RBS 2012 Annual Report Download - page 362

360
Accounting policies
1. Presentation of accounts
The accounts are prepared on a going concern basis (see the Report of
the directors, page 347) 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: its financial statements are prepared in accordance with
IFRS as issued by the IASB.
The company is incorporated in the UK and registered in Scotland and its
accounts are presented in accordance with the Companies Act 2006.
In accordance with IFRS 5, Direct Line Group has been classified as a
discontinued operation, and prior periods represented.
There are two amendments to IFRS that were effective for the Group
from 1 January 2012. They have not had a material effect on the financial
statements of the Group or the company:
‘Deferred Tax: Recovery of Underlying Assets (Amendments to IAS 12
‘Income Taxes’)’ clarifies that recognition of deferred tax should have
regard to the expected manner of recovery or settlement of the asset or
liability.
‘Disclosures - Transfers of Financial Assets (Amendments to IFRS 7
‘Financial Instruments: Disclosures’)’ replaces IFRS 7’s existing
derecognition disclosure requirements with disclosures about (a)
transferred assets that have not been derecognised in their entirety and
(b) transferred assets that have been derecognised in their entirety but
where the reporting entity has continuing involvement in those assets.
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
is included in the consolidated financial statements from the date it is
controlled by the Group until the date the Group ceases to control it
through a sale or a significant change in circumstances. Changes in the
Group’s interest in a subsidiary that do not result in the Group ceasing to
control that subsidiary are accounted for as equity transactions.
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
their fair value are recognised in profit or loss.
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.
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. Income is accrued at period end for services
provided but not yet charged.
Card related services - fees from credit card business include:
x Commission received from retailers for processing credit and debit
card transactions: income is accrued to the income statement as the
service is performed.
x Interchange received: as issuer, the Group receives a fee
(interchange) each time a cardholder purchases goods and services.
The Group also receives interchange fees from other card issuers
for providing cash advances through its branch and automated teller
machine networks. These fees are accrued once the transaction has
taken place.
x An annual fee payable by a credit card holder is deferred and taken
to profit or loss over the period of the service i.e. 12 months.