RBS 2004 Annual Report Download - page 191

section
03
189
Annual Report and Accounts 2004
Notes on the accounts
Financial
statements
(n) Share-based compensation
Under UK GAAP, no compensation expense is recognised
for the Group’s executive share option schemes, under
which options are granted at the higher of nominal value
and market value on the date of grant and for the Group’s
Sharesave schemes, under which employees are granted
options at a 20% discount to market value at date of grant.
Under US GAAP, the compensation expense based on the
options’ intrinsic value is charged to the profit and loss
account over the period to their average vesting date.
(o) Consolidation
UK GAAP requires consolidation of entities controlled by an
enterprise where control means the enterprise’s ability to
direct the financial and operating policies of an entity with
a view to gaining economic benefits. US GAAP requires
consolidation by the primary beneficiary of a variable
interest entity (“VIE”). An enterprise is the primary
beneficiary of a VIE if it will absorb a majority of the
entity’s expected losses, receive a majority of the entity’s
expected residual returns, or both.
(p) Acceptances
Acceptances outstanding and the matching customers’
liabilities are not reflected in the consolidated balance
sheet, but are disclosed as memorandum items. Under US
GAAP, acceptances outstanding and the matching customers’
liabilities are reflected in the consolidated balance sheet.
(q) Offset arrangements
Under UK GAAP, debit and credit balances with the same
counterparty are aggregated into a single item where there
is a right to insist on net settlement and the debit balance
matures no later than the credit balance. Under US GAAP,
agreements and balances with the same counterparty may
be offset only where they have the same settlement date
specified at inception and there is an intention to set off.
(r) Deferred taxation
Accounting for deferred tax under UK GAAP is consistent
with US GAAP except that deferred tax is not recognised
under UK GAAP on certain timing differences resulting from
the roll-over of gains on disposal of properties, but is
provided under US GAAP on such differences.
Recent developments in US GAAP
The FASB issued SFAS 153 ‘Exchanges of Nonmonetary
assets, an amendment of APB Opinion No. 29’ in December
2004. SFAS 153 provides for a general exception from fair
value measurement for exchanges of nonmonetary assets that
do not have commercial substance. The Statement is effective
for fiscal years beginning after 15 June 2005 and is not
expected to affect the Group's US GAAP reporting.
In December 2004, the FASB issued SFAS 123 (revised 2004)
‘Share-Based Payment’ which requires compensation costs
related to share-based payment transactions to be recognised
in the financial statements. The compensation cost will be
based on the grant-date fair value of the equity issued and will
be recognised over the period that an employee provides
service in exchange for the award. SFAS 123 (revised 2004)
would be effective for the Group from 1 January 2006. Entities
that use the fair value method for either recognition or
disclosure under SFAS 123 will apply the revised Statement
using a modified version of prospective application whereby
for that portion of outstanding awards for which the requisite
service has not yet been rendered, compensation cost will be
based on the grant-date fair value calculated under SFAS 123
for either recognition or pro forma disclosures. For periods
before the effective date, entities may elect to apply a modified
version of retrospective application under which financial
statements for prior periods are adjusted on a basis consistent
with the pro forma disclosures required by SFAS 123. The
Group currently makes pro forma disclosures of the effect on
net income of compensation costs determined under the fair
value method of SFAS 123.