Barclays PLC Annual Report 2000



	Consolidated accounts Barclays Bank PLC


	Accounting policies


	Summary of significant accounting policies
	a Accounting convention The accounts have been prepared under the historical cost convention, as modified by the revaluation of certain properties and investments. They are prepared in accordance with applicable accounting standards of the Accounting Standards Board (ASB) and pronouncements of its Urgent Issues Task Force (UITF) and with the Statements of Recommended Accounting Practice (SORPs) issued by the British Bankers’ Association. Changes to the accounting policies described in the 1999 Annual report are set out on page 78. b Consolidation and format The consolidated accounts have been prepared in compliance with Sections 230, 255, 255A and 255B of, and Schedule 9 to, the Companies Act 1985 (the Act). The profit and loss account and balance sheet of Barclays PLC have been prepared in compliance with Section 226 of, and Schedule 4 to, the Act. The consolidated accounts include the accounts of Barclays PLC and its subsidiary undertakings made up to 31st December. Details of the principal subsidiary undertakings are given in note 44. As the consolidated accounts include partnerships where a Group member is a partner, advantage has been taken of the exemption given by Regulation 7 of the Partnerships and Unlimited Companies (Accounts) Regulations 1993. c Goodwill Goodwill may arise on the acquisition of subsidiary and associated undertakings and joint ventures. It represents the excess of cost over fair value of the Group’s share of net tangible assets acquired. In accordance with Financial Reporting Standard (FRS) 10, such goodwill is capitalised as an intangible asset and amortised against profit over its expected life, normally 20 years. Prior to FRS 10 Group accounting policy had been to write off goodwill directly to reserves. The transitional arrangements of FRS 10 allow this goodwill to remain eliminated. In the event of a subsequent disposal, any goodwill previously charged directly against reserves prior to FRS 10 will be written back and reflected in the profit or loss on disposal. d Interests in associated undertakings and joint ventures An associated undertaking is generally one in which the Group’s interest is more than 20% and no more than 50% and where the Group exercises a significant influence over the entity’s operating and financial policies. A joint venture is one where the Group holds an interest on a long-term basis and which is jointly controlled by the Group and one or more other venturer. Consolidated profit includes income from interests in associated undertakings and joint ventures based on accounts made up to dates not earlier than 3 months before the balance sheet date. Interests in associated undertakings and joint ventures are included in the consolidated balance sheet at the Group’s share of the book value of the net tangible assets of the undertakings concerned. e Shareholders’ interest in the long-term assurance fund A value is placed on the shareholders’ interest in the in-force policies of the Group’s long-term assurance business. This value is a prudent estimate, based on the advice of a qualified actuary, of the net present value of the profits inherent in such policies. Changes in the value are included in the profit and loss account, grossed up at the underlying rate of taxation. f Bad and doubtful debts Specific provisions are made against advances when, in the opinion of the Directors, credit risks or economic or political factors make recovery doubtful. In addition, general provisions are raised, based on an evaluation of the portfolios of advances and other exposures, in respect of losses which, although not specifically identified, are known from experience to be present in any such portfolio. The aggregate provisions which are made during the year (less amounts released and recoveries of bad debts previously written off ) are charged against operating profit. If the collection of interest is considered to be doubtful, it is suspended and excluded from interest income in the profit and loss account. Bad debts are written off in part, or in whole, when a loss has been confirmed. g Debt securities and equity shares Debt securities and equity shares are stated at market value, apart from investment debt securities and equity shares, which are stated at cost less any provision for impairment. Investment securities are intended for use on a continuing basis by the Group and have been identified as such. The cost of dated investment securities is adjusted for the amortisation of premiums or discounts on purchase over periods to redemption. h Depreciation Depreciation of tangible fixed assets is provided on a straight line basis at the following annual rates:



	Freehold buildings and long-leasehold property (more than 50 years to run)	2%
	Leasehold property	over the remaining
	(less than 50 years to run)	life of the lease
	Costs of adaptation of freehold and leasehold property*	10%
	Equipment installed in freehold and leasehold property*	10%
	Computers and similar equipment	20%-33%
	Fixtures and fittings and other equipment	20%


	* Where a leasehold has a remaining useful life of less than 10 years, costs of adaptation and installed equipment are depreciated over the remaining life of the lease.

i Derivatives

Derivatives used for asset and liability management purposes
Derivatives are used to hedge interest and exchange rate exposures related to non-trading positions. Instruments used for hedging purposes include interest rate swaps, options, futures and currency swaps.

