RBS 2012 Annual Report Download - page 374

372
Accounting policies continued
IFRS 11 ‘Joint Arrangements’, which supersedes IAS 31’ Interests in
Joint Ventures’, distinguishes between joint operations and joint ventures.
Joint operations are accounted for by the investor recognising its assets
and liabilities including its share of any assets held and liabilities incurred
jointly and its share of revenues and costs. Joint ventures are accounted
for in the investor’s consolidated accounts using the equity method. IFRS
11 requires retrospective application. Implementation of IFRS 11 will not
have a material effect on the Group’s financial statements.
IFRS 12 ‘Disclosure of Interests in Other Entities’ covers disclosures for
entities reporting under IFRS 10 and IFRS 11 replacing those in IAS 28
and IAS 27. Entities are required to disclose information that helps
financial statement readers evaluate the nature, risks and financial effects
associated with an entity’s interests in subsidiaries, in associates and
joint arrangements and in unconsolidated structured entities.
IAS 27 ‘Separate Financial Statements’ comprises those parts of the
existing IAS 27 that deal with separate financial statements. IAS 28
‘Investments in Associates and Joint Ventures’ covers joint ventures as
well as associates; both must be accounted for using the equity method.
The mechanics of the equity method are unchanged. These two revised
standards will have no material effect on the Group’s financial
statements.
Although IFRS 10-12 (as amended) and revised IAS 27 and IAS 28 have
an effective date of 1 January 2013, they have been endorsed by the EU
for application from 1 January 2014. However, early adoption is permitted
and the Group implemented these standards from 1 January 2013.
IFRS 13 ‘Fair Value Measurement’ sets out a single IFRS framework for
defining and measuring fair value and requiring disclosures about fair
value measurements. Implementation of IFRS 13 will not have a material
effect on the Group’s financial statements.
‘Disclosures - Offsetting Financial Assets and Financial Liabilities
(Amendments to IFRS 7)’ amended IFRS 7 to require disclosures about
the effects and potential effects on an entity’s financial position of
offsetting financial assets and financial liabilities and related
arrangements.
IAS 19 ‘Employee Benefits’ (revised) requires: the immediate recognition
of all actuarial gains and losses eliminating the ‘corridor approach’;
interest cost to be calculated on the net pension liability or asset at the
long-term bond rate, an expected rate of return will no longer be applied
to assets; and all past service costs to be recognised immediately when a
scheme is curtailed or amended. If the Group had adopted IAS 19
revised as at 31 December 2012, profit after tax for the period ended 31
December 2012 would have been lower by £84 million (2011 - £154
million; 2010 - £105 million) and other comprehensive income after tax
higher by the same amounts.
Amendments to IAS 1 ‘Presentation of Items of Other Comprehensive
Income’ require items that will never be recognised in profit or loss to be
presented separately in other comprehensive income from those items
that are subject to subsequent reclassification.
‘Annual Improvements 2009-2011 Cycle’ makes a number of minor
changes to IFRSs. These will not have a material effect on the Group’s
financial statements.
Effective after 2013
In October 2012, the IASB issued ‘Investment Entities (amendments to
IFRS 10, IFRS 12 and IAS 27)’. The amendments apply to ‘investment
entities’: entities whose business is to invest funds solely for returns from
capital appreciation, investment income or both and which evaluate the
performance of their investments on a fair value basis. The amendments
provide an exception to IFRS 10 by requiring investment entities to
measure their subsidiaries (other than those that provide services related
to the entity’s investment activities) at fair value through profit or loss,
rather than consolidate them. The amendments are effective from 1
January 2014.
In December 2011, the IASB issued ’Offsetting Financial Assets and
Financial Liabilities (Amendments to IAS 32)’. The amendments add
application guidance to IAS 32 to address inconsistencies identified in
applying some of the standard’s criteria for offsetting financial assets and
financial liabilities. The amendments are effective for annual periods
beginning on or after 1 January 2014 and must be applied
retrospectively.
The Group is reviewing these amendments to determine their effect on
the Group’s financial reporting.
In November 2009, the IASB issued IFRS 9 ‘Financial Instruments’
simplifying the classification and measurement requirements in IAS 39 in
respect of financial assets. The standard reduces the measurement
categories for financial assets to two: fair value and amortised cost. A
financial asset is classified on the basis of the entity's business model for
managing the financial asset and the contractual cash flow characteristics
of the financial asset. Only assets with contractual terms that give rise to
cash flows on specified dates that are solely payments of principal and
interest on principal and which are held within a business model whose
objective is to hold assets in order to collect contractual cash flows are
classified as amortised cost. All other financial assets are measured at
fair value. Changes in the value of financial assets measured at fair value
are generally taken to profit or loss.
In October 2010, IFRS 9 was updated to include requirements in respect
of the classification and measurement of liabilities. These do not differ
markedly from those in IAS 39 except for the treatment of changes in the
fair value of financial liabilities that are designated as at fair value through
profit or loss attributable to own credit; these must be presented in other
comprehensive income.
In December 2011, the IASB issued amendments to IFRS 9 and to IFRS
7 ‘Financial Instruments: Disclosures’ delaying the effective date of IFRS
9 to annual periods beginning on or after 1 January 2015 and introducing
revised transitional arrangements including additional transition
disclosures. If an entity implements IFRS 9 in 2012 the amendments
permit it either to restate comparative periods or to provide the additional
disclosures. Additional transition disclosures must be given if
implementation takes place after 2012.
IFRS 9 makes major changes to the framework for the classification and
measurement of financial instruments and will have a significant effect on
the Group's financial statements. The Group is assessing the effect of
IFRS 9 which will depend on the results of IASB's reconsideration of
IFRS 9’s classification and measurement requirements and the outcome
of the other phases in the development of IFRS 9.