Discuss the accounting policies of Barclays Bank Plc.
Barclays is a British multinational financial and banking administrations which has its headquarters within London. The bank has widespread operations in investment and wholesale banking, retail, wealth management, credit cards emulated by mortgage lending. It has operations in atleast 50 nations along with divisions and subsidiaries having almost 48 million clients. In accordance with 31 December 2011 Barclays had complete resources of US$2.42 trillion, the seventh-biggest of any bank around the world (Zineldin, 2012).
This particular bank is sorted out inside these business groups: Business and Retail Banking, corporate and investment banking, wealth and investment management. The Corporate and Investment Banking, Wealth and Investment Management group embodies 3 specialties units: Corporate banking; Investment banking and Investment and wealth management. The Business and retail Banking group incorporate 4 specialties units: Business banking and Africa Retail (counting Absa Group); Europe Retail and Business Banking; and UK Retail; Barclaycard (Mastercard and advance procurement); and last but not the least, the business banking (Barclays, 2014).
As a centered global bank, Barclays offers an incorporated diverse range of services and products across retail banks, investment banking, wealth management and corpoarte banking. They serve people, little and expansive organizations, enterprises, foundations and governments.
Barclays tries to fulfill the needs of their clients and customers by providing a balanced value within an extensive variety of products and services – and in this manner convey a smoother cash flow and effective returns. Then again, they don't try to offer all things to all individuals. The competitive advantage of Barclays emerges from the diversity and scale of their business and the quality, relationships and character of their people.
The investments within the subsidiaries incorporate Absa Group Limited that is located in South Africa, Barclaycard, Barclays Africa, Barclays’ Croatia, Barclays France, Barclays India, Barclays Investment Bank, Barclays Private Clients International, Barclays Morocco, Barclay Pakistan, Barclays Partner Finance and etc.
Regulatory Framework of Financial Reporting
The integrity within the financial statements is supported by the control environment relating to the formation of the annual reports. In such manner, the Committee gives priority to the considertation of the consequences of the evaluations Group’s turnbull, its Sarbanes-Oxley s404 inward process related to internal control and the unlucky deficiency of any evidences related to misrepresentation identifying with matters related to financial reporting (Zeff, 2010). The Committee likewise fulfilled itself that there were relevant processes related to verification and standards by which senior administration validated an exactness of the genuine content and a procedure to back up the representations to the external auditors made by the board. It did this by developing arguments over the yields from the Disclosure Committee's audit of the annual statements, incorporating an evaluation of disclosure controls and methodologies, and by requesting that the administration should make a clarification and proof the premise on which the representations were made to the auditors (Garrett, 2014). The Disclosure Committee is an administration advisory group, led by the Director of the Group Finance, who makes a consideration of the content, exactness and disclosure tone, reporting its decisions to the Board Audit Committee and Executive Group Committee. The Committee also made a consideration of the reports from the inward and external auditor identifying with these viewpoints. Likewise, the control isssues in the IT environment are also discussed by the Committee, which are liable to plans related to remediation. Extra measures have been taken, including compensation controls, to guarantee that the controls over the frameworks supporting the money related reporting methods can be depended upon (Graham, 2010). The Committee was fulfilled, given the consequences of the testing of the controls related to compensating, that the respectability of the financial control environment was relevant. One other real component of the process related to financial reporting incorporates the key estimates and assumptions or judgments that definitely must be made. In front of publication of the half-year and entire year comes about, the Committee makes an analysis in detail the principle assumptions and judgements made by administration. There is an additional consideration as to whether, in those ranges where the policy is associated to the accounting decisions may be made, suitable approaches had been chosen. The prudent judgement judgments have been made as to financial reporting, that the financial statements give a genuine and reasonable perspective of the financial position of the company and that the analysis is made on an independent basis by the auditors in the interest of their owners is both effective and objective. Likewise, the Committee also discusses about control issues in the IT environment, which are liable to plans related to remediation (Dunn, 2013). The Disclosure Committee is an administration advisory group, led by the Group Finance Director, which considers the content, exactness and tone of the disclosures, reporting its decisions to the Group Executive Committee and the Board Audit Committee. The Committee additionally considered reports from the inward and external auditor identifying with these viewpoints.
