Barclays 2004 Annual Report Download - page 126

Consolidated accounts Barclays PLC
Accounting policies
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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 properties, 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 1985. 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 2003 Annual
Report are set out on page 129.
(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 50. 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.
Equity minority interests in the balance sheet represent the interests of
third parties in the equity shares of the Group subsidiary undertakings.
(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.
In the ordinary course of the private equity business the Group makes
investments that might be classified as joint ventures. As required by
FRS 9 ‘Associates and Joint Ventures’, these investments are accounted
for at cost, less any provision for impairment. This is a departure from
the requirements of the Companies Act 1985 which requires joint
ventures to be accounted for using the equity method of accounting.
The Directors believe that this departure is necessary to present a true
and fair view of these investments. Accounting for these investments
in accordance with the Companies Act would increase ‘Interests in
joint ventures – share of gross assets’ by £281m, ‘Interests in joint
ventures – share of gross liabilities’ by £149m and ‘Loss from joint
ventures’ by £1m.
(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).