Barclays 2015 Annual Report Download - page 264

262 I Barclays PLC Annual Report 2015 home.barclays/annualreport
Notes to the financial statements
For the year ended 31 December 2015
1 Significant accounting policies continued
Based on the current requirements of CRD IV, the expected increase in the accounting impairment provision would reduce CET1 capital but the
impact would be partially mitigated by the ‘excess of expected losses over impairment’ included in the CET1 calculation as discussed on page 183.
Classification and measurement
IFRS 9 will require financial assets to be classified on the basis of two criteria:
1) the business model within which financial assets are managed, and
2) their contractual cash flow characteristics (whether the cash flows represent ‘solely payments of principal and interest’).
Financial assets will be measured at amortised cost if they are held within a business model whose objective is to hold financial assets in order to
collect contractual cash flows, and their contractual cash flows represent solely payments of principal and interest.
Financial assets will be measured at fair value through other comprehensive income if they are held within a business model whose objective is
achieved by both collecting contractual cash flows and selling financial assets, and their contractual cash flows represent solely payments of
principal and interest.
Other financial assets are measured at fair value through profit and loss. There is an option to make an irrevocable election for non-traded equity
investments to be measured at fair value through other comprehensive income.
The accounting for financial liabilities is largely unchanged, except for financial liabilities designated at fair value through profit and loss. Gains and
losses on such financial liabilities arising from changes in Barclays’ own credit risk will be presented in other comprehensive income rather than in
profit and loss.
Hedge accounting
IFRS 9 contains revised requirements on hedge accounting, which are more closely aligned with an entity’s risk management strategies and risk
management objectives. The new rules would replace the current quantitative effectiveness test with a simpler version, and requires that an
economic relationship exist between the hedged item and the hedging instrument. Under the new rules, voluntary hedge de-designations would
not be allowed.
Adoption of the IFRS 9 hedge accounting requirements is optional, and certain aspects of IAS 39, being the portfolio fair value hedge for interest
rate risk, would continue to be available for entities (while applying IFRS 9 to the remainder of the entity’s hedge accounting relationships) until
the IASB completes its accounting for dynamic risk management project. Barclays is considering the most appropriate approach to adopt in this
area.
IFRS 15 – Revenue from Contracts with Customers
In 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers which will replace IAS 18 Revenue and IAS 11 Construction Contracts. It
applies to all contracts with customers except leases, financial instruments and insurance contracts. The standard will establish a more systematic
approach for revenue measurement and recognition. During July 2015, the IASB confirmed the deferral of the effective date by one year to
1 January 2018. The standard has not yet been endorsed by the EU. Adoption of the standard is not expected to have a significant impact.
IFRS 16 – Leases
In January 2016, the IASB issued IFRS 16 Leases, which will replace IAS 17 Leases. Under the new requirements, lessees would be required to
recognise assets and liabilities arising from both operating and finance leases on the balance sheet. The expected effective date is 1 January 2019.
The standard has not yet been endorsed by the EU.
Insurance contracts
The IASB also plans to issue a new standard on insurance contracts.
The Group is in the process of considering the financial impacts of the new standards.
Critical accounting estimates and judgements
The preparation of financial statements in accordance with IFRS requires the use of estimates. It also requires management to exercise judgement
in applying the accounting policies. The key areas involving a higher degree of judgement or complexity, or areas where assumptions are
significant to the consolidated and individual financial statements are highlighted under the relevant note. Critical accounting estimates and
judgements are disclosed in:
Page Page
Credit impairment charges and other provisions 265 Fair value of financial instruments 277
Income taxes 268 Provisions 301
Available for sale assets 276 Retirement benefit obligations 323
Other disclosures
To improve transparency and ease of reference, by concentrating related information in one place, and to reduce duplication, certain disclosures
required under IFRS have been included within the Risk management section as follows:
 Segmental reporting on pages 225 to 241
 Credit risk management, on pages 132 and 133, including exposures to selected countries
 Market risk, on pages 134 and 135
 Funding risk – capital, on pages 136 and 137
 Funding risk – liquidity, on page 138.
These are covered by the Audit opinion included on pages 245 to 252.