Barclays 2005 Annual Report Download - page 257

Barclays PLC
Annual Report 2005 255
3.5
62 First-time adoption of International Financial Reporting Standards (IFRS) (continued)
Differences between UK GAAP and IFRS
The significant differences between the Group’s UK GAAP accounting policies and IFRS accounting policies are summarised below.
UK GAAP IFRS
(a) Consolidation and presentation
The Group financial statements consolidate the assets, liabilities and the
profits and losses of subsidiaries using the acquisition method. Entities
which do not qualify as subsidiaries but which in substance give rise to
benefits that are in essence no different from those that would arise
were the entity a subsidiary, are included in the consolidated financial
statements.
In accordance with FRS 5, securitisation transactions which qualified are
accounted for on the basis of linked presentation.
(b) Life assurance
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 other
shareholders is included in Other assets and the assets and liabilities
attributable to policyholders are classified under separate headings in
the consolidated balance sheet.
The value of the shareholders’ interest in the retail long-term assurance
fund represents an estimate of the net present value of the profits
inherent in the in-force policies, (embedded value accounting). All life
assurance products are accounted for in the same way; there is no
distinction between investment contracts and insurance contracts.
(c) Investments in associated companies and joint ventures
Investments in associated companies and joint ventures are accounted
for using the equity method where the Group has the ability to exert
significant influence and actually does so. Where incurred, losses are
recognised in full.
(d) Goodwill
Goodwill arising on acquisitions of subsidiaries and associated
companies and joint ventures is capitalised and amortised through
the profit and loss account on a straight-line basis over its expected
economic life. Capitalised goodwill is written off when judged to
be impaired. Prior to 1998, goodwill arising on the acquisition of
subsidiaries was eliminated directly against reserves.
The Group financial statements consolidate the assets, liabilities and
the profits and losses of subsidiaries using the acquisition method.
A subsidiary is an entity which the Group controls, including special
purpose entities which are in substance controlled by the Group.
Linked presentation is not available under IFRS. Therefore, the gross
assets and the related funding are presented separately.
The retail long-term assurance business is consolidated on a line-by-line
basis with assets, liabilities and income and expenditure, whether
attributable to shareholders or attributable to policyholders, being
included in the lines that reflect their nature.
In accordance with IFRS from 2005, life assurance products are divided
into investment contracts, which are accounted for under
IAS 39 and insurance contracts, which under IFRS 4 continue to be
accounted for under UK GAAP. The life fund is closed to new business
and the volume of contracts which fall to be accounted for as insurance
contracts under IFRS is not significant. Therefore, it was considered
more appropriate to change the accounting policy for insurance
contracts to a Modified Statutory Solvency Basis. This change will allow
the insurance contracts to be accounted for on a similar basis to
investment contracts from 2005. This change in policy applies from
1st January 2004 and the Modified Statutory Solvency Basis has been
applied to all contracts, whether they will be classified as insurance
contracts or as investment contracts in 2005.
Investments in associates and joint ventures are accounted for using
the equity method where the Group has the ability to exert significant
influence or control jointly. Losses are recognised up to the point where
the investment in the entity or joint venture has been eliminated, and
subsequent profits only to the extent that unrecognised cumulative
losses have been made good.
Before using the equity accounting method, adjustments are made
to ensure that the results of associates and joint ventures have been
prepared based on Group accounting policies. The difference between
accounts prepared using UK GAAP policies and IFRS policies has
resulted in a restatement of the investments in associates and joint
ventures as at 1st January 2004.
Goodwill arising on acquisitions of subsidiaries and associates and joint
ventures is capitalised and tested annually for impairment.
Amounts recognised in the UK GAAP balance sheet at 1st January 2004
have been carried forward without adjustment into the balance sheet
prepared in accordance with IFRS as deemed cost after being tested for
impairment. Goodwill previously written off to reserves in accordance
with UK GAAP has not been reinstated on the balance sheet. Goodwill
amortised under UK GAAP in 2004 has been written back in the 2004
IFRS financial statements.