RBS 2003 Annual Report Download - page 188

186
Notes on the accounts continued
Notes on the accounts
(a) At 31 December 2003, the amounts outstanding in relation
to transactions, arrangements and agreements entered into
by authorised institutions in the Group were £343,298 in
respect of loans to eight persons who were directors of
the company (or persons connected with them) at any time
during the financial period and £31,783 to one person who
was an officer of the company at any time during the
financial period.
(b) There were no contracts of significance to the business of
the company and its subsidiaries which subsisted at 31
December 2003, or during the year then ended, in which
any director of the company had a material interest.
Subsidiary undertakings
In accordance with Financial Reporting Standard 8 ‘Related
Party Disclosures’(“FRS 8”), transactions or balances between
Group entities that have been eliminated on consolidation are
not reported.
Investments
Group members provide development and other types of
capital support to businesses in their roles as providers of
finance. These investments are made in the normal course of
business and on arm’s-length terms depending on their nature.
In some instances, the investment may extend to ownership or
control over 20% or more of the voting rights of the investee
company. However, these investments are not considered to
give rise to transactions of a materiality requiring disclosure
under FRS 8.
Pension Fund
The Group recharges The Royal Bank of Scotland Group
Pension Fund with the cost of administration services incurred
by it. The amounts involved are not material to the Group.
Santander Central Hispano (“SCH”)
Details of the Group’s cross-holding with SCH are given on
page 55. It is not a related party as defined in FRS 8.
The consolidated financial statements of the Group are
prepared in accordance with UK generally accepted
accounting principles (“GAAP”) that differ in certain material
respects from US GAAP. The significant differences are
summarised as follows:
(a) Acquisition accounting
Under UK GAAP, all integration costs relating to
acquisitions are expensed as post-acquisition expenses.
Under US GAAP, certain restructuring and exit costs
incurred in the acquired business are treated as liabilities
assumed on acquisition and taken into account in the
calculation of goodwill.
Under UK GAAP, provisional fair value adjustments made in
the accounting year in which the acquisition occurs may
be amended in the subsequent accounting year. Under US
GAAP, the allocation of the cost of acquisition to the fair
values of assets and liabilities is generally completed
within 12 months of the date of acquisition.
(b) Goodwill
Under the Group’s UK GAAP accounting policy, goodwill
arising on acquisitions after 1 October 1998 is recognised
as an asset and amortised on a straight-line basis over its
estimated useful economic life. Impairment tests on goodwill
are carried out at the end of the first full accounting period
after its acquisition, and whenever there are indications of
impairment. Goodwill arising on acquisitions before 1
October 1998 was deducted from reserves immediately.
Under US GAAP, goodwill is recognised as an asset, and is
not amortised. Under the transition rules of SFAS 142
‘Goodwill and Other Intangible Assets’, no amortisation is
charged on acquisitions made after 30 June 2001;
amortisation is charged up to 31 December 2001 for other
goodwill. All goodwill is tested for impairment at least
annually. Certain amounts included in goodwill under UK
GAAP are classified as intangible assets under US GAAP
and amortised over their useful economic life.
(c) Property revaluation and depreciation
The Group’s freehold and leasehold properties are carried
at original cost or subsequent valuation. The surplus or
deficit on revaluation is included in the Group’s reserves.
Under US GAAP, revaluations of property are not permitted
to be reflected in the financial statements.
Depreciation charged and gains or losses on disposal
under UK GAAP are based on the revalued amount of
freehold and long leasehold properties; no depreciation is
charged on investment properties which are revalued
annually. Under US GAAP, the depreciation charge and
gains or losses on disposal are based on the historical
cost of all properties.
(d) Leasehold property provisions
Under UK GAAP, provisions are raised on leasehold
properties when there is a commitment to vacate the
property. US GAAP requires provisions to be recognised at
the time the property is vacated.
(e) Dividends
Under UK GAAP, dividends are recorded in the period to
which they relate, whereas under US GAAP dividends are
recorded in the period in which they are declared.
(f) Loan origination fees
Under UK GAAP, certain loan fees are recognised when
received. Under US GAAP, all non-refundable loan fees
and certain direct costs are deferred and recognised as
an adjustment to the yield on the related loan or facility.
(g) Pension costs
Pension costs, based on actuarial assumptions and
methods, are charged in the consolidated accounts so as
to allocate the cost of providing benefits over the service
lives of employees in a consistent manner approved by the
52 Related party transactions
53 Significant differences between UK and US
generally accepted accounting principles
51 Transactions with directors, officers and others