Barclays 2003 Annual Report Download - page 116

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Accounting Policies
Summary of significant accounting policies
(a) Accounting convention
The accounts have been prepared under the historical cost convention,
as modified by the revaluation of certain assets held for dealing
purposes, assets held in the long-term assurance business and the
investment in Barclays Bank PLC in the balance sheet of Barclays PLC.
They are prepared in accordance with applicable accounting standards
of the UK Accounting Standards Board (ASB) and pronouncements
of its Urgent Issues Task Force (UITF) and with the Statements of
Recommended Accounting Practice (SORPs) issued by the
British Bankers’ Association (BBA) and the Finance and Leasing
Association (FLA).
The SORP issued by the Association of British Insurers (ABI) addresses
the accounting and disclosure of insurance business for insurance
undertakings. Barclays is primarily a banking group, not an insurance
group, and prepares accounts in accordance with Schedule 9 of the
Companies Act. The ABI SORP does not specifically address the
accounting for long-term assurance business in this context. In line with
other such banking groups, Barclays uses the embedded value method
to measure the shareholders’ interest in its long-term assurance
business, which is consistent with the alternative measurement method
described in guidance issued by the ABI ‘Supplementary Reporting for
Long-Term Insurance Business’ and is considered more relevant than the
modified statutory solvency basis for describing the financial position
and current performance of the business.
Changes to the accounting policies described in the 2002 Annual Report
are set out on page 118.
(b) Consolidation and format
The consolidated accounts have been prepared in compliance with
Sections 230, 255, 255A and 255B of, and Schedule 9 to, the Companies
Act 1985 (the Act). The profit and loss account and balance sheet of
Barclays PLC have been prepared in compliance with Section 226 of, and
Schedule 4 to, the Act.
The consolidated accounts include the accounts of Barclays PLC and its
subsidiary undertakings made up to 31st December. Entities that do
not qualify as subsidiaries but which give rise to benefits that are, in
substance, no different from those that would arise were the entity a
subsidiary, are included in the consolidated accounts. Details of the
principal subsidiary undertakings are given in Note 43. In order to reflect
the different nature of the shareholders’ and policyholders’ interests in
the retail long-term assurance business, the value of the long-term
assurance business attributable to shareholders is included in Other
Assets and the assets and liabilities attributable to policyholders are
classified under separate headings in the consolidated balance sheet.
As the consolidated accounts include partnerships where a Group
member is a partner, advantage has been taken of the exemption
given by Regulation 7 of the Partnerships and Unlimited Companies
(Accounts) Regulations 1993 with regard to the preparation and filing
of individual partnership accounts.
(c) Shares in subsidiary undertakings
Barclays PLC’s investment in Barclays Bank PLC, together with Barclays
Bank PLC’s investments in subsidiary undertakings, are stated at the
amount of the underlying net asset, including attributable goodwill.
Changes in the value of the net assets are accounted for as movements
in the revaluation reserve.
(d) Interests in associated undertakings and joint ventures
An associated undertaking generally is one in which the Group’s interest
is more than 20% and no more than 50% and where the Group exercises
a significant influence over the entity’s operating and financial policies.
A joint venture is one where the Group holds an interest on a long-term
basis and which is jointly controlled by the Group and one or more other
parties. The profit and loss account includes income from interests in
associated undertakings and joint ventures based on accounts made up
to dates not earlier than three months before the balance sheet date.
Interests in associated undertakings and joint ventures are included in
the consolidated balance sheet at the Group’s share of the book value of
the net assets of the undertakings concerned plus unamortised goodwill
arising on the acquisition of the interest.
(e) Goodwill
Goodwill may arise on the acquisition of subsidiary and associated
undertakings and joint ventures. It represents the excess of cost over
fair value of the Group’s share of net assets acquired.
In accordance with Financial Reporting Standard (FRS) 10, goodwill is
capitalised as an intangible asset and amortised through the profit and
loss account over its expected useful economic life. For acquisitions prior
to 1st January 1998, the Group accounting policy had been to write off
goodwill directly to reserves. The transitional arrangements of FRS 10
allow this goodwill to remain eliminated. In the event of a subsequent
disposal, any goodwill previously charged directly against reserves
prior to FRS 10 will be written back and reflected in the profit and
loss account.
The useful economic life of the goodwill is determined at the time of the
acquisition giving rise to it by considering the nature of the acquired
business, the economic environment in which it operates and period
of time over which the value of the business is expected to exceed the
values of the identifiable net assets. For acquisitions in less mature
economic environments, goodwill is generally considered to have a
useful economic life of five years. For all other acquisitions, goodwill
is generally expected to have a useful economic life of 20 years. In all
cases, goodwill is amortised over its useful economic life and is subject
to regular review as set out in policy (k).
For the purpose of calculating goodwill, fair values of acquired assets
and liabilities are determined by reference to market values, where
available, or by reference to the current price at which similar assets
could be acquired or similar obligations entered into, or by discounting
expected future cash flows to present value. This discounting is
either performed using market rates or by using risk-free rates
and risk-adjusted expected future cash flows.
(f) Foreign currencies
Assets and liabilities in foreign currencies are translated into sterling at
rates of exchange ruling on the balance sheet date. Overseas profits and
losses are translated into sterling at average rates of exchange for the
year. Profits arising in areas experiencing hyperinflation are adjusted to
recognise its effect on the worth of the working capital employed.
Exchange differences arising from the application of closing rates of
exchange to the opening net assets held overseas, to the retranslation
of the result for the year from the average rate to the closing rate and
to related foreign currency borrowings are taken directly to reserves.
All other exchange profits and losses, which arise from normal trading
activities, are included in the profit and loss account.
(g) Shareholders’ interest in the retail long-term assurance fund
The value of the shareholders’ interest in the Group’s retail long-term
assurance business represents an estimate of the net present value of the
Consolidated Accounts Barclays PLC
Accounting Policies