RBS 2005 Annual Report Download - page 223

section
03
Financial
statements
221
Notes on the accounts
Annual Report and Accounts 2005
46 Significant differences between IFRS and US GAAP
The consolidated accounts of the Group have been prepared in accordance with IFRS issued and extant at 31 December 2005
which differ in certain significant respects from US GAAP. The significant differences which affect the Group are summarised below in
three separate sections:
Section (1) covers significant differences between US GAAP and IFRS for the income statement for the year ended 31 December 2005
and the balance sheet at 31 December 2005. These differences include those between US GAAP and IAS 32, IAS 39 and IFRS 4.
As permitted by IFRS 1, the Group implemented IAS 32, IAS 39 and IFRS 4 from 1 January 2005 without restating comparatives.
Section (2) sets out the significant differences between US GAAP and IFRS for 2004.
Section (3) summarises those areas where, though the recognition and measurement principles in US GAAP and IFRS are the same,
adjustments to IFRS amounts are required due to differing implementation dates for the Group.
(1) For 31 December 2005
IFRS
(a) Acquisition accounting
All integration costs relating to acquisitions are expensed as
post-acquisition expenses.
(b) Property revaluation and depreciation
Freehold and long leasehold property occupied for the Group's
use is carried at cost less accumulated depreciation.
Depreciation is charged based on an estimated useful life of
50 years. As permitted by IFRS 1, valuation as at 31 December
2003 is its deemed cost.
Investment properties are carried at fair value; changes in fair
value are included in the income statement.
(c) Leasehold property provisions
Provisions are recognised on leasehold properties when there
is a commitment to vacate the property.
(d) Loan origination
Only costs that are incremental and directly attributable to the
origination of a loan are deferred over the period of the related
loan or facility.
(e) Pension costs
Pension scheme assets are measured at their fair value.
Scheme liabilities are measured on an actuarial basis using the
projected unit method and discounted at the current rate of
return on a high quality corporate bond of equivalent term and
currency. Any surplus or deficit of scheme assets compared
with liabilities is recognised in the balance sheet as an asset
(surplus) or liability (deficit). An asset is only recognised to the
extent that the surplus can be recovered through reduced
contributions in the future or through refunds from the scheme.
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 US GAAP, revaluations of property are not permitted.
Depreciation is charged, and gains or losses on disposal are
based on the historical cost for both own-use and investment
properties.
Provisions are recognised on leasehold properties at the time
the property is vacated.
Certain direct (but not necessarily incremental) costs are
deferred and recognised over the period of the related loan or
facility.
US GAAP requires a similar method but allows a certain
portion of actuarial gains and losses to be deferred and
allocated in equal amounts over the average remaining service
lives of current employees. An additional minimum liability
must be recognised if the accumulated benefit obligation (the
current value of accrued benefits without allowance for future
salary increases) exceeds the fair value of plan assets and the
Group has recorded a prepaid pension cost or has an accrued
liability that is less than the unfunded accumulated benefit
obligation. Movements in the additional minimum liability,
together with the related deferred tax, are recognised in a
separate component of equity.