Barclays 2010 Annual Report Download - page 201

1 Significant accounting policies continued
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 and other similar secured lending and borrowing
Securities may be 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. The transactions are treated as collateralised borrowing and the counterparty liability is
presented separately on the balance sheet as repurchase agreements and other similar secured borrowing. Similar secured borrowing transactions
including securities lending transactions and collateralised short-term notes are treated and presented in the same way.
Similarly, the Group borrows or purchases securities subject to a commitment to resell them (a reverse repo). Such securities are not included in the
balance sheet as the Group does not acquire the risks and rewards of ownership. The transactions are treated as collateralised loans and the
counterparty asset is presented separately on the balance sheet as reverse repurchase agreements and other similar secured lending. Where the Group
enters into similar secured lending transactions, such as securities borrowing, these are treated and presented in the same way.
These secured financing transaction are initially recognised at fair value, and subsequently valued at amortised cost, using the effective interest method.
Securities lent to counterparties are 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.
10. Securitisation transactions
The Group enters into securitisation transactions in respect of its own financial assets and to facilitate client transactions as described in Note 36
to the accounts.
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.
11. Collateral and netting
The Group enters into master agreements with counterparties whenever possible and, when appropriate, obtains collateral. Master agreements
provide that, if an event of default occurs, all outstanding transactions with the counterparty will fall due and all amounts outstanding will be settled
on a net basis.
Collateral
The Group obtains collateral in respect of customer liabilities where this is considered appropriate. The collateral normally takes the form of a lien over
the customer’s assets and gives the Group a claim on these assets for both existing and future customer liabilities.
The Group also receives collateral in the form of cash or securities in respect of other credit instruments, such as stock borrowing contracts, and
derivative contracts in order to reduce credit risk. Collateral received in the form of securities is not recorded on the balance sheet. Cash collateral
received is recorded on the balance sheet with a corresponding liability within deposits received from banks or customers. Any interest payable or
receivable arising is recorded as interest expense or interest income respectively except for funding costs relating to trading activities which are recorded
in net trading income.
Netting
Financial assets and liabilities are offset and the net amount reported on the balance sheet if, and only if, there is a legally enforceable right to set off the
recognised amounts and there is an intention to settle on a net basis, or to realise an asset and settle the liability simultaneously. In many cases, even
though master netting agreements are in place, the lack of an intention to settle on a net basis results in the related assets and liabilities being presented
gross on the balance sheet.
12. Hedge accounting
Derivatives are used to hedge interest rate, exchange rate, commodity, and equity exposures and exposures to certain indices such as house price
indices and retail price indices related to non-trading positions. Where derivatives are held for risk management purposes, and when transactions meet
the required criteria, the Group applies fair value hedge accounting, cash flow hedge accounting, or hedging of a net investment in a foreign operation
as ppropriate to the risks being hedged. When a financial instrument is designated as a hedge, the Group formally documents the relationship between
the hedging instrument and hedged item as well as its risk management objectives and its strategy for undertaking the various hedging transactions.
The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging
transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.
Barclays PLC Annual Report 2010 www.barclays.com/annualreport10 199
Strategy Performance Risk management and governance Shareholder informationFinancial statementsAbout Barclays