Setting new standards - Friends Life

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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
PARENT COMPANY ACCOUNTS ABBREVIATIONS AND DEFINITIONS Notes to the parent company accounts continued 1. Accounting policies continued 1.2.6 Deferred taxation Provision is made for deferred taxation liabilities, using the liability method, on all material timing differences, including revaluation gains and losses on investments recognised in the profit and loss account, as the investments are revalued. Deferred taxation is calculated at the rates at which it is expected that the tax will arise, and discounted to take into account the likely timing of payments and pattern of expected realisation of investments. Deferred taxation is recognised in the profit and loss account for the period, except to the extent that it is attributable to a gain or loss that is recognised directly in the statement of total recognised gains and losses. 1.2.7 Foreign currencies Assets and liabilities held in foreign currencies at the balance sheet date are expressed in sterling at rates ruling on that date. Income and expenditure denominated in foreign currencies are translated at rates ruling at the date on which the transaction occurs. All resulting exchange gains and losses are included within the part of the profit and loss account in which the underlying transaction is reported. 2. Investments in Group undertakings Subsidiary Loans to Group Total undertakings undertakings investments £m £m £m Current value At 1 January 2006 4,249 305 4,554 Additions 8 - 8 Adjustment to consideration (12) - (12) Revaluations 196 - 196 At 31 December 2006 4,441 305 4,746 Cost At 1 January 2006 3,180 305 3,485 Additions 8 - 8 Adjustment to consideration (12) - (12) At 31 December 2006 3,176 305 3,481 Additions include £4m investment in F&C and £4m in share based payment transactions with Friends Provident Management Services Limited. The adjustment to consideration is a £12m reduction in the cost of Lombard in respect of future consideration (see note 4). The principal subsidiary undertakings of the Company as at 31 December 2006 are set out in note 19 to the Group’s consolidated financial statements. A list of all subsidiary undertakings is filed at UK Companies House with the Company’s Annual Return. Friends Provident Annual Report & Accounts 2006 187
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Setting new standards Friends Provi
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INTERNATIONAL LIFE & PENSIONS ASSET
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Setting new standards - Friends Life

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