The criteria required for a derivative instrument to be classified as a designated hedge are that:

(i) the transaction must be reasonably expected to match or eliminate a significant proportion of the risk inherent in the assets, liabilities, other positions or cashflows being hedged and which results from potential movements in interest rates, exchange rates and market values; and

(ii) adequate evidence of the intention to hedge and linkage with the underlying risk inherent in the assets, liabilities, other positions or cashflows being hedged, must be established at the outset of the transaction.

Profits and losses on interest rate swaps and options entered into for specifically designated hedging purposes against assets, liabilities, other positions and cashflows measured on an accrual accounting basis are included in the related category of income and expense (in accordance with the accounting treatment of the underlying transaction) as part of the yield on the hedged transaction. Amounts paid or received over the life of futures contracts are deferred until the contract is closed; accumulated deferred amounts on futures contracts and amounts paid or received at settlement of forward contracts are accounted for as elements of the carrying value of the associated instrument, affecting the resulting yield. Foreign exchange contracts which qualify as hedges of foreign currency exposures, including positions relating to investments the Group makes in its business outside the UK, are revalued at the spot rate with any forward premium or discount recognised over the life of the contract in net interest income. Profits and losses on foreign exchange contracts which qualify as a hedge of a firm commitment are deferred and recognised as part of the measurement of the related transaction.

Profits and losses related to qualifying hedges of firm commitments and probable anticipated transactions are deferred and recognised in income or as adjustments to carrying amounts when the hedged transactions occur.

Hedging transactions which are superseded, cease to be effective or are terminated prior to the end of the life of the asset, liability position or cashflow being hedged are measured at fair value. Any profit or loss arising is deferred and amortised into interest income or expense over the remaining life of the item previously being hedged.

When the underlying asset, liability position or cashflow is terminated prior to the hedging transaction, or an anticipated transaction is no longer likely to occur, the hedging transaction is measured on a fair value accounting basis prior to being transferred to the trading portfolio. The profit or loss arising from the fair value measurement prior to the transfer to the trading portfolio is included in the category of income or expense relating to the previously hedged transaction.

Derivatives used for trading purposes
Derivative instruments which do not meet the criteria to be designated as a hedge are deemed to be trading transactions. Derivatives entered into for trading purposes include swaps, forward rate agreements, futures, options and combinations of these instruments.

Derivatives entered into as trading transactions, together with any associated hedging thereof, are measured at fair value, including an allowance for credit risk, and the resultant profits and losses are included in dealing profits, along with interest and dividends arising from long and short positions and funding costs relating to trading activities. Assets and liabilities resulting from gains or losses on derivative and foreign exchange contracts are reported gross in other assets or liabilities, reduced by the effects of qualifying netting agreements with counterparties. The Group establishes provisions for credit risk to the extent that the credit risk is not embedded in the fair value measurement prior to impairment. Associated costs of dealing are recognised when incurred. Where the market price may not be achievable, as a result of significant positions held or operating in illiquid markets, appropriate adjustments to the market value are made.

Collateral and netting

The Group enters into master agreements with counterparties whenever possible and, when appropriate, obtains collateral. Master agreements provide that, if an event of default occurs, all outstanding transactions with the counterparty will be terminated and all amounts outstanding will be settled on a net basis.

Transactions with positive fair values are netted against transactions with negative fair values where the Group has the ability to insist on net settlement which is assured beyond doubt, based on a legal right that would survive the insolvency of the counterparty.

The Group holds collateral in respect of credit related instruments where this is considered desirable, given the customer’s financial position and the overall banking relationship. The collateral normally takes the form of a lien over the customer’s assets and gives the Group a claim on these assets for both existing and future liabilities.

j Credit related instruments

The Group treats credit related instruments (other than credit derivatives) as contingent liabilities and these are not shown on the balance sheet unless and until the Group is called upon to make a payment under the instrument. Assets arising from payments to a third party where the Group is awaiting reimbursement from the customer are shown on the balance sheet, together with any necessary provision. Fees received for providing these instruments are taken to profit over the life of the instrument and reflected in fees and commissions receivable.

k Pensions and other post-retirement benefits

The Group’s main pension scheme covers over 70% of the Group’s employees and comprises a funded defined benefit scheme and a money purchase scheme for new joiners since July 1997. Staff do not make contributions for basic pensions. The pension cost relating to the defined benefit scheme is assessed in accordance with the advice of a qualified actuary, using the projected unit method. Variations from the regular cost are allocated over the expected average service lives of current employees.

