united-utilities-annual-report-2015

UNITED UTILITIES GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2015Stock Code: UU.unitedutilities.comAccounting policiesRetirement benefitsThe group operates two defined benefit schemes which areindependent of the group’s finances. Actuarial valuations ofthe schemes are carried out as determined by the trusteesat intervals of not more than three years. The pensioncost under IAS 19 ‘Employee Benefits’ is assessed inaccordance with the advice of a firm of actuaries based onthe latest actuarial valuation and assumptions determinedby the actuary. The assumptions are based on informationsupplied to the actuary by the company, supplementedby discussions between the actuary and management.The assumptions are disclosed in note A4. Profit beforetaxation and net assets are affected by the actuarialassumptions used. The key assumptions include: discountrates, pay growth, mortality and increases to pensions inpayment and deferred pensions, and may differ from actualresults due to changing market and economic conditionsand longer or shorter lives of participants.Derivative financial instrumentsThe model used to fair value the group’s derivative financialinstruments requires management to estimate future cashflows based on applicable interest rate curves. Projectedcash flows are then discounted back using discount factorswhich are derived from the applicable interest rate curvesadjusted for management’s estimate of counterparty andown credit risk, where appropriate.TaxationAssessing the outcome of uncertain tax positions requiresjudgements to be made regarding the application of tax lawand the result of negotiations with, and enquiries from, taxauthorities in a number of jurisdictions.For further information on accounting policies see note A6.Recently issued accounting pronouncementsAt the date of authorisation of these financial statements,the following relevant standards and interpretations werein issue but not yet effective. All of the standards in issuebut not yet effective have been endorsed by the EU exceptwhere noted. The directors anticipate that the groupwill adopt these standards and interpretations on theireffective dates.The directors anticipate that the adoption of the followingstandards and interpretations may have a material impacton the group’s financial statements.IFRS 9 ‘Financial Instruments’The standard is effective for periods commencing on orafter 1 January 2018 but has not yet been endorsed by theEU. Under the provisions of this standard, where the grouphas chosen to measure borrowings at fair value throughprofit or loss, the portion of the change in fair value due tochanges in the group’s own credit risk will be recognisedin other comprehensive income rather than within profitor loss. If this standard had been adopted in the currentyear, £4.6 million of losses would have been recognised inother comprehensive income rather than within the incomestatement.The standard also broadens the scope of what can beincluded within a hedge relationship, which may enable thegroup’s regulatory swaps to be designated within cash flowhedge relationships. If the standard had been adopted inthe current year, with all such swaps being designated andall hedges being fully effective, £133.5 million of fair valuelosses would have been recognised in other comprehensiveincome rather than within the income statement.The directors anticipate that the adoption of the followingstandards and interpretations will have no material impacton the group’s financial statements.Amendment to IAS 1 ‘Presentation of Financial Statements’This amendment represents the International AccountingStandard Board’s (IASB) first step in its disclosure initiative,is effective for periods commencing on or after 1 January2016, but has not yet been endorsed by the EU. The narrowfocusamendments clarify, rather than significantly change,existing requirements within the standard.IFRS 15 ‘Revenue from Contracts with Customers’This standard is effective for periods commencing on orafter 1 January 2017, but has not yet been endorsed bythe EU. The standard introduces a new revenue recognitionmodel and replaces IAS 18 ‘Revenue’, IAS 11 ‘ConstructionContracts’, IFRIC 13 ‘Customer Loyalty Programmes’,IFRIC 15 ‘Agreements for the Construction of Real Estate’,IFRIC 18 ‘Transfer of Assets from Customers’ and SIC-31 ‘Revenue - Barter Transactions Involving AdvertisingServices’.Improvements to IFRS 2014This is a collection of amendments to four standards aspart of the IASB’s programme of annual improvements.The improvements, issued in September 2014, are yetto be endorsed by the EU and are effective for periodscommencing on or after 1 January 2016.Improvements to IFRS (2012) and IFRS (2013)This is a collection of amendments to 11 standards aspart of the IASB’s programme of annual improvements.The improvements were issued in December 2013 and areeffective for periods commencing on or after 1 February2015 and 1 January 2015 respectively.All other standards and interpretations, which are in issuebut not yet effective, are not considered relevant to theactivities of the group.126