Aviva 2014 Annual Report Download - page 122

Aviva plc Annual report and accounts 2014
Accounting policies continued
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(iii) Amendments to IFRS 10 and IAS 28 – Sale or
Contribution of Assets between an Investor and its
Associate or Joint Venture
Amendments to IFRS 10 and IAS 28 clarify that for
transactions between an investor and its associate or joint
venture, full gains are to be recognised where the assets
sold or contributed constitute a business as defined in
IFRS 3 Business Combinations. Where the assets sold or
contributed do not constitute a business, gains and losses
are recognised only to the extent of other investors’
interests in the associate or joint venture.
The adoption of these amendments is not expected to
have significant implications for the Group’s consolidated
financial statements. These amendments will be effective
on annual reporting periods beginning on or after 1
January 2016 and have yet to be endorsed by the EU.
(iv) Amendments to IAS 16 and IAS 38 – Clarification of
Acceptable Methods of Depreciation and Amortisation
These amendments provide additional guidance on how
the depreciation or amortisation of property, plant and
equipment and intangible assets should be calculated. The
amendments to IAS 16 and IAS 38 prohibit the use of
revenue-based depreciation for property, plant and
equipment and significantly limit the use of revenue-based
amortisation for intangible assets. The adoption of these
amendments is not expected to have significant impact for
the Group’s consolidated financial statements. They are
effective for annual reporting periods beginning on or after
1 January 2016 and have yet to be endorsed by the EU.
(v) Amendments to IAS 27, Equity Method in Separate
Financial Statements
The amendments to IAS 27 allow investments in
subsidiaries to be accounted for using the equity method
within the Company’s financial statements. The Company
has not completed the assessment of the impact of the
adoption of the amendments on its financial statements.
The amendments to IAS 27 are effective for annual
reporting periods beginning on or after 1 January 2016
and have not yet been endorsed by the EU.
(vi) Narrow scope amendments to IFRS10, IFRS 12 and IAS 28
– Applying the Consolidation Exception
These narrow-scope amendments clarify the application of
the requirements for investment entities to measure
subsidiaries at fair value instead of consolidating them.
There are no implications for the Group’s consolidated
financial statements as the Group does not meet the
definition of an investment entity. These amendments are
effective for annual reporting periods beginning on or after
1 January 2016 and have not yet been endorsed by the EU.
(vii) Amendments to IAS 1 – Disclosure Initiative
These amendments clarify guidance in IAS 1 on materiality
and aggregation, the presentation of subtotals, the
structure of financial statements and the disclosure of
accounting policies. The amendments form part of the
IASB’s Disclosure Initiative, which explores how financial
statement disclosures can be improved. The adoption of
these amendments will have no impact for the Group’s
profit or loss or equity. The amendments are effective for
annual reporting periods beginning on or after 1 January
2016 and have not yet been endorsed by the EU.
(viii) Annual Improvements to IFRSs 2012-2014
These improvements consist of amendments to five IFRSs
including IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations and IAS 19 Employee Benefits.
The amendments clarify existing guidance. The adoption of
these amendments is not expected to have a significant
impact on the Group’s profit or loss or equity. The
amendments are effective for annual reporting periods
beginning on or after 30 June 2016 and have yet to be
endorsed by the EU.
(ix) IFRS 15, Revenue from Contracts with Customers
IFRS 15 will replace IAS 18, Revenue and establishes a
principle based five-step model to be applied to all
contracts with customers, except for insurance contracts,
financial instruments and lease contracts. IFRS 15 also
includes enhanced disclosure requirements.
The impact of the adoption of the new standard has
yet to be fully assessed by the Group. This standard applies
to annual reporting periods beginning on or after 1
January 2017 and has not yet been endorsed by the EU.
(x) IFRS 9, Financial Instruments
In July 2014, the IASB published IFRS 9, Financial
Instruments which will replace IAS 39, Financial
Instruments: Recognition and Measurement. The finalised
standard incorporates new classification and
measurements requirements for financial assets, the
introduction of an expected credit loss impairment model
which will replace the incurred loss model of IAS 39, and
new hedge accounting requirements. Under IFRS 9, all
financial assets will be measured at either amortised cost or
fair value. The basis of classification will depend on the
business model and the contractual cash flow
characteristics of the financial assets. The standard retains
most of IAS 39 requirements for financial liabilities except
for those designated at fair value through profit or loss
whereby that part of the fair value changes attributable to
own credit is to be recognised in other comprehensive
income instead of the income statement. The hedge
accounting requirements are more closely aligned with risk
management practices and follow a more principle based
approach. The mandatory effective date of the new
standard is annual reporting periods beginning on or after
1 January 2018, with earlier adoption permitted.
The impact of the adoption of IFRS 9 on the Group’s
consolidated financial statements, to a large extent, will need
to take into account the interaction of the requirements with
the IASB’s ongoing insurance contracts accounting project.
IFRS 9 has not been endorsed by the EU.
(B) Operating profit
The long-term nature of much of the Group’s operations means
that, for management’s decision-making and internal
performance management, short-term realised and unrealised
investment gains and losses are treated as non-operating items.
The Group focuses instead on an operating profit measure (also
referred to as adjusted operating profit) that incorporates an
expected return on investments supporting its long-term and
non-long-term businesses. Operating profit for long-term
business is based on expected investment returns on financial
investments backing shareholder and policyholder funds over
the reporting period, with allowance for the corresponding
expected movements in liabilities. Variances between actual and
expected investment returns, and the impact of changes in
economic assumptions on liabilities, are disclosed separately
outside operating profit. For non-long-term business, the total
investment income, including realised and unrealised gains, is
analysed between that calculated using a longer-term return
and short-term fluctuations from that level. Further details of
this analysis and the assumptions used are given in notes 9 and
10. Operating profit also excludes impairment of goodwill,
associates and joint ventures; amortisation and impairment of
other intangibles; the profit or loss on disposal and
remeasurement of subsidiaries, joint ventures and associates;
integration and restructuring costs; and exceptional items.
118 | Aviva plc Annual report and accounts 2014