RBS 2013 Annual Report Download - page 379
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Accounting policies
377
1. Presentation of accounts
The accounts are prepared on a going concern basis (see the Report of
the directors, page 96) 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.
With the exception of investment property and certain financial
instruments as described in Accounting policies 9, 15, 17 and 19 below,
the accounts are presented on an historical cost basis.
In accordance with IFRS 5, Direct Line Group (DLG) was classified as a
discontinued operation in 2012, and prior periods re-presented
accordingly. From 13 March 2013, DLG was classified as an associate
and at 31 December 2013 the Group’s interest in DLG was transferred to
disposal groups.
The Group adopted a number of new and revised IFRSs effective 1
January 2013:
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.
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.
IFRS 12 ‘Disclosure of Interests in Other Entities’ mandates the
disclosures in annual financial statements in respect of investments in
subsidiaries, joint arrangements, associates and structured entities that
are not controlled by the Group.
IFRS 13 ‘Fair Value Measurement’ sets out a single IFRS framework for
defining and measuring fair value. It defines fair value as the price that
would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement
date. It also requires disclosures about fair value measurements.
‘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.
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’ also made a number of minor
changes to IFRSs.
Implementation of the standards and amendments to standards above
has not had a material effect on the financial statements of the Group or
the company.
IAS 19 ‘Employee Benefits’ (revised) requires: the immediate recognition
of all actuarial gains and losses; interest cost to be calculated on the net
pension liability or asset at the long-term bond rate; and all past service
costs to be recognised immediately when a scheme is curtailed or
amended. Implementation of IAS 19 resulted in an increase in the loss
after tax of £84 million for the year ended 31 December 2012 (2011 -
£154 million) with a corresponding increase in other comprehensive
income. This also resulted in an increase in the loss per ordinary and
equivalent B share of 0.8p for the year ended 31 December 2012 (2011 -
1.4p). Prior periods have been restated.
IFRS 10 ‘Consolidated Financial Statements’ replaces SIC-12
‘Consolidation - Special Purpose Entities’ and the consolidation elements
of the existing IAS 27 ‘Consolidated and Separate Financial Statements’.
IFRS 10 adopts a single definition of control: a reporting entity controls
another entity when the reporting entity has the power to direct the
activities of that other entity so as to vary returns for the reporting entity.
IFRS 10 requires retrospective application. Following implementation of
IFRS 10, certain entities that have trust preferred securities in issue are
no longer consolidated by the Group. As a result there was a reduction in
Non-controlling interests of £0.5 billion with a corresponding increase in
Owners’ equity (Paid-in equity) as at 31 December 2012. This resulted in
an increase in the loss attributable to non-controlling interests of £13
million for the year ended 31 December 2012 (2011 - nil), with a
corresponding increase in the profit attributable to paid-in equity holders.
There was no effect on the profit/(loss) attributable to ordinary and B
shareholders. Prior periods have been restated accordingly.
2. Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the company and entities (including certain structured
entities) that are controlled by the Group. The Group controls another
entity (a subsidiary) when it is exposed, or has rights, to variable returns
from its involvement with that entity and has the ability to affect those
returns through its power over the other entity; power generally arises
from 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.
All intergroup balances, transactions, income and expenses are
eliminated on consolidation. The consolidated accounts are prepared
under uniform accounting policies.