RBS 2011 Annual Report Download - page 316

314 RBS Group 2011
1. Presentation of accounts
The accounts are prepared on a going concern basis (see page 300 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 IFRS 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.
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’s financial statements and the
Group's consolidated financial statements are presented in sterling which
is the functional currency of the company.
The company is incorporated in the UK and registered in Scotland and its
accounts are presented in accordance with the Companies Act 2006.
There are a number of changes to IFRS that were effective from 1
January 2011. They have had no material effect on the financial
statements of the Group or the company:
IFRIC 19 ‘Extinguishing Financial Liabilities with Equity Instruments’
provides guidance on the accounting treatment when financial liabilities
are settled with equity instruments.
Amendment to IAS 32 ‘Financial Instruments: Presentation’ -
‘Classification of Rights Issues’ amends IAS 32 so that rights, options or
warrants that are fixed for fixed (i.e. a fixed amount of cash for a fixed
number of instruments) offered pro rata to all owners of a class of
instrument are classified as equity instruments regardless of the currency
denomination of the exercise price.
Amendment to IFRIC 14 ‘IAS 19 ‘The Limit on a Defined Benefit Asset,
Minimum Funding Requirements and their Interaction’ – ‘Prepayments of
aMinimum Funding Requirement’ applies in the limited circumstances
where an entity is subject to minimum funding requirements and makes
an early payment of contributions to cover those requirements. The
amendment permits the benefit of such an early payment to be treated as
an asset.
May 2010 ‘Annual Improvements to IFRS’ makes non-urgent but
necessary amendments to standards, primarily to remove inconsistencies
and to clarify wording.
Revised IAS 24 ‘Related Party Disclosures’ simplifies the disclosure
requirements for government-related entities and clarifies the definition of
a related party.
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. A subsidiary
acquired is included in the consolidated financial statements from the
date it is controlled by the Group up until the date the Group ceases to
control it through a sale or a significant change in circumstances.
Changes in interest that do not result in a loss of control are accounted
for as equity transactions.
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 measured at fair value 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.
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.
Accounting policies