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RBS Group • Annual Report and Accounts 2006
220
Notes on the accounts continued
47 Significant differences between IFRS and US GAAP (continued)
Recent developments in US GAAP
In February 2006, the Financial Accounting Standards Board
(“FASB”) issued SFAS 155 ‘Accounting for Certain Hybrid
Financial Instruments – an amendment of FASB Statement No
133 and 140’ which is effective for all financial instruments
acquired or issued by the Group after 1 January 2007. This
statement allows any hybrid financial instrument that contains
an embedded derivative that would otherwise require
bifurcation to be measured at fair value. The statement also
eliminates the exemption from applying SFAS 133 to interests
in securitised financial assets.
In July 2006, the FASB issued Interpretation No.48 ‘Accounting
for Uncertainty in Income Taxes – an interpretation of FASB
Statement No.109’ which clarifies the accounting for uncertainty
in taxes and addresses the recognition and measurement of
tax positions taken or expected to be taken. This Interpretation
is effective from 1 January 2007 for the Group.
In September 2006, the FASB issued SFAS 157 ‘Fair Value
Measurements’. This statement establishes a framework for fair
value measurement and prescribes extended disclosures.
SFAS 157 does not extend the scope of fair value
measurement in financial statements. The statement will be
effective from 1 January 2008 for the Group and will be
applied prospectively except for: trades in an active market
held by a broker-dealer or investment company where
blockage factors were used in determining fair value,
instruments recognised at fair value using transaction price in
accordance with EITF 02-03, and hybrid instruments measured
at fair value at initial recognition.
In February 2007, the FASB issued SFAS 159 ‘Fair Value Option
for Financial Assets and Financial Liabilities, Including an
amendment of FASB Statement No. 115’ which allows
companies to report certain financial assets and liabilities at
fair value. The statement’s objective is to reduce complexity in
accounting for financial instruments and volatility in earnings
caused by measuring related assets and liabilities differently.
SFAS 159 also establishes presentation and disclosure
requirements. The statement is effective from 1 January 2008;
early adoption is permitted from 1 January 2007 provided
certain conditions are met.
The Group is evaluating the implications of the above
standards and interpretation on its US GAAP reporting.
The FASB issued SFAS 156 ‘Accounting for Servicing of
Financial assets – an amendment of FASB Statement No. 140’
in March 2006. This statement simplifies the accounting for
servicing rights and related financial instruments used to
economically hedge risks associated with those rights. The
Group applied SFAS 156 to servicing rights recognised on or
after 1 January 2006.
In September 2006, the FASB issued SFAS 158 ‘Employers’
Accounting for Defined Benefit Pension and Other
Postretirement Plans – an amendment of FASB Statements No.
87, 88, 106 and 132(R)’. SFAS 158 requires an employer to (i)
recognise the overfunded or underfunded status of a defined
benefit plan as an asset or liability with changes in that funded
status recognised through comprehensive income; and (ii)
measure the funded status of a plan as of the year-end date. It
also specifies additional disclosures. It is effective for the
Group’s 2006 US GAAP reporting.
In September 2006, the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 108 (‘SAB No. 108’)
‘Financial Statements – Considering the Effects of Prior Year
Misstatements when Quantifying Misstatement in Current
Year Financial Statements’. SAB 108 requires a company
to consider the amount by which the current year income
statement may be misstated (‘rollover approach’) and the
cumulative amount by which the current year balance sheet
may be misstated (‘iron-curtain approach’) when assessing
prior year misstatements. SAB 108 is effective for the Group’s
2006 consolidated financial statements; its adoption did not
have a material effect.