BP Annual Report and Form 20-F 2011 - Company Reporting

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Notes on financial statements1. Significant accounting policies continuedCorporate taxesIncome tax expense represents the sum of the tax currently payable anddeferred tax. Interest and penalties relating to tax are also included inincome tax expense.The tax currently payable is based on the taxable profits for theperiod. Taxable profit differs from net profit as reported in the incomestatement because it excludes items of income or expense that are taxableor deductible in other periods and it further excludes items that are nevertaxable or deductible. The group’s liability for current tax is calculated usingtax rates and laws that have been enacted or substantively enacted by thebalance sheet date.Deferred tax is provided, using the liability method, on all temporarydifferences at the balance sheet date between the tax bases of assets andliabilities and their carrying amounts for financial reporting purposes.Deferred tax liabilities are recognized for all taxable temporarydifferences except:• Where the deferred tax liability arises on goodwill that is not taxdeductible or the initial recognition of an asset or liability in a transactionthat is not a business combination and, at the time of the transaction,affects neither accounting profit nor taxable profit or loss.• In respect of taxable temporary differences associated with investmentsin subsidiaries, jointly controlled entities and associates, where the groupis able to control the timing of the reversal of the temporary differencesand it is probable that the temporary differences will not reverse in theforeseeable future.Deferred tax assets are recognized for all deductible temporary differences,carry-forward of unused tax credits and unused tax losses, to the extentthat it is probable that taxable profit will be available against which thedeductible temporary differences and the carry-forward of unused taxcredits and unused tax losses can be utilized:• Except where the deferred income tax asset relating to the deductibletemporary difference arises from the initial recognition of an asset or liabilityin a transaction that is not a business combination and, at the time of thetransaction, affects neither accounting profit nor taxable profit or loss.• In respect of deductible temporary differences associated withinvestments in subsidiaries, jointly controlled entities and associates,deferred tax assets are recognized only to the extent that it is probablethat the temporary differences will reverse in the foreseeable future andtaxable profit will be available against which the temporary differencescan be utilized.The carrying amount of deferred tax assets is reviewed at each balancesheet date and reduced to the extent that it is no longer probable thatsufficient taxable profit will be available to allow all or part of the deferredincome tax asset to be utilized.Deferred tax assets and liabilities are measured at the tax rates thatare expected to apply to the year when the asset is realized or the liabilityis settled, based on tax rates (and tax laws) that have been enacted orsubstantively enacted at the balance sheet date.Tax relating to items recognized in other comprehensive incomeis recognized in other comprehensive income and tax relating to itemsrecognized directly in equity is recognized directly in equity and not in theincome statement.Customs duties and sales taxesRevenues, expenses and assets are recognized net of the amount ofcustoms duties or sales tax except:• Where the customs duty or sales tax incurred on a purchase of goodsand services is not recoverable from the taxation authority, in whichcase the customs duty or sales tax is recognized as part of the cost ofacquisition of the asset or as part of the expense item as applicable.• Receivables and payables are stated with the amount of customs duty orsales tax included.The net amount of sales tax recoverable from, or payable to, the taxationauthority is included within receivables or payables in the balance sheet.Own equity instrumentsThe group’s holdings in its own equity instruments, including ordinaryshares held by Employee Share Ownership Plan Trusts (ESOPs), areclassified as ‘treasury shares’, or ‘own shares’ for the ESOPs, and areshown as deductions from shareholders’ equity at cost. Considerationreceived for the sale of such shares is also recognized in equity, with anydifference between the proceeds from sale and the original cost beingtaken to the profit and loss account reserve. No gain or loss is recognizedin the income statement on the purchase, sale, issue or cancellation ofequity shares.RevenueRevenue arising from the sale of goods is recognized when the significantrisks and rewards of ownership have passed to the buyer, which is typicallyat the point that title passes, and the revenue can be reliably measured.Revenue is measured at the fair value of the consideration receivedor receivable and represents amounts receivable for goods provided in thenormal course of business, net of discounts, customs duties and salestaxes.Physical exchanges are reported net, as are sales and purchasesmade with a common counterparty, as part of an arrangement similar toa physical exchange. Similarly, where the group acts as agent on behalfof a third party to procure or market energy commodities, any associatedfee income is recognized but no purchase or sale is recorded. Additionally,where forward sale and purchase contracts for oil, natural gas or powerhave been determined to be for trading purposes, the associated salesand purchases are reported net within sales and other operating revenueswhether or not physical delivery has occurred.Generally, revenues from the production of oil and natural gasproperties in which the group has an interest with joint venture partners arerecognized on the basis of the group’s working interest in those properties(the entitlement method). Differences between the production sold and thegroup’s share of production are not significant.Interest income is recognized as the interest accrues (using theeffective interest rate that is the rate that exactly discounts estimatedfuture cash receipts through the expected life of the financial instrument tothe net carrying amount of the financial asset).Dividend income from investments is recognized when theshareholders’ right to receive the payment is established.ResearchResearch costs are expensed as incurred.Finance costsFinance costs directly attributable to the acquisition, construction orproduction of qualifying assets, which are assets that necessarily take asubstantial period of time to get ready for their intended use, are addedto the cost of those assets, until such time as the assets are substantiallyready for their intended use. All other finance costs are recognized in theincome statement in the period in which they are incurred.Use of estimatesThe preparation of financial statements requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities as well as the disclosure of contingent assets and liabilities at thebalance sheet date and the reported amounts of revenues and expensesduring the reporting period. Actual outcomes could differ from thoseestimates.Impact of new International Financial Reporting StandardsAdopted for 2011There are no new or amended standards or interpretations adopted witheffect from 1 January 2011 that have a significant impact on the financialstatements.188 BP Annual Report and Form 20-F 2011
