BP 2011 Annual Report Download - page 184

182 BP Annual Report and Form 20-F 2011182 BP Annual Report and Form 20-F 2011
Notes on financial statements
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 2011 were approved and signed by the chairman and group
chief executive on 6 March 2012 having been duly authorized to do so by
the board of directors. BP p.l.c. is a public limited company incorporated and
domiciled in England and Wales. The consolidated financial statements have
been prepared in accordance with International Financial Reporting Standards
(IFRS) as issued by the International Accounting Standards Board (IASB),
IFRS as adopted by the European Union (EU) and in accordance with the
provisions of the Companies Act 2006. IFRS as adopted by the EU differs in
certain respects from IFRS as issued by the IASB, however, the differences
have no impact on the group’s consolidated financial statements for the
years presented. 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 IFRS Interpretations Committee (IFRIC) interpretations
issued and effective for the year ended 31 December 2011, or issued and
early adopted. The standards and interpretations adopted in the year are
described further on page 188.
The accounting policies that follow have been consistently applied
to all years presented. The group balance sheet as at 1 January 2010 is
not presented as it is not affected by the retrospective adoption of any
new accounting policies during the year, nor any other retrospective
restatements or reclassifications.
The consolidated financial statements are presented in US dollars
and all values are rounded to the nearest million dollars ($ million), except
where otherwise indicated.
For further information regarding the key judgements and estimates
made by management in applying the group’s accounting policies, refer to
Critical accounting policies on pages 154 to 157, which forms part of these
financial statements.
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.
Intercompany balances and transactions, including unrealized profits arising
from intragroup transactions, have been eliminated. Unrealized losses are
eliminated unless the transaction provides evidence of an impairment of the
asset transferred. Minority interests represent the equity in subsidiaries that
is not attributable, directly or indirectly, to the group.
Segmental reporting
The group’s operating segments are established on the basis of those
components of the group that are evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. During the second quarter of 2010 a separate organization
was created within the group to deal with the ongoing response to the
Gulf of Mexico oil spill. This organization reports directly to the group
chief executive officer and its costs are excluded from the results of the
existing operating segments. Under IFRS its costs are therefore presented
as a reconciling item between the sum of the results of the reportable
segments and the group results.
The accounting policies of the operating segments are the same as the
group’s accounting policies described in this note, except that IFRS requires
that the measure of profit or loss disclosed for each operating segment
is the measure that is provided regularly to the chief operating decision
maker. For BP, this measure of profit or loss is replacement cost profit
before interest and tax which reflects the replacement cost of supplies by
excluding from profit inventory holding gains and losses. Replacement cost
profit for the group is not a recognized measure under generally accepted
accounting practice (GAAP). For further information see Note 6.
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.
Loans advanced to jointly controlled entities that have the characteristics of
equity financing are also included in the investment on the group balance
sheet. The group income statement reflects the group’s share of the
results after tax of the jointly controlled entity.
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 investments in jointly controlled entities for
impairment whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. If any such indication of impairment
exists, 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 or significant influence over
the joint venture or associate respectively, 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. BP recognizes, on a line-by-line basis in the consolidated
financial statements, its share of the assets, liabilities and expenses of
these jointly controlled assets incurred jointly with the other partners, along
with the group’s income from the sale of its share of the output and any
liabilities and expenses that the group has incurred in relation to the venture.
Interests in associates
An associate is an entity over which the group is in a position to exercise
significant influence through participation in the financial and operating
policy decisions of the investee, but which is not a subsidiary or a jointly
controlled entity. The results, assets and liabilities of an associate are
incorporated in these financial statements using the equity method of
accounting as described above for jointly controlled entities.