Barclays 2004 Annual Report Download - page 202

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Notes to the accounts
For the year ended 31st December 2004
52 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. In addition, under FRS 5, entities 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.
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.
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.
Revenue recognition
The Group recognises revenue on both external and internal
transactions executed on an arm’s-length basis in accordance with
current market practice, FRS 5 and appropriate industry SORPs.
Dividend payable
Dividends declared after the period end are recorded in the period to
which they relate.
Classification of debt and equity and related translation differences
Under UK GAAP, the Reserve Capital Instruments are classified as
liabilities.
Certain debt issuances, including Reserve Capital Instruments, are
treated as hedges of foreign operations and exchange differences are
taken directly to reserves.
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 variable interest entity (VIE), voting interest entity, or a qualifying
special purpose entity (QSPE).
Under FIN 46-R, 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.
Voting interest entities are evaluated for consolidation 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.
In accordance with SFAS 140 and FIN 46-R, QSPEs are not consolidated.
Transfers of financial assets deemed as sales under SFAS 140 are
derecognised and, where appropriate, a servicing asset/liability and
retained interest are recognised. The asset/liability is amortised over
the period in which the benefits are expected to be received.
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.
Under US GAAP, there are several sources of guidance on income
recognition including SAB 101. The application of this guidance in
certain circumstances may lead to an alternative recognition profile,
particularly the elimination of intra-Group transactions.
Dividends are recorded in the period in which they are declared.
Under US GAAP, the Reserve Capital Instruments are classified as
equity instruments and are translated at the rate ruling on date
of issue.
Other debt issuances designated as hedges under UK GAAP are
similarly treated under US GAAP in the instances where the SFAS 133
hedge accounting criteria are met.