Setting new standards - Friends Life

FINANCIAL STATEMENTS
IFRS FINANCIAL STATEMENTS
EEV SUPPLEMENTARY INFORMATION
Notes to the parent company accounts
1. Accounting policies
1.1 Basis of preparation
Friends Provident plc (the Company) is a limited liability company,
incorporated in the UK, whose shares are publicly traded.
The financial statements have been prepared in accordance with
applicable accounting standards and under the historical cost
convention as modified by the revaluation of investments as set out
in note 1.2.3.
The Company has continued to present individual financial
statements prepared on a UK Generally Accepted Accounting
Practice basis as permitted by section 226(A) and Schedule 4 to the
Companies Act 1985 of adopting the exemption of omitting the
profit and loss account as permitted by section 230 of that Act.
All accounting policies have been reviewed for appropriateness in
accordance with Financial Reporting Standards.
In accordance with FRS 1, the Company is exempt from the
requirement to prepare a cash flow statement on the grounds that
this is provided in its consolidated financial statements.
1.2 Significant accounting policies
1.2.1 Investment return
Investment return excludes revaluation of group investments, and
includes dividends, interest, rents, gains and losses on the realisation
of assets and unrealised gains and losses. Such income includes any
withholding tax but excludes other tax credits, such as attributable
tax credits. Income from fixed-interest securities together with
interest, rents, and associated expenses are accounted for in the
period in which they accrue. Dividends are included in the profit and
loss account when the securities are listed as ex-dividend. Realised
gains or losses on investments are calculated as the difference
between the net sale proceeds and original cost. Unrealised gains
and losses on investments represent the difference between the
valuation of investments at the balance sheet date and their original
cost, or if they have been previously revalued, the valuation at the
last balance sheet date. The movement in unrealised gains and
losses recognised in the period also includes the reversal of
unrealised gains and losses recognised in earlier accounting periods
in respect of disposals in the current period.
1.2.2 Taxation
Taxation is based on profits and income for the period as determined
in accordance with the relevant tax legislation, the movement in
deferred tax and adjustments to prior periods’ tax.
1.2.3 Valuation of investments
Investments are shown in the balance sheet as follows:
(i) Unlisted investments are valued by the directors, having regard
to their likely realisable value.
(ii) Listed and other quoted investments, including those in
participating interests, are carried at bid value at the balance
sheet date.
(iii) Shares in Group undertakings are stated at current value.
Revaluation gains and temporary diminutions in value are
recognised as a transfer to the revaluation reserve.
Revaluation losses, and their reversal, are recognised in the
profit and loss account.
1.2.4 Share based payments
The Company operates share based payment schemes for employees
of the Group, depending on eligibility. The fair value of these equitysettled
share based payments is measured at the grant date, and the
cost is borne by the subsidiary companies. The fair value is added to
the cost of the Company’s investments in its subsidiary undertakings
and a corresponding credit is made to reserves.
1.2.5 Interest-bearing loans and borrowings
Borrowings are recognised initially at cost, being the fair value of the
consideration received, net of transaction costs incurred, and
subsequently stated at amortised cost. Any difference between the
proceeds, net of transaction costs, and the redemption value is
recognised in the profit and loss account over the period of the
borrowings, using the effective interest method.
Convertible notes that can be converted to share capital at the
option of the holder, where the number of shares issued does not
vary with changes in their fair value, are accounted for as compound
financial instruments. Compound financial instruments are split and
recorded respectively within each of its two components, equity and
liability. Transaction costs that relate to the issue of a compound
financial instrument are also allocated to the equity and liability
components in proportion to the allocation of proceeds. The equity
components of the convertible notes are calculated as the excess of
the issue proceeds over the present value of the future interest and
principal payments, discounted at the market rate of interest
applicable to similar liabilities that do not have a conversion option.
The equity component is recognised and included in shareholders’
equity, net of tax effects. The fair value of the liability component is
recorded on an amortised cost basis until extinguished on
conversion or maturity of the bonds.
The interest expense recognised in the profit and loss account under
interest payable is calculated using the effective interest rate method.
186 Friends Provident Annual Report & Accounts 2006