RBS 2006 Annual Report Download - page 215
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RBS Group • Annual Report and Accounts 2006
214
Notes on the accounts continued
47 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 2006
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 ongoing significant differences between IFRS and US GAAP.
Section (2) summarises those adjustments that, although the applicable IFRS and US GAAP standards are substantially the same,
arise because their effective dates for the Group differ.
Section (3) sets out significant differences between US GAAP and IFRS for 2004.
(1) Ongoing GAAP differences
IFRS
(a) Acquisition accounting
All integration costs relating to acquisitions are expensed as
post-acquisition expenses.
(b) Property revaluation and depreciation
Prior to the implementation of IFRS the Group revalued
annually freehold and leasehold properties occupied for its
own use. On transition to IFRS, as permitted by IFRS 1
valuation of these properties at 31 December 2003 was
deemed to be their cost.
Investment properties are carried at fair value; changes in fair
value are included in profit or loss.
(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.
(f) Pension costs – acquisition accounting
On the acquisition of NatWest, the fair value of the pension
scheme surplus was restricted to the amount expected to be
realised through reduced contributions or refunds.
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 depreciated cost for 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 similar measurement of pension assets and
liabilities. Any surplus or deficit is recognised on the balance
sheet with effect from 31 December 2006 and changes in the
funded status of the plan are recognised through
comprehensive income. In the income statement, a certain
portion of actuarial gains and losses are deferred over the
average remaining service lives of active employees expected
to receive benefits. Prior to 31 December 2006 an additional
minimum liability was recognised in comprehensive income as
the accumulated benefit obligation (the current value of
accrued benefits without the allowance for future salary
increases) exceeded the fair value of plan assets and a
prepayment was recorded.
Under US GAAP, the full surplus was recognised as a fair
value adjustment in 2000. As a result goodwill recognised
under US GAAP on the acquisition of NatWest was lower
than under IFRS.