Barclays 2008 Annual Report Download - page 198

f) observable data indicating that there is a measurable decrease in
the estimated future cash flows from a portfolio of financial assets
since the initial recognition of those assets, although the decrease
cannot yet be identified with the individual financial assets in the
portfolio, including:
(i) adverse changes in the payment status of borrowers in
the portfolio;
(ii) national or local economic conditions that correlate with defaults
on the assets in the portfolio.
For loans and receivables the Group first assesses whether objective
evidence of impairment exists individually for loans and receivables that
are individually significant, and individually or collectively for loans and
receivables that are not individually significant. If the Group determines
that no objective evidence of impairment exists for an individually
assessed loan and receivable, whether significant or not, it includes
the asset in a group of loans and receivables with similar credit risk
characteristics and collectively assesses them for impairment. Loans
and receivables that are individually assessed for impairment and
for which an impairment loss is or continues to be recognised are not
included in a collective assessment of impairment.
The amount of impairment loss is measured as the difference
between the asset’s carrying amount and the present value of estimated
future cash flows discounted at the asset’s original effective interest rate.
The amount of the loss is recognised using an allowance account and
recognised in the income statement.
Where appropriate, the calculation of the present value of the
estimated future cash flows of a collateralised loan and receivable asset
reflect the cash flows that may result from foreclosure costs for obtaining
and selling the collateral, whether or not foreclosure is probable.
For the purposes of a collective evaluation of impairment, loans and
receivables are grouped on the basis of similar risk characteristics, taking
into account asset type, industry, geographical location, collateral type,
past-due status and other relevant factors. These characteristics are
relevant to the estimation of future cash flows for groups of such assets
by being indicative of the counterparty’s ability to pay all amounts due
according to the contractual terms of the assets being evaluated.
Future cash flows in a group of loans and receivables that are
collectively evaluated for impairment are estimated on the basis of the
contractual cash flows of the assets in the group and historical loss
experience for assets with credit risk characteristics similar to those in the
group. Historical loss experience is adjusted based on current observable
data to reflect the effects of current conditions that did not affect the
period on which the historical loss experience is based and to remove the
effects of conditions in the historical period that do not currently exist.
The methodology and assumptions used for estimating future cash
flows are reviewed regularly to reduce any differences between loss
estimates and actual loss experience.
Following impairment, interest income is recognised using the
effective rate of interest which was used to discount the future cash
flows for the purpose of measuring the impairment loss.
When a loan is uncollectable, it is written off against the related
allowance for loan impairment. Such loans are written off after all the
necessary procedures have been completed and the amount of the loss
has been determined. Subsequent recoveries of amounts previously
written off are credited to the income statement.
If, in a subsequent period, the amount of the impairment loss decreases
and the decrease can be related objectively to an event occurring after the
impairment was recognised, the previously recognised impairment loss is
reversed by adjusting the allowance account. The amount of the reversal is
recognised in the income statement.
Equity securities acquired in exchange for loans in order to achieve an
orderly realisation are accounted for as a disposal of the loan and an
acquisition of equity securities. Where control is obtained over an entity as
a result of the transaction, the entity is consolidated. Any further
impairment of the assets or business acquired is treated as an impairment
of the relevant asset or business and not as an impairment of the original
instrument.
In the case of available for sale equity securities, a significant
or prolonged decline in the fair value of the security below its cost is also
considered in determining whether impairment exists. Where such
evidence exists, the cumulative net loss that has been previously
recognised directly in equity is removed from equity and recognised in the
income statement. In the case of debt instruments classified as available
for sale, impairment is assessed based on the same criteria as all other
financial assets. Reversals of impairment of debt instruments are
recognised in the income statement. Reversals of impairment of equity
shares are not recognised in the income statement, increases in the fair
value of equity shares after impairment are recognised directly in equity.
9. Sale and repurchase agreements (including stock borrowing
and lending)
Securities may be lent or sold subject to a commitment to repurchase
them (a ‘repo’). Such securities are retained on the balance sheet when
substantially all the risks and rewards of ownership remain with the Group,
and the counterparty liability is included separately on the balance sheet
when cash consideration is received.
Similarly, where the Group borrows or purchases securities subject
to a commitment to resell them (a ‘reverse repo’) but does not acquire
the risks and rewards of ownership, the transactions are treated as
collateralised loans when cash consideration is paid, and the securities
are not included in the balance sheet.
The difference between sale and repurchase price is accrued over the
life of the agreements using the effective interest method. Securities lent
to counterparties are also retained in the financial statements. Securities
borrowed are not recognised in the financial statements, unless these are
sold to third parties, at which point the obligation to repurchase
the securities is recorded as a trading liability at fair value and any
subsequent gain or loss included in net trading income.
10. Securitisation transactions
Certain 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 financial assets continue to be held on the Group balance sheet,
and a liability recognised for the proceeds of the funding transaction,
unless:
a) substantially all the risks and rewards associated with the financial
instruments have been transferred, in which case, the assets are
derecognised in full; or
b) if a significant portion, but not all, of the risks and rewards have been
transferred, the asset is derecognised entirely if the transferee has the
ability to sell the financial asset, otherwise the asset continues to be
recognised only to the extent of the Group’s continuing involvement.
Where a) or b) above applies to a fully proportionate share of all or
specifically identified cash flows, the relevant accounting treatment
is applied to that proportion of the asset.
Consolidated accounts Barclays PLC
Accounting policies
196 Barclays PLC Annual Report 2008 |Find out more at www.barclays.com/annualreport08