ANNUAL REPORT AND ACCOUNTS 2012 - RSA, Annual Report ...

FINANCIAL STATEMENTS
Associates
Associates are entities over which the Group has significant
influence but not control, generally accompanying a shareholding
of between 20% and 50% of the voting rights. Investments in
associates are accounted for by the equity method of accounting
and are initially recognised at cost.
The Group’s shares of its associates’ post acquisition profits or
losses are recognised in the income statement and its share of post
acquisition movements in reserves is recognised in the statement of
comprehensive income. The cumulative post acquisition movements
are adjusted in the carrying amount of the investment. When the
Group’s share of losses in an associate equals or exceeds its interest
in the associate, including any unsecured receivables, the Group
does not recognise further losses, unless it has incurred obligations
or made payments on behalf of the associate.
Adjustments are made, where necessary, to the accounting policies
of associates to ensure consistency with the policies adopted by
the Group.
Translation of foreign currencies
Items included in the financial statements of each of the Group’s
entities are measured using the currency of the primary economic
environment in which the entity operates (the functional currency).
The results and financial position of those Group entities whose
functional currency is not Sterling are translated into Sterling
as follows:
• Assets and liabilities for each statement of financial position
presented are translated at closing exchange rates at the end
of the period
• Income and expenses for each income statement are translated
at average exchange rates during each period
• All resulting exchange differences are recognised as a component
of equity.
On consolidation, exchange differences arising from the translation
of the net investment in foreign entities, and of borrowings and
other currency instruments designated as hedges of such
investments, are taken to equity. When a foreign entity is sold,
the cumulative exchange differences relating to that foreign entity
are recognised in the income statement as part of the gain or loss
on sale.
Goodwill arising on the acquisition of a foreign entity is treated as an
asset of the foreign entity and the carrying value is translated at the
closing exchange rate.
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at year
end exchange rates of monetary assets and liabilities denominated
in foreign currencies are recognised in the income statement.
Goodwill and other intangible assets
Goodwill, being the difference between the cost of a business
acquisition and the Group’s interest in the net fair value of the
identifiable assets, liabilities and contingent liabilities acquired, is
initially capitalised in the statement of financial position at cost and
is subsequently recognised at cost less accumulated impairment
losses. The cost of the acquisition is the amount of cash paid and
the fair value of other purchase consideration. For business
combinations completed prior to 31 December 2009, the cost
also includes costs directly attributable to the acquisition and the
value of contingent consideration on settlement. Goodwill is
allocated to cash generating units for the purpose of impairment
testing. Goodwill is subject to an impairment review at least
annually. An impairment review is also carried out whenever there
is an indication that goodwill or other intangible assets are impaired.
Where the carrying amount is more than the recoverable amount,
an impairment is recognised in the income statement.
The increased carrying amount of an asset other than goodwill
attributable to a reversal of an impairment loss does not exceed
the carrying amount that would have been determined (net of
amortisation or depreciation) had no impairment loss been
recognised for the asset in prior years. An impairment loss
recognised for goodwill is not reversed in a subsequent period.
When calculating the goodwill arising on an acquisition, provisions
for losses and loss adjustment expenses are discounted to present
value. Immediately following the acquisition, the provisions for losses
and loss adjustment expenses are valued at full nominal value. This
increase in liabilities is matched by the recognition of an intangible
asset arising from acquired provisions for losses and loss adjustment
expenses, representing the present value of future investment
income implicit in the claims discount. The intangible asset is
amortised over the expected run off period and is tested within
the liability adequacy test of insurance contract liabilities where
the balances of intangible assets associated with insurance contracts
are deducted from the carrying amount of the insurance contract
liabilities. The run off period is normally between five and 11 years.
Expenditure that increases the future economic benefits arising
from computer software in excess of its standard of performance
assessed immediately before the expenditure was made is
recognised as an intangible asset.
Other intangible assets comprise renewal rights, customer lists,
brands and other acquired identifiable non monetary assets
without physical form.
Computer software and other intangible assets are carried at cost
less accumulated amortisation. Amortisation on computer software
and other intangible assets is calculated using the straight line
method to allocate the cost over their estimated useful lives, which
is normally estimated to be between three and 12 years.
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