Barclays 2004 Annual Report Download - page 217

Barclays PLC Annual Report 2004
215
52 Differences between UK GAAP and US GAAP accounting principles (continued)
(m) Internal use software
2004 2003 2002
£m £m £m £m £m £m
Additional US GAAP shareholders’ funds brought forward 67 81 288
Expenditure to be capitalised under US GAAP 23 74 60
Amortisation (20) (64) (136)
Write-offs (50) (24) (131)
Charge to US GAAP net income (47) (14) (207)
Additional US GAAP shareholders’ funds carried forward 20 67 81
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 derivative hedges to fully comply with the requirements of SFAS 133 and therefore, with a limited number of
exceptions, 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:
2004 2003 2002
£m £m £m
Mark to market adjustment(a) (586) (761) 548
Embedded derivatives 182 (194) 109
Deferred gains and losses 10 (46) 12
Amortisation of fair value hedge (10) (140) (156)
Reclassification of gains and losses from Other comprehensive income to net income 40 39 40
(364) (1,102) 553
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.