Barclays 2003 Annual Report Download - page 197

Barclays PLC Annual Report 2003 195
61 Differences between UK GAAP and US GAAP accounting principles (continued)
(l) Provisions for restructuring of business (continued)
The US GAAP balance sheet liability at 31st December 2003 was £71m (2002: £68m) of which £37m (2002: £31m) was in respect of staff reduction
costs covering an anticipated 1,000 employees (2002: 800), £12m (2002: £29m) in respect of the planned disposition of certain facilities and £22m
(2002: £8m) covering other related costs. Costs in the year to 31st December 2003 amounted to £183m (2002: £132m) in respect of a staff reduction
of 4,400 employees (2002: 2,600), £45m (2002: £37m) relating to disposition of facilities and £27m (2002: £31m) for other related costs.
(m) Internal use software
2003 2002 2001
£m £m £m £m £m £m
Additional US GAAP shareholders’ funds brought forward 81 288 218
Expenditure to be capitalised under US GAAP 74 60 186
Amortisation (64) (136) (110)
Write-offs (24) (131) (6)
(Charge)/credit to US GAAP net income (14) (207) 70
Additional US GAAP shareholders’ funds carried forward 67 81 288
A review of costs capitalised in previous years and useful lives assigned is undertaken annually. Capitalised costs which are no longer considered
recoverable are written off.
(n) Foreign exchange on available for sale securities
Within individual legal entities Barclays holds securities in a number of different currencies which are classified as available for sale. In general, no
foreign exchange exposure arises from this because, although the value of the assets changes in sterling terms according to the exchange rate, there
is an identical offsetting change in the sterling value of the related funding. Under UK GAAP both the assets and the liabilities are generally translated
at closing exchange rates and the differences between historical book value and current value are reflected in the profit and loss account.
Under US GAAP, the change in value of the investments is taken directly to reserves while the offsetting change in sterling terms of the borrowing is
taken to the income statement.
A similar difference arises where foreign currency assets are covered using forward contracts but where the Group does not manage these hedges to
conform with the detailed US designation requirements.
The impact of this requirement is to transfer net foreign exchange gains or losses on currency securities from net income to other comprehensive
income. No difference between the Group’s UK and US GAAP shareholders’ equity arises from this transfer.
(o) Derivatives
SFAS 133 requires all derivatives to be recorded at fair value. 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. Barclays has chosen not to update the
documentation of hedges to fully comply with the requirements of SFAS 133 and therefore, in general, economic hedge relationships do not qualify
for treatment as hedges under US GAAP. Accordingly, adjustments in current or past periods to US GAAP net income in respect of derivatives which
qualify for hedge accounting under UK GAAP, are not necessarily indicative of the magnitude or direction of such adjustments to US GAAP net
income in subsequent periods.
The adjustment to net income comprises the following elements:
2003 2002 2001(b)
£m £m £m
Mark to market adjustment(a) (761) 548 476
Embedded derivatives (194) 109 (90)
Deferred gains and losses (46) 12 (28)
Amortisation of fair value hedge (140) (156) (128)
Reclassification of gains and losses from Other comprehensive income to net income 39 40 28
Hedges of available for sale securities ––20
(1,102) 553 278
Note
(a) EITF 02-03 was clarified in November 2002 to require the measurement of the derivative fair values based on quoted market prices, or in the
absence of quoted market prices, valuation techniques with observable inputs from active markets. For all Over The Counter derivatives which
contain significant valuation inputs not currently evidenced by observable market inputs, inception gains and losses have been fully reserved.
They will be released as and when the inputs become observable. The mark to market adjustment in the above table is shown net of the reversal
of unrealised day 1 profit and loss on derivative contracts.
(b) The 2001 figures include the adjustment reflecting the transition to SFAS 133 as at 1st January 2001.