Notes on financial statements1. Significant accounting policies continuedNot yet adoptedThe following pronouncements from the IASB will become effective forfuture financial reporting periods and have not yet been adopted by the group.• Interests in other entities and related disclosuresIn May 2011, the IASB issued three new standards relating to interestsin other entities and related disclosures. The new standards are IFRS 10‘Consolidated Financial Statements’, IFRS 11 ‘Joint Arrangements’ andIFRS 12 ‘Disclosure of Interests in Other Entities’. In addition, the IASBissued amendments to IAS 27 ‘Consolidated and Separate FinancialStatements’ (now renamed IAS 27 ‘Separate Financial Statements’) andIAS 28 ‘Investments in Associates’ (now renamed IAS 28 ‘Investments inAssociates and Joint Ventures’).IFRS 10 introduces a single consolidation model that identifiescontrol as the basis for consolidation. The new model applies to all typesof entities, including structured entities. Under the new model, an investorcontrols an investee when it is exposed, or has rights, to variable returnsfrom its involvement with the investee and has the ability to affect thosereturns through its power over the investee.IFRS 11 establishes a principle that applies to the accountingfor all joint arrangements, whereby parties to the arrangement accountfor their underlying contractual rights and obligations relating to thejoint arrangement. IFRS 11 identifies two types of joint arrangements.A ‘joint venture’ is defined as a joint arrangement whereby the partiesthat have joint control of the arrangement have rights to the net assetsof the arrangement. A ‘joint operation’ is defined as a joint arrangementwhereby the parties that have joint control of the arrangement haverights to the assets, and obligations for the liabilities, relating to thearrangement. Investments in joint ventures will be accounted for using theequity method. Investments in joint operations will be accounted for byrecognizing the group’s assets, liabilities, revenue and expenses relating tothe joint operation.IFRS 12 combines all the disclosure requirements for an entity’sinterests in subsidiaries, joint arrangements, associates and structuredentities into one comprehensive disclosure standard.These new and amended standards are effective for annual periodsbeginning on or after 1 January 2013 and BP intends to adopt them fromthis date. The evaluation of the effect of adoption of these standards hasnot yet been completed. It is expected that the main impact of this suiteof new standards is that certain of the group’s existing jointly controlledentities, which are currently equity accounted, will fall under the definitionof a joint operation under IFRS 11 and thus we will be required to ceaseequity accounting and instead recognize the group’s assets, liabilities,revenue and expenses relating to these arrangements. This new suite ofstandards has not yet been adopted by the EU.• Other new standards not yet adoptedAs part of the IASB’s project to replace IAS 39 ‘Financial Instruments:Recognition and Measurement’, in November 2009 the IASB issued thefirst phase of IFRS 9 ‘Financial Instruments’, dealing with the classificationand measurement of financial assets. In October 2010, the IASB updatedIFRS 9 by incorporating the requirements for the accounting for financialliabilities. The remaining phases of IFRS 9 (covering impairment and hedgeaccounting) are still to be completed. In December 2011, the IASB decidedthat IFRS 9 will be effective for annual periods beginning on or after 1January 2015, rather than 1 January 2013 as originally indicated. BP has notyet decided the date of adoption for the group and has not yet completedits evaluation of the effect of adoption. The new standard has not yet beenadopted by the EU.In May 2011, the IASB issued a new standard, IFRS 13 ‘Fair valuemeasurement’. The new standard defines fair value, sets out a frameworkfor measuring fair value and the required disclosures about fair valuemeasurements. IFRS 13 does not require fair value measurements inaddition to those already required or permitted by other IFRSs, rather itprescribes how fair value should be measured if another IFRS requires it.Fair value is defined as the price that would be received to sell an assetor paid to transfer a liability in an orderly transaction between marketparticipants at the measurement date i.e. it is an exit price. IFRS 13 iseffective for annual periods beginning on or after 1 January 2013 and BPintends to adopt it from this date. The evaluation of the effect of adoption ofIFRS 13 has not yet been completed.In June 2011, the IASB issued an amended version of IAS19 ‘Employee Benefits’, which brings in various changes relating tothe recognition and measurement of termination benefits and postemploymentdefined benefit expense, and to the disclosures for allemployee benefits. The main impact for BP will be that the expense fordefined benefit pension and other post-retirement benefit plans will includea net interest income or expense, which will be calculated by applying thediscount rate used for measuring the obligation and applying that to the netdefined benefit asset or liability. This means that the expected return onassets credited to profit or loss (currently calculated based on the expectedlong-term return on pension assets) will now be based on a lower corporatebond rate, the same rate that is used to discount the pension liability. Theamended IAS 19 is effective for annual periods beginning on or after 1January 2013 and BP intends to adopt this new standard with effect fromthat date. The evaluation of the effect of adoption of the amended standardhas not yet been completed, however, based upon our analysis to date,we expect the change to result in a significantly higher net charge to theincome statement once adopted.In June 2011, the IASB issued amendments to IAS 1 ‘Presentationof Financial Statements’ on the presentation of other comprehensiveincome (OCI). The amendments require that those items of OCI that couldbe reclassified to profit or loss at a future date be presented separatelyfrom those items that will never be reclassified to profit or loss. Theseamendments to IAS 1 are effective for annual periods beginning on orafter 1 July 2012. BP intends to adopt the amendments with effect from1 January 2013. The adoption of the amended standard is expected to onlyhave a presentational impact on the group’s financial statements, with noeffect on the reported income or net assets of the group.In December 2011, the IASB issued amendments to IFRS 7‘Disclosures – Offsetting Financial Assets and Financial Liabilities’ andamendments to IAS 32 ‘Offsetting Financial Assets and Financial Liabilities’.These amendments introduce new disclosure requirements about theeffects of offsetting financial assets and financial liabilities and relatedarrangements on an entity’s financial position. The amendments to IFRS 7are effective for annual periods beginning on or after 1 January 2013, withthe amendments to IAS 32 effective for annual periods beginning on