The Group also provides post-retirement health care to certain staff and pensioners, the cost of which has been accrued on similar basis.

l Finance lease receivables

Finance lease receivables are included in loans and advances to customers at the cost of the equipment less amounts charged against rentals to date. Net leasing income under finance leases is taken to profit using an actuarial method which gives a constant periodic return on the net cash investment.

m Deferred tax

Deferred tax is provided using the liability method on timing differences between the accounting and tax treatment of income and expense where it is considered probable that a liability to tax will crystallise.

n Foreign currencies

Assets and liabilities in foreign currencies are expressed in sterling at rates of exchange ruling on the balance sheet date. Overseas profits and losses are expressed in sterling at average rates of exchange for the year. Profits arising in areas experiencing hyper-inflation are adjusted to recognise its effect on the worth of the working capital employed. Translation differences arising from the application of closing rates of exchange to the opening net assets held overseas and to related foreign currency borrowings are taken directly to reserves. All other exchange profits and losses, which arise from normal trading activities, are included in operating profit.

o Loan fees

Fee income relating to loans and advances is recognised in the profit and loss account to match the cost of providing a continuing service, together with a reasonable profit margin, except where the fee is charged in lieu of interest when it is recognised on a level yield basis over the life of the advance.

p Mortgage incentives

The costs of mortgage incentives, which comprise cashbacks and interest discounts, are charged to the profit and loss account as incurred.

q Introducer fees

Fees paid to third parties for the introduction of loans and advances to customers are capitalised and amortised over the estimated average life of the loan.

r Non-credit risk provisions

Provisions are recognised for present obligations arising as consequences of past events where it is probable that a transfer of economic benefit will be necessary to settle the obligation and it can be reliably estimated. Contingent liabilities are possible obligations whose existence will be confirmed only uncertain future events or present obligations where the transfer of economic benefit is uncertain or cannot be reliably measured. Contingent liabilities are not recognised but are disclosed unless they are remote.

Changes in accounting policy

Changes to the Group’s accounting policies have occurred following the adoption in 2000 of Financial Reporting Standard 15 ‘Tangible Fixed Assets’ (FRS 15) and Financial Reporting Standard 16 ‘Current Tax’ (FRS 16).

The Group has applied the transitional rules available under FRS 15. The revalued book amounts of fixed assets will be retained without subsequent revaluation subject to the requirement to test for impairment. This change has had no impact on reporting profit or shareholders’ funds.

In accordance with FRS 16, incoming dividends, interest and other income now exclude taxes, such as attributable tax credits, not payable wholly on behalf of the Group. This change in policy has resulted in a reduction in restated profit before tax for 1999 of £5m with a commensurate reduction in the tax charge. Shareholders’ funds are unchanged by this change in policy.

There have been no other significant changes to the accounting policies as described in the 1999 Annual report.

Future UK accounting developments

In November and December 2000 the ASB issued FRS 17 ‘Retirement Benefits’, FRS 18 ‘Accounting Policies’ and FRS 19 ‘Deferred Tax’. FRS 18 will be effective for the year ended 31st December 2001 and its implementation is not expected to have a material impact on the Group. FRS 19 will be effective for the year ended 31st December 2002 and requires deferred tax to be recognised on most types of timing differences. Implementing the standard will require a change in accounting policy since the Group currently provides deferred tax on timing differences where it is considered probable that a liability will crystallise. FRS 17 will be fully effective for the year ended 31st December 2003 when a change in accounting policy will be necessary to recognise on the Group’s balance sheet an asset or liability with respect to the surplus or deficit on the defined benefit schemes and to recognise immediately actuarial gains and losses in the statement of total recognised gains and losses. However, there are transitional requirements which will require additional disclosures in the financial statements for the years ended 31st December 2001 and 2002.

US GAAP

Significant differences exist between accounting principles generally accepted in the UK and those generally accepted in the United States, and the approximate effect on attributable profit and shareholders’ funds of Barclays PLC is set out in note 61.