Barclays 2003 Annual Report Download - page 182

Notes to the Accounts
For the Year Ended 31st December 2003
180
61 Differences between UK GAAP and US GAAP accounting principles (continued)
UK GAAP
Transfer and servicing of financial assets
Under FRS 5, where a transaction involving a previously recognised asset
transfers to others (a) all significant rights or other access to benefits
relating to that asset and (b) all significant exposure to the risks inherent
in those benefits, the entire asset should cease to be recognised.
Extinguishment of liabilities
Under FRS 5, a liability is extinguished if an entity’s obligation to
transfer economic benefits is satisfied, removed or is no longer likely
to occur. Satisfaction would encompass an ‘in-substance’ defeasance
transaction where liabilities are satisfied from the cash flows arising from
essentially risk free assets transferred by the debtor to an irrevocable
defeasance trust.
Netting
Under FRS 5, items should be aggregated into a single item where there
is a right to insist on net settlement and the debit balance matures no
later than the credit balance.
Own shares
Own shares are holdings of Barclays PLC listed shares reacquired on the
open market. Shares purchased by employee benefit trusts are shown as
assets where Barclays retains the risks and rewards of ownership. They
are carried at cost less impairment. Prior to 1st January 2003, shares
held as part of the trading equity operations were shown in equity shares
at fair value. Following the introduction of UITF 37 in October 2003, they
are shown as a deduction in arriving at shareholders’ funds.
Restructuring of business provisions
In accordance with FRS 3 and FRS 12, provisions have been made for any
direct costs and net future operating losses arising from a business that
management is committed to restructure, sell or terminate, has a
detailed formal plan for exit, and has raised a valid expectation of
carrying out the restructuring plan.
US GAAP
Under SFAS 140, control passes where the following criteria are met:
(a) the assets are isolated from the transferor (the seller), i.e. they are
beyond the reach of the transferor, even in bankruptcy or other
receivership; (b) the transferee (the buyer) has the right – free of any
conditions that constrain it from taking advantage of the right – to
pledge or exchange the assets, and (c) the transferor does not maintain
effective control over the transferred assets.
Transfers of assets not deemed as sales cause a gross-up of the balance
sheet to show the assets transferred as remaining on the balance sheet. In
addition, non-cash collateral received on certain stock lending transactions
results in a balance sheet gross-up under the provisions of SFAS 140.
Under SFAS 140, a debtor may de-recognise a liability if and only if
either (a) the debtor pays the creditor and is relieved of its obligation
for the liability, or (b) the debtor is legally released from being the
primary obligor under the liability either financially or by the creditor.
SFAS 140 does not allow for the de-recognition of a liability by means of
an ‘in-substance’ defeasance transaction or if it is no longer believed
likely that the liability will be settled.
Under FASB interpretation No. (FIN) 39, netting is only permitted where
there is a legal right of set-off and an intention to settle on a net basis.
In addition, under FIN 41, repurchase and reverse repurchase
agreements may only be netted where they have the same explicit
settlement date specified at the inception of the agreement.
Netting presentation differences exist between UK and US GAAP in
relation to repurchase and reverse repurchase agreements, securities
lending and borrowing agreements, receivables and payables in respect
of unsettled trades, long and short securities, and cash collateral held
against derivatives.
ARB 43, as amended by APB 6, requires all shares purchased at balance
sheet date to be held at cost and deducted from equity.
Prior to the issuance of SFAS 146, Emerging Issues Task force (EITF)
94-3 and Staff Accounting Bulletin (SAB) 100 set out specific conditions
which must be met to enable liabilities relating to restructuring, sale or
involuntary terminations to be recognised in the period management
approve the termination plan. In respect of cost other than employee
termination benefits, the basic requirements for recognition at the date
of commitment to the plan to terminate are that they are not associated
with, or do not benefit from, activities that will be continued.
SFAS 146 is effective for exit or disposal activities initiated after 31st
December 2002. Liabilities recognised prior to the initial application of
SFAS 146 continue to be accounted for in accordance with EITF 94-3.