Our Accounts 59
Notes to the Financial Statements continued
31 December 2012
1. Significant accounting policies (continued) The accounting policy for each type of financial asset or liability is
included within the relevant note for the category.
Associates and joint ventures in property holding companies
The Group invests in associate companies and jointly controlled Derecognition
entities that hold investment properties, with holdings ranging A financial asset is derecognised when:
between 25% and 99%. l the rights to receive cash flows from the asset have expired; or
l the Group has transferred its rights to receive cash flows from
Associates are all entities over which the Group has significant
influence but not control, generally accompanying a shareholding the asset and has:
of between 20% and 50% of the voting rights.
– transferred the risks and rewards of the asset; or
– has transferred control of the asset.
The investments in associates and the Group’s interests in jointly
controlled entities have not been consolidated under the equity A financial liability is derecognised when the obligation under the
method but are designated as investments at fair value through liability is discharged or cancelled or expires.
income under UK unlisted investments in accordance with the
exemptions permitted under IAS 28 and IAS 31 applicable to e. Liability adequacy testing
investment-linked insurance funds. Insurance and participating investment contract liabilities
At each reporting date, an assessment is made of whether the
b. Contract classification recognised long-term contract liabilities are adequate, using
The Group issues contracts that transfer insurance risk, financial current estimates of future cash flows. If that assessment shows
risk or both. that the carrying amount of the liabilities (less related assets)
is insufficient in light of the estimated future cash flows, the
Insurance contracts are those contracts that transfer significant deficiency is recognised in the Statement of Comprehensive
insurance risk. Such contracts may also transfer financial risk. Income by setting up an additional liability.
As a general guideline, the Group defines as significant insurance
risk the possibility of having to pay benefits on the occurrence of General Insurance
an insured event that are at least 10% more than the benefits At each Statement of Financial Position date liability adequacy
payable if the insured event did not occur.
tests are performed to ensure the adequacy of insurance contract
Investment contracts are those contracts that transfer financial liabilities, net of related deferred acquisition costs. In performing
Statements and Reviews
risk with no significant insurance risk. these tests current best estimates of future contractual cash
flows and claims handling and administration expenses as well
All participating contracts have been classified as participating as investment income from the assets backing such liabilities are
insurance contracts as these contracts entitle the holder to used. Any deficiency is immediately charged to the Statement of
receive, as a supplement to guaranteed benefits, additional Comprehensive Income initially by writing off deferred acquisition
benefits or bonuses: costs and by subsequently establishing an unexpired risk
provision. Any deferred acquisition cost written off as a result of
l that are likely to be a significant portion of the total this test cannot subsequently be reinstated.
contractual benefits;
Our Businesses
l whose amount or timing is contractually at the discretion f. Impairment of non-financial assets
of the Group; and Assets that have an indefinite useful life, for example goodwill,
l that are contractually based on: are not subject to amortisation and are tested annually
i) the performance of a specified pool of contracts for impairment. Assets that are subject to amortisation or
or a specified type of contract; depreciation are reviewed for impairment whenever events or
ii) realised and/or unrealised investment returns on changes in circumstances indicate that the carrying amount
a specified pool of assets held by the fund; or may not be recoverable. An impairment loss is recognised for
iii) the unallocated surplus of the fund that issues the contract. the amount by which the asset’s carrying amount exceeds its
Risk Management
recoverable amount. The recoverable amount is the higher of
c. Foreign currencies an asset’s fair value less costs to sell and value in use. For the
Monetary assets and liabilities denominated in foreign currencies purposes of assessing impairment, assets are grouped at the
are translated to sterling at rates of exchange ruling at the end lowest levels for which there are separately identifiable cash flows
of the year. Purchases and sales of investments denominated (cash-generating units).
in foreign currencies are translated at the rates prevailing at the
dates of the transactions. Exchange gains and losses are dealt Non-financial assets, other than goodwill, that suffered impairment
Corporate Governance
with in that part of the Statement of Comprehensive Income in are reviewed for possible reversal of the impairment at each
which the underlying transaction is reported. reporting date.
d. Financial assets and liabilities g. Cash and cash equivalents
Recognition Cash and cash equivalents comprise cash at bank and in hand,
The Group classifies its financial assets and liabilities upon initial and short-term deposits with an original maturity of three months
recognition into the following categories: or less.
l Financial assets and liabilities at fair value through income
l Derivative financial instruments For the purpose of the consolidated cash flow statement, cash
Our Accounts
l Loans and receivables and cash equivalents are as defined above but are shown net of
l Other financial liabilities outstanding bank overdrafts.