orafter 1 January 2014. BP intends to adopt these amendments with effectfrom 1 January 2013 and 1 January 2014 respectively. The evaluation of theeffect of adoption of these amendments has not yet been completed.In October 2010, the IASB issued amendments to IFRS 7 ‘FinancialInstruments: Disclosures – Transfers of Financial Assets’. The amendmentsaddress the disclosures of transfers of financial assets. These amendmentsto IFRS 7 are effective for periods beginning on or after 1 July 2011. BPintends to adopt the amendments with effect from 1 January 2012. Theextent to which BP will be required to amend its disclosures in the light ofthese new requirements is currently being evaluated.With the exception of the amendments to IFRS 7 regarding thedisclosures of transfers of financial assets, the EU has not yet adopted anyof the above-mentioned other new standards that have been issued but notyet adopted by the group.There are no other standards and interpretations in issue but notyet adopted that the directors anticipate will have a material effect on thereported income or net assets of the group.Financial statementsBP Annual Report and Form 20-F 2011 189
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Cover imagePhotograph of DeepseaSta
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Cross reference to Form 20-FPageIte
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Miscellaneous termsIn this document
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6 BP Annual Report and Form 20-F 20
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Chairman’s letterCarl-Henric Svan
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During the year, the remuneration c
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Business review: Group overviewBP A
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SafetyDuring the year, we reorganiz
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In Refining and Marketing, our worl
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Crude oil and gas prices,and refini
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In detailFor more information, seeR
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Our market: Longer-term outlookThe
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BP’s distinctive capabilities and
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Technology will continue to play a
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In detailFor more information,see C
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In detailFind out more online.bp.co
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BP Annual Report and Form 20-F 2011
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Below BP has asignificant presencei
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What you can measure6 Active portfo
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Business review: Group overview2012
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Our risk management systemOur enhan
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Our current strategic priorities ar
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Our performance2011 was a year of f
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Left BP employeesat work in Prudhoe
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We continued to sell non-core asset
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Reported recordableinjury frequency
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Business reviewBP in more depth56 F
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Business reviewThe primary addition
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Business reviewRisk factorsWe urge
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Business review2010. Similar action
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Business reviewBusiness continuity
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Business reviewSafetyOver the past
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Business reviewour review of all th
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Business reviewGreenhouse gas regul
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Business reviewresources such as dr
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Business reviewExploration and Prod
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Business reviewCompleting the respo
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Business reviewOur performanceKey s
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Business reviewwere in Russia (Oren
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Business reviewCanadaIn Canada, BP
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Business review• In March 2011, T
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Business reviewaccess advantageous
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Business reviewBP’s vice presiden
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Business reviewhttp://www.bp.com/do
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Business reviewbalance of participa
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Business reviewAcquisitions and dis
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Business reviewLPGOur global LPG ma
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Business reviewOther businesses and
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Business reviewLiquidity and capita
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Business reviewThe group expects it
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Business reviewFrequently, work (in
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Business reviewHazardous and Noxiou
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Business reviewpart of a larger por
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Directors andsenior management114 D
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Directors and senior managementDire
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Directors and senior managementH L
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Corporate governanceCorporate gover
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Corporate governanceAntony Burgmans
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Corporate governanceBoard oversight
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Corporate governanceBoard and commi
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Corporate governancefinancial repor
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Corporate governancechairs and secr
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Corporate governance• Oversee GCR
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Corporate governanceCommittee’s r
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Corporate governanceControls and pr
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Notes on financial statementsTotal
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Supplementary information on oil an
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SignaturesThe registrant hereby cer
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Parent company financial statements
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