Barclays 2003 Annual Report Download - page 183

Barclays PLC Annual Report 2003 181
61 Differences between UK GAAP and US GAAP accounting principles (continued)
UK GAAP
Computer software developed or obtained for internal use
The Group’s general policy is to write-off such expenditure as incurred
except where the software is required to facilitate the use of new
hardware. Capitalised amounts are recorded as tangible fixed assets and
amortised over the useful life of the hardware.
Securitisations
Where undertakings have issued debt securities or entered into funding
arrangements with lenders through special-purpose entities in order to
finance specific loans and advances to customers, the balances are either
accounted for on the basis of linked presentation or through separate
recognition of the gross assets and related funding, in accordance with
FRS 5. The special-purpose entities are treated as ‘quasi-subsidiaries’
and are consolidated in accordance with FRS 5.
Derivatives
Derivatives used for hedging purposes are measured on an accruals basis
consistent with the assets, liabilities, positions or future cash flows being
hedged. The gains and losses on these instruments (arising from
changes in fair value) are not recognised in the profit and loss account
immediately as they arise. Such gains are either not recognised in the
balance sheet or are recognised and carried forward. When the hedged
transaction occurs, the gain or loss is recognised in the profit and loss
account at the same time as the hedged item.
Derivatives that are not hedge accounted are recorded at fair value, with
the change recorded in the profit and loss account.
Products which contain embedded derivatives are valued with reference
to the total product inclusive of the derivative element.
Investment contracts
In accordance with FRS 5, certain products offered to institutional
pension funds are accounted for as investment products when the
substance of the investment is that of managed funds. The assets and
related liabilities are excluded from consolidated balance sheet.
US GAAP
AICPA Statement of Position (SOP) 98-1 requires certain costs incurred
in respect of software for internal use to be capitalised and subsequently
amortised over its useful life. Capitalised amounts are reviewed regularly
for impairment.
Transfers of financial assets deemed as sales under SFAS 140 are
de-recognised and, where appropriate, a servicing asset/liability and an
interest-only strip asset are recognised. The asset/liability is amortised
over the period in which the benefits are expected to be received.
SFAS 133 requires all derivatives to be recorded at fair value as adjusted
by the requirements of EITF 02-03. If certain conditions are met then
the derivative may be designated as a fair value hedge, cash flow hedge
or hedge of the foreign currency exposure of a net investment in a
foreign subsidiary. The change in value of the fair value hedge is
recorded in income along with the change in fair value of the hedged
asset or liability. The change in value of a cash flow hedge is recorded in
other comprehensive income and reclassified to income as the hedged
cash flows affect earnings. The change in the value of a net investment
hedge is recorded in the currency translation reserve and only released
to income when the underlying investment is sold. With a limited
number of exceptions, Barclays has chosen not to update the
documentation of hedges to comply fully with the requirements of
SFAS 133.
Certain terms and conditions of hybrid contracts which themselves
would be standalone derivatives are bifurcated from the underlying
hybrid contract and fair valued if they are not clearly and closely related
to the contract in which they are contained. These are referred to as
embedded derivatives.
The legal form of these products is similar to insurance contracts, which
are accounted for in accordance with SFAS 97. Accordingly, the assets
and liabilities associated with these products are recorded on the
balance sheet.