Barclays 2004 Annual Report Download - page 131

Barclays PLC Annual Report 2004
129
(t) Credit Related Instruments
The Group treats credit related instruments (other than credit
derivatives) as contingent liabilities and these are not shown on the
balance sheet unless, and until, the Group is called upon to make
a payment under the instrument. Assets arising from payments to
a third party where the Group is awaiting reimbursement from the
customer, are shown on the balance sheet where reimbursement is
considered to be virtually certain. Fees received for providing these
instruments are taken to profit over the life of the instrument and
reflected in fees and commissions receivable.
(u) Sale and Repurchase Agreements (including Stock Borrowing
and Lending)
The Group enters into sale and repurchase agreements, including
stock lending arrangements (repos), and purchase and resale
agreements, including stock borrowing arrangements (reverse repos).
Under a repo (sale and repurchase agreement) an asset is sold (or lent)
to a counterparty with a commitment to repurchase (or return) the
assets at a future date at an agreed price. A reverse repo is the same
transaction from the opposite viewpoint. The cash legs of these
transactions are included within loans and advances to banks, loans
and advances to customers, deposits by banks and customer accounts.
The Group aims to earn net interest income and dealing profits from
these activities, as well as funding its own holdings of securities. The
difference between sale and repurchase and purchase and resale prices
for such transactions, including dividends received where appropriate,
is charged or credited to the profit and loss account over the life of the
relevant transactions.
(v) Securitisation Transactions
Certain Group undertakings have issued debt securities or have entered
into funding arrangements with lenders in order to finance specific
loans and advances to customers. In accordance with FRS 5, these
balances are either accounted for on the basis of linked presentation
or through separate recognition of the gross assets and related funding.
(w) Capital Instruments
Debt securities in issue and similar securities are stated at the net issue
proceeds adjusted for amortisation of premiums, discounts and
expenses related to their issue where the liability is a fixed amount.
Where the liability fluctuates, based on, for example, the performance
of an index then the debt security reflects the current value of the
liability.
Loan capital in issue is stated at the net issue proceeds adjusted for
amortisation of premiums, discounts and expenses related to their
issue. Amortisation is calculated in order to achieve a constant yield
across the life of the instrument.
(x) Internally Developed Software
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.
Changes in Accounting Policy
A change in accounting policy arose from the adoption in 2004 of
UITF Abstract 38 (UITF 38), ‘Accounting for ESOP trusts’. UITF 38
requires Barclays PLC shares held in Employee Share Ownership Plans
(ESOP) trusts to be accounted for as a deduction in arriving at
shareholders’ funds, rather than as assets. The balance sheet for
December 2003 has been restated accordingly, and other assets and
shareholders’ funds have been reduced by £153m at 31st December
2004 (2003: £99m, 2002: £55m). There was no impact on the 2003
or 2004 profit and loss account.
There have been no other significant changes to the accounting
policies as described in the 2003 Annual Report.
Future UK Accounting Developments
During 2004 the Accounting Standards Board (ASB) issued seven
new Financial Reporting Standards, FRS 20 to FRS 26, as part of its
convergence programme between UK GAAP and International
Financial Reporting Standards (IFRS). These new UK standards, which
are not effective until 2005, will not impact the Group, because of the
conversion to IFRS in 2005, as discussed below.
In December 2004 the ASB issued FRS 27 ‘Life Assurance’. Following
feedback received in response to the exposure draft issued in July 2004,
the ASB has deferred implementation of the standard until 2005.
However, in line with the Memorandum of Understanding entered into
by the ASB, together with the Association of British Insurers and major
insurers and bancassurers, Barclays is making additional voluntary
disclosure in respect of its life assurance business on page 119.
International Financial Reporting Standards
By Regulation, the European Union (EU) has agreed that virtually all
listed companies must use International Financial Reporting Standards
(IFRS) adopted for use in the EU in the preparation of their 2005
consolidated accounts. Barclays will comply with this Regulation. The
objective is to improve financial reporting and enhance transparency
to assist the free flow of capital throughout the EU and to improve the
efficiency of the capital markets.
The Group commenced a programme of work in 2002, initially
identifying the differences between IFRS and existing UK standards
based on the requirements then in force. This led to a programme of
work led centrally, but involving all the businesses and functions, to
change systems and processes and to provide training so as to ensure
that the Group can meet the requirements fully in 2005. In addition,
the programme is assisting the businesses and functions to consider
and address the wider business impact of the change in reporting in
the EU. This work is nearing completion. Conversion work, including
reviewing the accuracy of the opening balances, will continue
during 2005.