annual report 2011
annual report 2011
annual report 2011
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IOOF | <strong>annual</strong> <strong>report</strong> <strong>2011</strong><br />
awards for which the related service and non-market vesting<br />
conditions are expected to be met, such that the amount<br />
ultimately recognised as an expense is based on the number<br />
of awards that meet the related service and non-market<br />
performance conditions at vesting date.<br />
For share-based payment awards with non-vesting conditions,<br />
the grant date fair value of the share-based payment is<br />
measured to reflect such conditions and there is no true-up for<br />
differences between expected and actual outcomes.<br />
The fair value at grant date is independently determined where<br />
considered appropriate. The option pricing model used takes<br />
into account the exercise price, the term of the option, the<br />
impact of dilution, the share price at grant date and expected<br />
price volatility of the underlying share, the expected dividend<br />
yield and the risk free interest rate for the term of the option.<br />
A small number of shares remain held by the IOOF Executive<br />
Performance Share Plan Trust (the “Trust”) as at the<br />
comparative <strong>report</strong>ing date. These shares will contribute to<br />
the employee allocation of shares on satisfaction of vesting<br />
performance hurdles. The Group has no right to recall placed<br />
shares. However, a subsidiary Company acts as the Trustee of<br />
the Trust, and can direct the voting rights of shares held and<br />
strategic direction.<br />
Shares in the Company held by the Trust are classified and<br />
disclosed as Treasury shares, and deducted from share capital.<br />
Dividends received by the Trust are recorded as dividend<br />
income in the financial statements of the Trust.<br />
Non-Executive Directors have the opportunity to participate<br />
in the IOOF Deferred Share Purchase Plan. The plan provides<br />
a facility for Non-Executive Directors to salary sacrifice base<br />
salary or future incentive entitlements in order to acquire<br />
shares. As the purchase is funded by Directors’ salary sacrifice,<br />
no additional expense is recorded by the Group.<br />
(j)<br />
Provisions<br />
A provision is recognised if, as a result of a past event, the<br />
Group has a present legal or constructive obligation that can<br />
be estimated reliably, and it is probable that an outflow of<br />
economic benefits will be required to settle the obligation.<br />
Provisions are determined by discounting the expected<br />
future cash flows at a pre-tax rate that reflects current market<br />
assessments of the time value of money.<br />
(i)<br />
Restructuring<br />
A provision for restructuring is recognised when the Group<br />
has approved a detailed and formal restructuring plan, and the<br />
restructuring either has commenced or has been announced<br />
publicly. Future operating losses are not provided for.<br />
(ii)<br />
Onerous contracts<br />
A provision for onerous contracts is recognised when the<br />
expected benefits to be derived by the Group from a contract<br />
are lower than the unavoidable cost of meeting its obligations<br />
under the contract. The provision is measured at the present<br />
value of the lower of the expected cost of terminating the<br />
contract and the expected net cost of continuing with<br />
the contract. Before a provision is established, the Group<br />
recognises any impairment loss on the assets associated with<br />
that contract.<br />
(k) Contract classification<br />
The accounting treatment of certain transactions varies<br />
depending on the nature of the contract underlying the<br />
transaction. The major contract classifications are insurance<br />
contracts and investment contracts.<br />
(i)<br />
Insurance contracts<br />
Insurance contracts are those containing significant insurance<br />
risk at the inception of the contract, or those where at the<br />
inception of the contract there is a scenario with commercial<br />
substance where the level of insurance risk may be significant.<br />
The significance of insurance risk is dependent on both the<br />
probability of an insured event and the magnitude of its<br />
potential effect.<br />
Once a contract has been classified as an insurance contract, it<br />
remains an insurance contract for the remainder of its lifetime,<br />
even if the insurance risk reduces significantly during the<br />
period.<br />
(ii)<br />
Investment contracts<br />
Contracts not considered insurance contracts are classified<br />
as investment contracts. The accounting treatment of<br />
investment contracts depends on whether the investment has<br />
a discretionary participation feature (‘DPF’). A DPF represents<br />
a contractual right to receive, as a supplement to guaranteed<br />
benefits, additional benefits that are:<br />
• likely to be a significant portion of the total benefits;<br />
• distributed at the discretion of the insurer; and<br />
• are based on the performance of a specified pool of assets.<br />
Deposits collected and benefits paid under investment<br />
contracts with DPF are accounted for through profit or loss.<br />
The gross change in the liability to these policyholders for<br />
the period, which includes any participating benefits vested<br />
in policyholders and any undistributed surplus attributed to<br />
policyholders, is also recognised in profit or loss.<br />
Deposits collected and withdrawals processed for investment<br />
contracts without DPF are accounted for directly through<br />
the statement of financial position as a movement in the<br />
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