BP 2012 Annual Report Download - page 195

1. Significant accounting policies continued
IFRS 11 establishes a principle that applies to the accounting for all joint
arrangements, whereby parties to the arrangement account for their
underlying contractual rights and obligations relating to the joint
arrangement. IFRS 11 identifies two types of joint arrangements. A ‘joint
venture’ is a joint arrangement whereby the parties that have joint control
of the arrangement have rights to the net assets of the arrangement. A
‘joint operation’ is a joint arrangement whereby the parties that have joint
control of the arrangement have rights to the assets, and obligations for
the liabilities, relating to the arrangement. Investments in joint ventures
will be accounted for using the equity method. Investments in joint
operations will be accounted for by recognizing the group’s assets,
liabilities, revenue and expenses relating to the joint operation.
IFRS 12 combines all the disclosure requirements for an entity’s interests
in subsidiaries, joint arrangements, associates and structured entities into
one comprehensive disclosure standard.
These new and amended standards are effective for annual periods
beginning on or after 1 January 2013 and BP will adopt them from this
date. The evaluation of the effect of adoption of these standards is largely
complete. The main impact of this suite of new standards is that certain of
the group’s existing jointly controlled entities, which are currently equity
accounted, will fall under the definition of a joint operation under IFRS 11
and thus we will recognize the group’s assets, liabilities, revenue and
expenses relating to these arrangements. Whilst the effect on the group’s
reported income and net assets as a result of the new requirements is not
expected to be material, the change is expected to materially impact
certain of the component lines of the balance sheet and income
statement. On the balance sheet, we expect a reduction in investments in
jointly controlled entities of approximately $7 billion, which will be
replaced with the recognition (on the relevant line items, principally
intangible assets and property, plant and equipment) of our share of the
assets and liabilities relating to these arrangements. In the income
statement, we expect a reduction in earnings from jointly controlled
entities of approximately $0.5 billion, which will be replaced with the
recognition (on the relevant line items) of our share of the revenue and
expenses relating to these arrangements.
This new suite of standards was adopted by the EU in December 2012.
Other new standards not yet adopted
In June 2011, the IASB issued an amended version of IAS 19 ‘Employee
Benefits’, which brings in various changes relating to the recognition and
measurement of post-retirement defined benefit expense and termination
benefits, and to the disclosures for all employee benefits. The main
impact for BP will be that the expense for defined benefit pension and
other post-retirement benefit plans will include a net interest income or
expense, which will be calculated by applying the discount rate used for
measuring the obligation and applying that to the net defined benefit asset
or liability. This means that the expected return on assets credited to profit
or loss (currently calculated based on the expected long-term return on
pension assets) will now be based on a lower corporate bond rate, the
same rate that is used to discount the pension liability. The amended IAS
19 is effective for annual periods beginning on or after 1 January 2013 and
BP will adopt this amended standard from that date. The evaluation of the
effect of adoption of the amended standard is largely complete. Under the
amended IAS 19, net finance expense (income) relating to pensions and
other post-retirement benefits and profit before tax would have been
approximately $0.8 billion and $0.7 billion lower for 2012 and 2011
respectively, with corresponding pre-tax increases in other comprehensive
income. There is no impact on cash flows or on the balance sheet at
31 December 2012.
In May 2011, the IASB issued a new standard, IFRS 13 ‘Fair Value
Measurement’. The new standard defines fair value, sets out a framework
for measuring fair value and contains the required disclosures about fair
value measurements. IFRS 13 does not require fair value measurements
in addition to those already required or permitted by other standards,
rather it prescribes how fair value should be measured if another standard
requires it. Fair value is defined as the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date i.e. it is an exit price. IFRS
13 is effective for annual periods beginning on or after 1 January 2013 and
BP will adopt it from this date. For BP, no significant impact is expected as
a result of the adoption of IFRS 13.
In December 2011, the IASB issued amendments to IFRS 7 ‘Disclosures –
Offsetting Financial Assets and Financial Liabilities’ and amendments to
IAS 32 ‘Offsetting Financial Assets and Financial Liabilities’. These
amendments introduce new presentation and disclosure requirements
about the effects of offsetting financial assets and financial liabilities and
related arrangements on an entity’s financial position. The amendments to
IFRS 7 are effective for annual periods beginning on or after 1 January
2013, with the amendments to IAS 32 effective for annual periods
beginning on or after 1 January 2014. BP will adopt these amendments
with effect from 1 January 2013 and 1 January 2014 respectively. As a
result of the amendments to IFRS 7, the notes to BP’s 2013 financial
statements will disclose additional information on gross and net financial
instruments balances. The evaluation of the effect of adoption of the
amendments to IAS 32 is not expected to result in any significant changes
to the offsetting of financial assets and liabilities.
In June 2011, the IASB issued amendments to IAS 1 ‘Presentation of
Financial Statements’ on the presentation of other comprehensive income
(OCI). The amendments require that those items of OCI that might be
reclassified to profit or loss at a future date be presented separately from
those items that will never be reclassified to profit or loss. These
amendments to IAS 1 are effective for annual periods beginning on or
after 1 July 2012. BP will adopt the amendments with effect from
1 January 2013. The adoption of the amended standard will have a
presentational impact on the group’s statement of comprehensive
income, with no effect on the reported income or net assets of the group.
As part of the IASB’s project to replace IAS 39 ‘Financial Instruments:
Recognition and Measurement’, in November 2009 the IASB issued the
first phase of IFRS 9 ‘Financial Instruments’, dealing with the classification
and measurement of financial assets. In October 2010, the IASB updated
IFRS 9 by incorporating the requirements for the accounting for financial
liabilities. The remaining phases of IFRS 9 (covering impairment and
hedge accounting) are still to be completed. In December 2011, the IASB
decided that IFRS 9 will be effective for annual periods beginning on or
after 1 January 2015, rather than 1 January 2013 as originally indicated. BP
has not yet decided the date of adoption for the group and has not yet
completed its evaluation of the effect of adoption.
With the exception of IFRS 9, the EU has now adopted all of the above-
mentioned other new standards that have been issued but not yet
adopted by the group.
There are no other standards and interpretations in issue but not yet
adopted that the directors anticipate will have a material effect on the
reported income or net assets of the group.
Financial statements 193
BP Annual Report and Form 20-F 2012
Financial statements