Barclays 2003 Annual Report Download - page 184

Notes to the Accounts
For the Year Ended 31st December 2003
182
61 Differences between UK GAAP and US GAAP accounting principles (continued)
UK GAAP
Consolidation
Entities should be consolidated when they are under the control of the
reporting entity. Under FRS 2 control is the ability to direct the financial
and operating policies of the entity with a view to gaining economic
benefit and may be exercised through majority voting rights or other
means. Under FRS 5 control may also be evidenced by the party that
receives the benefits of the net assets of the entity where financial and
operating policies are predetermined.
Guarantees
Under UK GAAP, a provision will be set up only if it is probable that a
transfer of economic benefits will be required to settle the obligation.
Where this is not the case, no liability is recognised.
Earnings per share
Basic earnings per share (EPS) is net income per weighted average share
in issue. Diluted EPS reflects the effect that existing options would have
on the basic EPS if they were to be exercised, by increasing the number
of ordinary shares.
Cash flow statement
The cash flow statement is prepared according to the requirements of
FRS 1 (revised). It defines cash as cash and balances at central banks and
loans and advances to banks repayable on demand.
US GAAP
Under US GAAP, the Group determines whether it has a controlling
financial interest in an entity by initially evaluating whether the entity
is a voting interest entity, a variable interest entity (VIE) or a qualifying
special purpose entity (QSPE).
Voting interest entities are consolidated in accordance with ARB 51.
ARB 51 states that the usual condition for a controlling financial interest
in an entity is ownership of a majority voting interest.
Under FIN 46, a controlling financial interest in a variable interest entity
is present where an enterprise has a variable interest, or a combination
of variable interests, that will absorb the majority of the entity’s
expected losses, receive a majority of the entity’s expected residual
returns, or both. The enterprise with a controlling financial interest is
the primary beneficiary and is required to consolidate the VIE for
entities established subsequent to 1st February 2003. This requirement
will apply to all VIEs established prior to 31st January 2003 from 2004.
In accordance with SFAS 140 and FIN 46, QSPEs are not consolidated.
Under FIN 45, guarantees issued or modified from 1st January 2003 are
recognised at inception at fair value as a liability on the balance sheet.
The basic EPS under US GAAP differs to the extent that income under
US GAAP differs. In addition, the Diluted EPS differs as the increased
shares are reduced by the number of shares that could be bought (using
the average market price over the year) with the assumed exercise
proceeds (actual proceeds arising on exercise plus unamortised
compensation costs, where appropriate). Any options that are
antidilutive are excluded from this calculation.
The cash flow statement for US GAAP is prepared under SFAS 95, as
amended by SFAS 104. This defines cash being inclusive of cash
equivalents which are short-term highly liquid investments that are both
readily convertible into known amounts of cash and that are so near
maturity that they present insignificant risk of changes in value because
of changes in interest rates. Generally only investments with original
maturities of three months or less are included as cash equivalents.
The two statements differ with regard to the classification of items
within the cash flow statement and with regard to the definition of cash.
Classification Classification
under FRS 1 (revised) under SFAS 95/104
Dividends received Returns on investment Operating activities
and servicing of finance
Dividends paid – equity Equity dividends paid Financing activities
Tax paid Taxation Operating activities
Net change in loans and advances, including finance lease receivables Operating activities Investing activities
Net change in deposits and debt securities in issue Operating activities Financing activities