Barclays 2013 Annual Report Download - page 287

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Note 1: Significant accounting policies continued
(ii) Foreign currency translation
The Group applies IAS 21 The Effects of Changes in Foreign Exchange Rates. Transactions and balances in foreign currencies are translated into
Sterling at the rate ruling on the date of the transaction. Foreign currency balances are translated into Sterling at the period end exchange
rates. Exchange gains and losses on such balances are taken to the income statement.
The Group’s foreign operations (including subsidiaries, joint ventures, associates and branches) based mainly outside the UK may have
different functional currencies. The functional currency of an operation is the currency of the main economy to which it is exposed.
Prior to consolidation (or equity accounting) the assets and liabilities of non-Sterling operations are translated at the closing rate and items of
income, expense and other comprehensive income are translated into Sterling at the rate on the date of the transactions. Exchange differences
arising on the translation of foreign operations are included in currency translation reserves within equity. These are transferred to the income
statement when the Group loses control, joint control or significant influence over the foreign operation or on partial disposal of the operation.
As the consolidated financial statements include partnerships where the Group member is a partner, advantage has been taken of the
exemption under Regulation 7 of the Partnership (Accounts) Regulations 2008 with regard to preparing and filing of individual partnershp
financial statements.
(iii) Financial assets and liabilities
The Group applies IAS 39 Financial Instruments: Recognition and Measurement for the recognition, classification and measurement and
derecognition of financial assets and financial liabilities, for the impairment of financial assets, and for hedge accounting.
Recognition
The Group recognises financial assets and liabilities when it becomes a party to the terms of the contract, which is the trade date or the
settlement date.
Classification and measurement
Financial assets and liabilities are initially recognised at fair value and may be held at fair value or amortised cost depending on the Group’s
intention toward the assets and the nature of the assets and liabilities, mainly determined by their contractual terms.
The accounting policy for each type of financial asset or liability is included within the relevant note for the item. The Group’s policies for
determining the fair values of the assets and liabilities are set out in Note 18.
Derecognition
The Group derecognises a financial asset, or a portion of a financial asset, from its balance sheet where the contractual rights to cash flows
from the asset have expired, or have been transferred, usually by sale, and with them either substantially all the risks and rewards of the asset
or significant risks and rewards, along with the unconditional ability to sell or pledge the asset.
Financial liabilities are derecognised when the liability has been settled, has expired or has been extinguished. An exchange of an existing
financial liability for a new liability with the same lender on substantially different terms – generally a difference of 10% in the present value of
the cash flows – is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability.
Critical accounting estimates and judgements
Transactions in which the Group transfers assets and liabilities, portions of them, or financial risks associated with them can be complex and it
may not be obvious whether substantially all of the risks and rewards have been transferred. It is often necessary to perform a quantitative
analysis. Such an analysis compares the Group’s exposure to variability in asset cash flows before the transfer with its retained exposure after
the transfer.
A cash flow analysis of this nature may require judgement. In particular, it is necessary to estimate the asset’s expected future cash flows as
well as potential variability around this expectation. The method of estimating expected future cash flows depends on the nature of the asset,
with market and market-implied data used to the greatest extent possible. The potential variability around this expectation is typically
determined by stressing underlying parameters to create reasonable alternative upside and downside scenarios. Probabilities are then assigned
to each scenario. Stressed parameters may include default rates, loss severity or prepayment rates.
(iv) Issued debt and equity instruments
The Group applies IAS 32, Financial Instruments: Presentation, to determine whether funding is either a financial liability (debt) or equity.
Issued financial instruments or their components are classified as liabilities if the contractual arrangement results in the Group having a present
obligation to either deliver cash or another financial asset, or a variable number of equity shares, to the holder of the instrument, if this is not
the case, the instrument is generally an equity instrument and the proceeds included in equity, net of transaction costs. Dividends and other
returns to equity holders are recognised when paid or declared by the members at the AGM and treated as a deduction from equity.
Where issued financial instruments contain both liability and equity components, these are accounted for separately. The fair value of the debt
is estimated first and the balance of the proceeds is included within equity.
barclays.com/annualreport Barclays PLC Annual Report 2013 285
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