BP 2006 Annual Report Download - page 102

100
Notes on financial statements
1 Significant accounting policies
Authorization of financial statements and statement of compliance with International Financial Reporting Standards
The consolidated financial statements of the BP group for the year ended 31 December 2006 were authorized for issue by the board of directors on
23 February 2007 and the balance sheet was signed on the board’s behalf by Peter Sutherland and The Lord Browne of Madingley. BP p.l.c. is a public
limited company incorporated and domiciled in England and Wales. The company’s ordinary shares are traded on the London Stock Exchange. The
consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European
Union (EU) and in accordance with the provisions of the Companies Act 1985. IFRS as adopted by the EU differs in certain respects from IFRS as issued
by the International Accounting Standards Board (IASB). However, the consolidated financial statements for the years presented would be no different
had the group applied IFRS as issued by the IASB. The significant accounting policies of the group are set out below.
Basis of preparation
The consolidated financial statements have been prepared in accordance with IFRS and International Financial Reporting Interpretations Committee
(IFRIC) interpretations issued and effective for the year ended 31 December 2006, or issued and early adopted.
In preparing the consolidated financial statements for the current year, the group has adopted the following amendments to IFRS and IFRIC
interpretations:
– Amendment to IAS 21 ‘The Effects of Changes in Foreign Exchange Rates’ – ‘Net Investment in a Foreign Operation’.
– Amendment to IAS 39 ‘Financial Instruments: Recognition and Measurement’ – ‘The Fair Value Option’.
– Amendments to IAS 39 ‘Financial Instruments: Recognition and Measurement’ and IFRS 4 ‘Insurance Contracts’ – ‘Financial Guarantee Contracts’.
– IFRIC 5 ‘Rights to Interests Arising from Decommissioning, Restoration and Environmental Rehabilitation Funds’.
– IFRIC 6 ‘Liabilities Arising from Participating in a Specific Market – Waste Electrical and Electronic Equipment’.
– IFRIC 7 ‘Applying IAS 29 for the First Time’.
– IFRIC 8 ‘Scope of IFRS 2 – Share-based payment’.
– IFRIC 9 ‘Reassessment of embedded derivatives’.
Further information regarding the impact of adoption is given below.
The accounting policies that follow have been consistently applied to all years presented with the exception of those relating to financial instruments
under IAS 32 ‘Financial Instruments: Disclosure and Presentation’ (IAS 32) and IAS 39 ‘Financial Instruments: Recognition and Measurement’ (IAS 39)
which have been applied with effect from 1 January 2005. For the year ended 31 December 2004 financial instruments have been accounted for in
accordance with the group’s previous accounting policies under UK generally accepted accounting practice (UK GAAP). For further information see
Note 49.
The consolidated financial statements are presented in US dollars and all values are rounded to the nearest million dollars ($ million), except where
otherwise indicated.
Basis of consolidation
The group financial statements consolidate the financial statements of BP p.l.c. and the entities it controls (its subsidiaries) drawn up to 31 December
each year. Control comprises the power to govern the financial and operating policies of the investee so as to obtain benefit from its activities and is
achieved through direct and indirect ownership of voting rights; currently exercisable or convertible potential voting rights; or by way of contractual
agreement. Subsidiaries are consolidated from the date of their acquisition, being the date on which the group obtains control, and continue to be
consolidated until the date that such control ceases. The financial statements of subsidiaries are prepared for the same reporting year as the parent
company, using consistent accounting policies. All intercompany balances and transactions, including unrealized profits arising from intragroup
transactions, have been eliminated in full. Unrealized losses are eliminated unless the transaction provides evidence of an impairment of the asset
transferred. Minority interests represent the portion of profit or loss and net assets in subsidiaries that is not held by the group and is presented
separately within equity in the consolidated balance sheet.
Interests in joint ventures
A joint venture is a contractual arrangement whereby two or more parties (venturers) undertake an economic activity that is subject to joint control. Joint
control exists only when the strategic financial and operating decisions relating to the activity require the unanimous consent of the venturers. A jointly
controlled entity is a joint venture that involves the establishment of a company, partnership or other entity to engage in economic activity that the group
jointly controls with its fellow venturers.
The results, assets and liabilities of a jointly controlled entity are incorporated in these financial statements using the equity method of accounting.
Under the equity method, the investment in a jointly controlled entity is carried in the balance sheet at cost, plus post-acquisition changes in the group’s
share of net assets of the jointly controlled entity, less distributions received and less any impairment in value of the investment. The group income
statement reflects the group’s share of the results after tax of the jointly controlled entity. The group statement of recognized income and expense
reflects the group’s share of any income and expense recognized by the jointly controlled entity outside profit and loss.
Financial statements of jointly controlled entities are prepared for the same reporting year as the group. Where necessary, adjustments are made to
those financial statements to bring the accounting policies used into line with those of the group.
Unrealized gains on transactions between the group and its jointly controlled entities are eliminated to the extent of the group’s interest in the jointly
controlled entities. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
The group assesses at each balance sheet date whether an investment in a jointly controlled entity is impaired. If there is objective evidence that an
impairment loss has been incurred, the carrying amount of the investment is compared with its recoverable amount, being the higher of its fair value
less costs to sell and value in use. Where the carrying amount exceeds the recoverable amount, the investment is written down to its recoverable
amount.
The group ceases to use the equity method of accounting on the date from which it no longer has joint control over, or significant influence in the
joint venture, or when the interest becomes held for sale.
Certain of the group’s activities, particularly in the Exploration and Production segment, are conducted through joint ventures where the venturers
have a direct ownership interest in and jointly control the assets of the venture. The income, expenses, assets and liabilities of these jointly controlled
assets are included in the consolidated financial statements in proportion to the group’s interest.