Barclays 2006 Annual Report Download - page 257

60 Differences between IFRS and US GAAP accounting principles (continued)
IFRS US GAAP
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
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.
The disposal of shares from the Group to a minority shareholder is
recorded in the income statement.
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.
Guarantees
All financial guarantees (other than credit derivatives) are initially
recognised in the financial statements at fair value on the date that the
guarantee was given.
Classification of debt and equity
From 1st January 2005, certain subordinated instruments issued by the
Group are treated as equity under IFRS where they contain no present
obligation to deliver cash or another financial asset to a holder. If these
are held in foreign currency, the instrument is translated into the
reporting currency at the exchange rate ruling on the date of issuance.
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.
The disposal of shares from the Group to a minority shareholder is
recorded directly in equity.
Transfers of financial assets through securitisation are derecognised
if the securitisation entity’s activities comply with certain rigorous
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.
Where appropriate, upon derecognition a servicing asset/liability and
retained interest in the transferred assets 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.
Under FIN 45, only guarantees issued or modified from 1st January 2003
are recognised at inception at fair value as a liability on the balance sheet.
These instruments are treated as debt instruments under US GAAP and
are translated at the rate ruling at the balance sheet date.
Barclays PLC
Annual Report 2006 253
Financial statements
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