From 3 January 2005, the Group has prepared its consolidated financial statements in accordance with IFRS as adopted by the
European Union (EU). IFRS differ in certain respects from generally accepted accounting principles in the US (US GAAP). All IFRS to
US GAAP differences applicable to the Group are explained in Note 42 to the Financial Statements contained in the Report &
Accounts 2005. The principle differences between IFRS and US GAAP are highlighted below:
- US GAAP requires the recognition of certain intangible assets which are not recognised under IFRS. This principally relates to
customer lists which are amortised over their useful lives giving rise to a reconciling item between US GAAP and IFRS income.
In addition, different treatments prescribed on adoption of the respective accounting standards for goodwill and intangibles
has resulted in historic differences in the carrying value of goodwill and intangible assets.
- Under IFRS actuarial gains and losses related to post-retirement benefits are reflected in the Consolidated Statement of Recognised Income and Expense. Under US GAAP these actuarial gains and losses are amortised over the remaining expected service life of the scheme members. Under US GAAP, for the purposes of amortising gains and losses, the 10% corridor has been adopted, and the market-related value
of assets recognises realised and unrealised capital gains and losses over a rolling three year period. As this results in differing assets from IFRS, different expected returns on assets arise.
- Under IFRS, certain derivative instruments were not required to be recognised on the balance sheet at fair value until 2 January 2005. At this date, the Group adopted IAS 39 under IFRS on a prospective basis, requiring recognition of all derivative instruments at fair value on the balance sheet. Under IFRS, the Group has not adopted hedge accounting. Therefore, movements in the fair value of derivatives are reflected in the Consolidated Income Statement. Under US GAAP, consistent with IFRS, all derivatives are recorded in the financial statements at fair value and all movements in the fair value of derivatives are reflected in the Consolidated Income Statement.
However, since US GAAP has required derivatives to be held on balance sheet at fair value since 1 January 2001, there is an adjustment to unwind the transition accounting upon initial adoption of SFAS 133 and IAS 39, resulting in a gain of £24 million recognised as a reconciling item.
