Aviva 2014 Annual Report Download - page 131

Aviva plc Annual report and accounts 2014
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therefore continues to be recognised in the statement of
financial position within the appropriate asset classification.
(X) Deferred acquisition costs and other assets
Costs relating to the acquisition of new business for insurance
and participating investment contracts are deferred in line with
existing local accounting practices, to the extent that they are
expected to be recovered out of future margins in revenues on
these contracts. For participating contracts written in the UK,
acquisition costs are generally not deferred as the liability for
these contracts is calculated in accordance with the PRA’s
realistic capital regime and FRS 27. For non-participating
investment and investment fund management contracts,
incremental acquisition costs and sales enhancements that are
directly attributable to securing an investment management
service are also deferred.
Where such business is reinsured, an appropriate proportion
of the deferred acquisition costs is attributed to the reinsurer,
and is treated as a separate liability.
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 receivables and payables are initially recognised at
cost, being fair value. Subsequent to initial measurement they
are measured at amortised cost.
(Y) Statement of cash flows
Cash and cash equivalents
Cash and cash equivalents consist of cash at bank 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.
(Z) Leases
Leases, where a significant portion of the risks and rewards of
ownership is retained by the lessor, are classified as operating
leases. Where the Group is the lessee, payments made under
operating leases (net of any incentives received from the lessor)
are charged to the income statement on a straight-line basis
over the term of the relevant leases.
Where the Group is the lessor, lease income from operating
leases is recognised in the income statement on a straight-line
basis over the lease term.
When assets are subject to finance leases, the present value of
the lease payments, together with any unguaranteed residual
value, is recognised as a receivable. The Group has not entered
into any material finance lease arrangements either as lessor
or lessee.
(AA) 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. Restructuring provisions comprise lease termination
penalties and employee termination payments. They include
only the direct expenditures arising from the restructuring,
which are those that are necessarily entailed by the
restructuring; and not associated with the ongoing activities of
the entity. The amount recorded as a provision is the best
estimate of the expenditure required to settle the present
obligation at the balance sheet date. Where the effect of the
time value of money is material, the provision is the present
value of the expected expenditure. Provisions are not recognised
for future operating losses.
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.
(AB) Employee benefits
Annual leave
Employee entitlements to annual leave are recognised when
they accrue to employees. A provision is made for the estimated
liability for annual leave as a result of services rendered by
employees up to the statement of financial position date.
Pension obligations
The Group operates a number of pension schemes, whose
members receive benefits on either a defined benefit or defined
contribution basis. Under a defined contribution plan, the
Group’s legal or constructive obligation is limited to the amount
it agrees to contribute to a fund and there is no obligation to
pay further contributions if the fund does not hold sufficient
assets to pay benefits. A defined benefit pension plan is a
pension plan that is not a defined contribution plan and typically
defines the amount of pension benefit that an employee will
receive on retirement.
The defined benefit obligation is calculated by independent
actuaries using the projected unit credit method. 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 resultant net surplus or deficit recognised
as an asset or liability on the statement of financial position is
the present value of the defined benefit obligation at the end of
the reporting period less the fair value of plan assets.
If the fair value of plan assets exceeds the present value of
the defined benefit obligation, the resultant asset is limited to
the asset ceiling defined as present value of economic benefits
available in the form of future refunds from the plan or
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IFRS Financial statements