Barclays 2006 Annual Report Download - page 155

Consolidated accounts Barclays PLC
Accounting policies
Barclays PLC
Annual Report 2006 151
Financial statements
3
Significant Accounting Policies
1. Reporting entity
These financial statements are prepared for the Barclays PLC Group
(‘Barclays’ or ‘the Group’) under Section 227(2) of the Companies Act
1985. The Group is a major global financial services provider engaged
in retail and commercial banking, credit cards, investment banking,
wealth management and investment management services. In addition,
individual financial statements have been prepared for the holding
company, Barclays PLC (‘the Company’), under Section 226(2)(b) of the
Companies Act 1985.
Barclays PLC is a public limited company, incorporated in England and
Wales and having a registered office in England and Wales.
2. Compliance with International Financial Reporting Standards
The consolidated financial statements of the Barclays PLC Group, and
the individual financial statements of Barclays PLC, have been prepared
in accordance with International Financial Reporting Standards (IFRSs)
and interpretations issued by the International Financial Reporting
Interpretations Committee (IFRIC), as adopted by the European Union.
They are also in accordance with IFRSs as published by the International
Accounting Standards Board (IASB) and interpretations issued by IFRIC.
The principal accounting policies applied in the preparation of the
consolidated and individual financial statements are set out below.
These policies have been consistently applied.
3. Basis of preparation
The consolidated and individual financial statements have been
prepared under the historical cost convention modified to include the
fair valuation of certain financial instruments and contracts to buy or
sell non-financial items and trading inventories to the extent required
or permitted under accounting standards and as set out in the relevant
accounting polices. They are stated in millions of pounds Sterling (£m),
the currency of the country in which Barclays PLC is incorporated.
Critical accounting estimates
The preparation of financial statements in accordance with IFRS
requires the use of certain critical accounting estimates. It also requires
management to exercise judgement in the process of applying the
accounting policies. The notes to the financial statements set out areas
involving a higher degree of judgement or complexity, or areas where
assumptions are significant to the consolidated and individual financial
statements such as fair value of financial instruments (Note 58),
allowance for loan impairment (Note 17), goodwill (Note 23), intangible
assets (Note 24), and retirement benefit obligations (Note 35).
4. Consolidation
Subsidiaries
The consolidated financial statements combine the financial
statements of Barclays PLC and all its subsidiaries, including certain
special purpose entities where appropriate, made up to 31st December.
Entities qualify as subsidiaries where the Group has the power to govern
the financial and operating policies of the entity so as to obtain benefits
from its activities, generally accompanying a shareholding of more than
one half of the voting rights. The existence and effect of potential voting
rights that are currently exercisable or convertible are considered in
assessing whether the Group controls another entity. Details of the
principal subsidiaries are given in Note 47.
Subsidiaries are consolidated from the date on which control is
transferred to the Group and cease to be consolidated from the date
that control ceases.
The acquisition method of accounting is used to account for the
purchase of subsidiaries. The cost of an acquisition is measured at the
fair value of the assets given, equity instruments issued and liabilities
incurred or assumed, plus any costs directly related to the acquisition.
The excess of the cost of an acquisition over the Group’s share of the fair
value of the identifiable net assets acquired is recorded as goodwill.
See accounting policy 14 for the accounting policy for goodwill.
Intra-group transactions and balances are eliminated on consolidation
and consistent accounting policies are used throughout the Group for
the purposes of the consolidation.
As the consolidated financial statements include partnerships where a
Group member is a partner, advantage has been taken of the exemption
of Regulation 7 of the Partnerships and Unlimited Companies
(Accounts) Regulations 1993 with regard to the preparation and filing
of individual partnership financial statements.
Associates and joint ventures
An associate is an entity in which the Group has significant influence,
but not control, over the operating and financial management policy
decisions. This is generally demonstrated by the Group holding in
excess of 20%, but no more than 50%, of the voting rights.
A joint venture exists where the Group has a contractual arrangement
with one or more parties to undertake activities typically, though not
necessarily, through entities which are subject to joint control.
Unless designated as at fair value through profit and loss as set out in
policy 7, the Group’s investments in associates and joint ventures are
initially recorded at cost and increased (or decreased) each year by the
Group’s share of the post-acquisition net income (or loss), or other
movements reflected directly in the equity of the associated or jointly
controlled entity. Goodwill arising on the acquisition of an associate
or joint venture is included in the carrying amount of the investment
(net of any accumulated impairment loss). When the Group’s share of
losses in an associate or joint venture equals or exceeds the recorded
interest, including any other unsecured receivables, the Group does
not recognise further losses, unless it has incurred obligations or made
payments on behalf of the entity.
The Group’s share of the results of associates and joint ventures is based
on financial statements made up to a date not earlier than three months
before the balance sheet date, adjusted to conform with the accounting
polices of the Group. Unrealised gains on transactions are eliminated to
the extent of the Group’s interest in the investee. Unrealised losses are
also eliminated unless the transaction provides evidence of impairment
in the asset transferred.
In the individual financial statements, investments in subsidiaries,
associates and joint ventures are stated at cost less impairment, if any.
5. Foreign currency translation
The consolidated and individual financial statements are presented in
Sterling, which is the functional currency of the parent company.
Items included in the financial statements of each of the Group’s entities
are measured using their functional currency, being the currency of the
primary economic environment in which the entity operates.
Foreign currency transactions are translated into the appropriate
functional currency using the exchange rates prevailing at the dates of
the transactions. Monetary items denominated in foreign currencies are
retranslated at the rate prevailing at the period end. Foreign exchange
gains and losses resulting from the retranslation and settlement of these
items are recognised in the income statement except for qualifying cash
flow hedges or hedges of net investments. See policy 12 for the policies
on hedge accounting.
Non-monetary assets that are measured at fair value are translated
using the exchange rate at the date that the fair value was determined.
Exchange differences on equities and similar non-monetary items held
at fair value through profit or loss, are reported as part of the fair value
gain or loss. Translation differences on equities classified as available
for sale financial assets and non-monetary items are included directly
in equity.