RBS 2009 Annual Report Download - page 250

Accounting policies
RBS Group Annual Report and Accounts 2009248
1. Presentation of accounts
The accounts are prepared on a going concern basis (see page 211 of
the Report of the directors) and in accordance with International
Financial Reporting Standards issued by the International Accounting
Standards Board (IASB) and interpretations issued by the International
Financial Reporting Interpretations Committee of the IASB as adopted
by the European Union (EU) (together IFRS). The EU has not adopted
the complete text of IAS 39 ‘Financial Instruments: Recognition and
Measurement’; it has relaxed some of the Standard’s hedging
requirements. The Group has not taken advantage of this relaxation and
has adopted IAS 39 as issued by the IASB: the Group’s financial
statements are prepared in accordance with IFRS as issued by the IASB.
IAS 1 (Revised 2007) ‘Presentation of Financial Statements’ has
introduced a number of changes in the format and content of the
Group’s financial statements including a statement of changes in equity
(showing the components of changes in equity for the period) as a
primary financial statement and a statement of comprehensive income
immediately following the income statement. Additionally, the revised
standard has required the Group to present a third balance sheet (31
December 2007) as a result of the restatement of the Group’s 2008
income statement following the amendment to IFRS 2 (see below).
The IASB issued an amendment, 'Vesting Conditions and Cancellations',
to IFRS 2 'Share-based Payment' in January 2008 that changed the
accounting for share awards that have non-vesting conditions. The fair
value of these awards did not take account of the effect of non-vesting
conditions and where such conditions were not subsequently met, costs
recognised up to the date of cancellation were reversed. The amendment
requires costs not recognised up to the date of cancellation to be
recognised immediately. Retrospective application of the amendment
caused a restatement of 2008 results for the Group, reducing profit by
£169 million with no material effect on earlier periods; there was no effect
on the balance sheet. There was no material effect on the company.
The Group has adopted ‘Improving Disclosures about Financial
Instruments (Amendments to IFRS 7 Financial Instruments:
Disclosures)’. These amendments expand the disclosures required
about fair value measurement and liquidity risk.
The company is incorporated in the UK and registered in Scotland.
The accounts are prepared on the historical cost basis except that the
following assets and liabilities are stated at their fair value: derivative
financial instruments, held-for-trading financial assets and financial
liabilities, financial assets and financial liabilities that are designated as
at fair value through profit or loss, available-for-sale financial assets and
investment property. Recognised financial assets and financial liabilities
in fair value hedges are adjusted for changes in fair value in respect of
the risk that is hedged.
The company accounts are presented in accordance with the
Companies Act 2006.
2. Basis of consolidation
The consolidated financial statements incorporate the financial statements
of the company and entities (including certain special purpose entities)
that are controlled by the Group. Control exists where the Group has the
power to govern the financial and operating policies of the entity;
generally conferred by holding a majority of voting rights. On acquisition
of a subsidiary, its identifiable assets, liabilities and contingent liabilities
are included in the consolidated accounts at their fair value. Any excess
of the cost (the fair value of assets given, liabilities incurred or assumed
and equity instruments issued by the Group plus any directly attributable
costs) of an acquisition over the fair value of the net assets acquired is
recognised as goodwill. The interest of minority shareholders is stated at
their share of the fair value of the subsidiary’s net assets.
The results of subsidiaries acquired are included in the consolidated
income statement from the date control passes up until the Group ceases
to control them through a sale or significant change in circumstances.
All intra-group balances, transactions, income and expenses are
eliminated on consolidation. The consolidated accounts are prepared
using uniform accounting policies.
3. Revenue recognition
Interest income on financial assets that are classified as loans and
receivables, available-for-sale or held-to-maturity and interest expense
on financial liabilities other than those at fair value through profit or loss
are determined using the effective interest method. The effective interest
method is a method of calculating the amortised cost of a financial
asset or financial liability (or group of financial assets or liabilities) and
of allocating the interest income or interest expense over the expected
life of the asset or liability. The effective interest rate is the rate that
exactly discounts estimated future cash flows to the instrument’s initial
carrying amount. Calculation of the effective interest rate takes into
account fees payable or receivable, that are an integral part of the
instrument’s yield, premiums or discounts on acquisition or issue, early
redemption fees and transaction costs. All contractual terms of a
financial instrument are considered when estimating future cash flows.
Financial assets and financial liabilities held-for-trading or designated as
at fair value through profit or loss are recorded at fair value. Changes in
fair value are recognised in profit or loss together with dividends and
interest receivable and payable.
Commitment and utilisation fees are determined as a percentage of the
outstanding facility. If it is unlikely that a specific lending arrangement
will be entered into, such fees are taken to profit or loss over the life of
the facility otherwise they are deferred and included in the effective
interest rate on the advance.
Fees in respect of services are recognised as the right to consideration
accrues through the provision of the service to the customer. The
arrangements are generally contractual and the cost of providing the
service is incurred as the service is rendered. The price is usually fixed
and always determinable. The application of this policy to significant fee
types is outlined below.
Payment services: this comprises income received for payment services
including cheques cashed, direct debits, Clearing House Automated
Payments (the UK electronic settlement system) and BACS payments
(the automated clearing house that processes direct debits and direct
credits). These are generally charged on a per transaction basis. The
income is earned when the payment or transaction occurs. Charges for
payment services are usually debited to the customer’s account monthly
or quarterly in arrears. Accruals are raised for services provided but not
charged at period end.