BP 2012 Annual Report Download - page 188

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 2012 were approved and signed by the group chief
executive on 6 March 2013 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 UK 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 2012. The standards
and interpretations adopted in the year are described further on page 192.
The accounting policies that follow have been consistently applied to all
years presented.
Subsequent to releasing our unaudited fourth quarter and full year 2012
results announcement dated 5 February 2013, an adjustment of $0.8
billion has been made to provisions relating to the Gulf of Mexico oil spill
as at 31 December 2012, with a corresponding adjustment to the
reimbursement asset. There was no impact on profit or loss for the year.
For further information see Note 36. In addition, an adjustment has been
made to correct a $4.7 billion understatement of revenue and purchases
for the year ended 31 December 2012. There was no impact on profit or
loss for the year.
The consolidated financial statements are presented in US dollars and all
values are rounded to the nearest million dollars ($ 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 171-174, 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. With effect from 1 January 2012, the former
Exploration and Production segment was separated to form two new
operating segments, Upstream and TNK-BP, reflecting the way in which
our investment in TNK-BP is managed. In addition, we began reporting the
Refining and Marketing segment as Downstream.
On 22 October 2012, BP announced that it had signed heads of terms for
a proposed transaction to sell its 50% share in TNK-BP to Rosneft.
Following this agreement, BP’s investment in TNK-BP met the criteria to
be classified as held for sale. See Note 4 for further information.
During 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 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
seeNote6.
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
classified as an asset held for sale.
Certain of the group’s activities, particularly in the Upstream 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.
186 Financial statements
BP Annual Report and Form 20-F 2012