, with values based on the
quoted price within the bid-ask spread that is most
representative of fair value or based on cash flow models using
market observable inputs or unobservable inputs.
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.
Impairment
The Group reviews the carrying value of its AFS investments on
a regular basis. If the carrying value of an AFS 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, i.e. 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.
For securities identified as being impaired, the cumulative
unrealised loss previously recognised within the investment
valuation reserve is transferred to realised losses for the year,
with a corresponding movement through other comprehensive
income. Any subsequent increase in fair value of these impaired
securities is recognised in other comprehensive income and
recorded in the investment valuation reserve unless this increase
represents a decrease in the impairment loss that can be
objectively related to an event occurring after the impairment
loss was recognised in the income statement. In such an event,
the reversal of the impairment loss is recognised as a gain in the
income statement.