Barclays 2005 Annual Report Download - page 265

Barclays PLC
Annual Report 2005 263
3.5
63 Differences between IFRS and US GAAP accounting principles (continued)
IFRS US GAAP
Hedging
As at 1st January 2005, all derivatives were recognised at fair value and
adjustments were made to hedged items where appropriate to comply
with the IFRS First-Time Adoption rules for hedge accounting. Where
hedges have been designated and documented in compliance with
IFRS, hedge accounting has been subsequently applied from that date.
Financial instruments
Financial assets and financial liabilities may be designated at fair value
through profit or loss (the ‘fair value option’) where they contain
substantive embedded derivatives, where doing so significantly reduces
measurement inconsistencies, or where they are managed and
evaluated on a fair value basis with a documented risk management
or investment strategy and reported to Key Management Personnel on
that basis.
Foreign exchange on available for sale securities
Changes in the fair value of available for sale debt securities resulting
from movements in foreign currency exchange rates are reflected in the
income statement as exchange differences.
Fee and cost recognition
IAS 39 does not consider certain internal costs to be incremental costs
directly attributable to the origination of financial instruments and are
excluded from effective interest calculations and are taken as an
expense to income.
Redemption fees are deferred and amortised on the balance sheet using
the effective yield method.
Specific accounting guidance for leveraged leases does not exist under
IFRS. Income is recognised on an effective yield basis.
Consolidation of SPEs
Under SIC-12 an SPE is consolidated by the entity that is deemed to
control it. Indicators of control include the SPE conducting activities on
behalf of the entity or the entity holding the majority of the risks and
rewards of the SPE.
Securitisations
Group undertakings have issued debt securities or have entered into
funding arrangements with lenders in order to finance specific loans
and advances to customers. All such loans and advances continue to be
held on the Group balance sheet, and a liability recognised for the
proceeds of the funding transaction, unless certain conditions are met.
IFRS allows for the partial derecognition of transferred financial assets
where the Group has a continuing involvement in them.
IFRS First-Time Adoption hedging derivatives adjustments made on the
transition to IFRS have been reversed.
In certain instances, positions which achieve hedge accounting under
IFRS do not meet hedge accounting conditions under US GAAP, and
vice versa.
US GAAP does not permit an entity to apply the ‘fair value option’.
These instruments have to be measured in accordance with the
appropriate US GAAP.
Certain entities have been deemed to be investment companies or
broker/dealers in accordance with the specific industry guidance
applicable to those entities under US GAAP. The specific industry
guidance requires certain financial instruments, held within these
entities, to be measured at fair value through income.
Under EITF 96-15, as amended by SFAS 133, changes in the value of
available for sale debt instruments due to changes in foreign currency
exchange rate are carried in shareholders’ equity and transferred to
income on sale of the instrument.
SFAS 91 requires loan origination fees and direct costs (including
certain internal costs) to be deferred and amortised over the life of
the loan as an adjustment of yield.
Redemption fees are recorded in income as received.
Leveraged leases require income to be recognised only during the
period that the net investment in the lease is positive.
In accordance with FIN 46-R Variable Interest Entities (VIEs) are
consolidated by the interest holder that remains exposed to the
majority of the entity’s expected losses or residual returns, that is,
the primary beneficiary.
Where an SPE is deemed a ‘Qualifying Special Purpose Entity’ (QSPE),
it is not consolidated.
Transfers of financial assets through securitisation are derecognised
if the securitisation entity’s activities comply with certain stringent
accounting requirements to be considered a QSPE. If the securitisation
entity’s activities are sufficiently restricted to be considered a QSPE, the
entity is not consolidated by the seller of the transferred assets.
Upon derecognition, a servicing asset/liability and retained interest in
the transferred assets, where appropriate, is recognised. Any recognised
servicing asset/liability is amortised over the period in which the
benefits are expected to be received.
US GAAP does not permit the application of ‘continuing involvement’
principles to achieve partial derecognition of transferred financial assets.