Barclays 2006 Annual Report Download - page 256

60 Differences between IFRS and US GAAP accounting principles (continued)
IFRS US GAAP
Insurance
Life assurance products that are not classified as insurance contracts are
accounted for under IAS 39. Products with sufficient insurance risk to be
classified as insurance contracts are accounted for under the Modified
Statutory Solvency Basis or similar bases.
Reinsurance contracts that transfer sufficient insurance risk are
accounted for as insurance contracts, otherwise they are accounted
for under IAS 39. Gains and losses recognised on entering reinsurance
contracts are recognised in income.
Revaluation of property
The carrying amount of property, plant and equipment included in the
UK GAAP balance at 31st December 2003 has been carried forward into
the IFRS balance sheet at 1st January 2004 without adjustment as
deemed cost. This results in property being carried either at original cost
or at a subsequent valuation less related depreciation, calculated on the
revalued amount where applicable.
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.
Under US GAAP, life assurance products are accounted for under SFAS
60, SFAS 97 and SOP 03-01, depending on the nature of the underlying
product and the level of insurance risk. This gives rise to measurement
and classification differences.
Similar to IFRS, reinsurance contracts that transfer sufficient insurance
risk are classified as insurance contracts. Where reinsurance contacts
are further classified as Prospective Reinsurance, any gains and losses
recognised from the transaction are deferred and amortised over the
remaining contact period in proportion to the amount of insurance
protection provided.
Revaluations of property are not permitted under US GAAP.
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. In particular, qualifying IFRS hedge accounting relationships that
do not meet the criteria under US GAAP include:
•IFRS hedge accounting relationships that are a fair value hedge of
the interest rate risk exposure of a portfolio of loans for which the
hedged item is designated in terms of an amount of currency rather
than as individual loans. US GAAP does not permit this hedge
accounting methodology.
•IFRS hedge accounting relationships for which no equivalent
US GAAP hedge has been designated or that were designated at
a later date for US GAAP purposes.
US GAAP only permits the ‘fair value option’ for financial assets and
liabilities that contain embedded derivatives that otherwise are required
to be separated from their host contract. Financial instruments that
qualify for the ‘fair value option’ under IFRS but which are not measured
at fair value through profit or loss under US GAAP are as follows:
•In accordance with SOP 01-6, originated loans are reported at
outstanding principal adjusted for any charge-offs, the allowance
for loans losses and any deferred origination fees or costs.
•Debt, including deposits, is recorded at face value less any discount
or plus any premium.
•Structured financial liabilities that are not required to be separated into
a host contract and a derivative are measured on an amortised cost basis.
•In accordance with SFAS 115, available for sale debt securities are
measured at fair value with changes in fair value recognised in equity.
•Mortgage loans held-for-sale are accounted for at the lower of cost
or market value in accordance with SFAS 65.
•Contracts that meet the definition of a financial guarantee in
accordance with SFAS 133.10(d) are initially measured at fair value
and subsequently amortised over the life of the guarantee in
accordance with the provisions of FIN 45.
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 profit or loss.
Notes to the accounts
For the year ended 31st December 2006
Barclays PLC
Annual Report 2006
252