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

Notes on financial statements26. Financial instruments and financial risk factorsThe accounting classification of each category of financial instruments, and their carrying amounts, are set out below.$ millionAt 31 December 2011NoteLoans andreceivablesAvailable-forsalefinancialassetsAt fair valuethrough profitor lossFinancialDerivative liabilitieshedging measured atinstruments amortized costTotalcarryingamountFinancial assetsOther investments – equity shares 27 – 1,128 – – – 1,128– other 27 – 1,277 – – – 1,277Loans 1,128 – – – – 1,128Trade and other receivables 29 36,879 – – – – 36,879Derivative financial instruments 33 – – 7,188 1,707 – 8,895Cash and cash equivalents 30 9,750 4,317 – – – 14,067Financial liabilitiesTrade and other payables 32 – – – – (50,651) (50,651)Derivative financial instruments 33 – – (6,436) (557) – (6,993)Accruals – – – – (6,321) (6,321)Finance debt 34 – – – – (44,183) (44,183)47,757 6,722 752 1,150 (101,155) (44,774)$ millionAt 31 December 2010NoteLoans andreceivablesAvailable-forsalefinancialassetsAt fair valuethrough profitor lossDerivativehedginginstrumentsFinancialliabilitiesmeasured atamortized costTotalcarryingamountFinancial assetsOther investments – equity shares 27 – 1,191 – – – 1,191– other 27 – 1,532 – – – 1,532Loans 1,141 – – – – 1,141Trade and other receivables 29 32,380 – – – – 32,380Derivative financial instruments 33 – – 7,222 1,344 – 8,566Cash and cash equivalents 30 13,462 5,094 – – – 18,556Financial liabilitiesTrade and other payables 32 – – – – (56,499) (56,499)Derivative financial instruments 33 – – (7,254) (279) – (7,533)Accruals – – – – (6,249) (6,249)Finance debt 34 – – – – (39,139) (39,139)46,983 7,817 (32) 1,065 (101,887) (46,054)The fair value of finance debt is shown in Note 34. For all other financial instruments, the carrying amount is either the fair value, or approximates the fair value.Financial risk factorsThe group is exposed to a number of different financial risks arising from natural business exposures as well as its use of financial instruments including:market risks relating to commodity prices, foreign currency exchange rates, interest rates and equity prices; credit risk; and liquidity risk.The group financial risk committee (GFRC) advises the group chief financial officer (CFO) who oversees the management of these risks. The GFRCis chaired by the CFO and consists of a group of senior managers including the group treasurer and the heads of the group finance, tax and the integratedsupply and trading functions. The purpose of the committee is to advise on financial risks and the appropriate financial risk governance framework for thegroup. The committee provides assurance to the CFO and the group chief executive (GCE), and via the GCE to the board, that the group’s financialrisk-taking activity is governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance withgroup policies and group risk appetite.The group’s trading activities in the oil, natural gas and power markets are managed within the integrated supply and trading function, while theactivities in the financial markets are managed by the integrated supply and trading function, on behalf of the treasury function. All derivative activity iscarried out by specialist teams that have the appropriate skills, experience and supervision. These teams are subject to close financial and managementcontrol.The integrated supply and trading function maintains formal governance processes that provide oversight of market risk associated withtrading activity. These processes meet generally accepted industry practice and reflect the principles of the Group of Thirty Global Derivatives Studyrecommendations. A policy and risk committee monitors and validates limits and risk exposures, reviews incidents and validates risk-related policies,methodologies and procedures. A commitments committee approves value-at-risk delegations, the trading of new products, instruments and strategiesand material commitments.In addition, the integrated supply and trading function undertakes derivative activity for risk management purposes under a separate controlframework as described more fully below.Financial statementsBP Annual Report and Form 20-F 2011 217