Barclays 2007 Annual Report Download - page 167

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Financial statements
Consolidated accounts Barclays PLC
Accounting policies
Barclays PLC Annual Report 2007 165
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 Great Britain
and having a registered office in England.
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 published by the International
Accounting Standards Board (IASB). They are also in accordance with
IFRSs and IFRIC interpretations as adopted by the European Union.
IFRS 7 ‘Financial Instrument Disclosures’ and an amendment to IAS 1
‘Presentation of Financial Statements’ on capital disclosures were
implemented in 2007, resulting in new or revised disclosures.
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 49), allowance
for impairment (Note 47), goodwill (Note 21), intangible assets (Note 22),
and retirement benefit obligations (Note 30).
4. Consolidation
Subsidiaries
The consolidated financial statements combine the financial statements
of Barclays PLC and all its subsidiaries, including certain special purpose
entities (SPEs) 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 40.
SPEs are consolidated when the substance of the relationship between
the Group and that entity indicates control. Potential indicators of control,
as set out in SIC 12 ‘Consideration – Special Purpose Entities’, include,
amongst others, an assessment of the Group’s exposure to the risks and
benefits of the SPE.
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 profit (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.