annual report 2011

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