The carrying value of goodwill is determined as per IFRS 3 Business Combinations IAS 36 Impairment of Assets. The Goodwill evolves on the acquisition of joint ventures and associates, subsidiaries, and signifies to the overabundance of the FV i.e. purchase faire value and acquisition thought over the FV of the Group's share of the assets gained and the liabilities and unexpected liabilities accepted on the date of the obtaining. Goodwill is looked into every year for impedance, or all the more much of the time when there are signs that impairment may have happened. This is further illustrated below:
The test includes contrasting the carrying value of goodwill and the present estimation of the pretax CFs i.e. cash flows, marked down at an interest rate that mirrors the innate risks, of the (CGU) i.e. cash generation unit to which the goodwill relates, or the fair value of Cash Generation Unit if it is higher. If any other company within the same industry is to be compared in accordance with the impairment of assets and goodwill, then the Royal Bank of Scotland can be a better option here (Barclays , 2013). The intangible assets incorporate goodwill emerging on the acquisition of joint ventures and subsidiaries. Goodwill on the acquisition of a subsidiary is the overabundance of the FVof the transferred consideration, the FV of any current interest for the subsidiary and the measure of any non-controlling interest measured either at its share of the subsidiary's net resources over the Group's interest for the net FV of the subsidiary's identifiable resources, liabilities and unforeseen liabilities. Goodwill emerges on the acquisition of a joint venture when the investment cost surpasses the share of the group of the net fair value of the joint venture's identifiable resources and liabilities. Goodwill is measured at starting cost less any resulting losses impairment. Goodwill emerging on the acquisition of associates is incorporated inside their carrying amounts. The increase or loss on the disposal of joint venture, associate and subsidiary incorporates the carrying value of any related goodwill. The internally generated goodwill and brands is written off when they are incurred. Direct expenses identifying with the development of inward utilize a software that are promoted once specialized plausibility and financial feasibility have been made. These expenses incorporate finance, the expenses of materials and administrations, and specifically attributable overheads. Capitalization of expenses stops when the product is fit for working as proposed (Clark, 2012).
Amid and after improvement, accumulated expenses are surveyed for disability against the advantages that the product is required to produce. Expenses brought about before the foundation of specialized feasibility and financial practicality are expensed as acquired similar to every single preparing cost and general overheads. The expenses of licenses to utilize PC programming that are relied upon to create economic advantages past one year also gets capitalized.
The financial instruments of the company include Corporate bonds, Government Bonds, Equities, Asset backed securities, Commercial real estate loans etc. The financial risks faced by the company include the following:
A credit risk is the measure of potential for default that is intrinsic in a given extension of credit or debt investment. A bank or a financial specialist in different sorts of bonds conveys a level of credit risk on any conductance of transaction. Evaluating the level of risk included is fundamental before finishing any sort of lending or investment transaction
Funding risk is the likelihood that a business may not have entry to the financing it needs at a moderate rate. Regularly, a strategies for success to utilize a blend of equity and credit financing to finance its operations. The expense of financing is the interest that the organization needs to pay to secure the external funds. A business can just envision the future interest rate on a wellspring of funds. The risk that the credit business may change and funds get to be more lavish is the subsidizing risk in a business' financing arrangement (Chisnall, 2012).
Market risk is the normal risk connected with the estimation of a group of assets or ventures. A speculation's worth is liable to the financial changes and events of the marketplace. Hence, huge positive or negative changes in the business sector might seriously affect the estimation of investments or assets held by organizations or people. A case of this on a vast scale is the U.S. lodging rise of 2005-2008; sub-prime home loans kept in touch with people not able to reimburse the credits conveyed high hazard for loan specialists. The bubble burst that gets to be unsustainable, setting off a major financial collapse in the mortgage and banking industries.
The following measures were taken by Barclay’s for managing the risk mentioned above.
- Asked for particular reports and analysis on these matters assessed the potential effect on financing expenses and streams of a credit rating agency minimization, given the loss of sovereign support scoring and potential administration activities to keep up the liquidity scope
- Assessed the potential effect on planned deposit balance of an increment in interest rates and accessible administration activities.
- Followed advancement against target capital and influence degrees and accessible administration activities to accomplish the target, debating normal reports from Barclays' Treasurer.
- Evaluated the quality of risk set up to guarantee that growth remains inside the risk appetite.
Accounting policies of the company to recognise post-employment benefits
The incentives for an employee incorporate shares and shares option, and also offering representatives the chance to purchase shares on positive terms. The expense associated with representative services got in admiration of the shares or offer alternatives conceded is perceived in accordance with the pay explanation over the period that employees give services, by and large the period between the date the grant is allowed or advised and the date for vesting of the options or shares. The general expense of the award is computed utilizing the quantity of shares and options anticipated that would vest and the FV of the shares or alternatives at the grant date (Barclays, 2014).
The quantity of options and shares anticipated that would vest considers the probability that service and performance terms that are incorporated in the conditions of the award will be met. Inability to meet the non-vesting condition is dealt with as a cancellation, bringing about a speeding up of recognition of the expense of the employee services. The reasonable estimation of shares is the business sector value administering on the date of grant, now and again changed in accordance with transfer-ability restrictions. The FV of granted options is resolved utilizing alternative models being estimated to gauge the quantities of shares prone to vesting. These consider the option’s exercise price, the current offer value, the rate of interest that is risk free, the normal instability of the offer cost over the life of the alternative and other significant components. Economic situations that must be met in place for the award to vest are likewise reflected in the FV of the award, just like some other non-vesting conditions –, for example, keeping on making installments into a share based scheme related to savings.
Different employee benefits trusts secured by the Group hold shares in Barclays PLC to meet commitments under the Barclays offer based installment plans. The total number of Barclays shares held in these employee benefit trusts at 31 December 2014 was 5.2 million (2013: 3.2 million). Profit rights have been waived on these shares. The aggregate market value of the shares held in trust in view of the year end share price of £2.43 (2013: £2.72) was £12.6m (2013: £8.7m). This is further illustrated below:
Barclays , 2013. Barclays Annual Report 2013, s.l.: Barclays.
Barclays, 2014. Barclays Annual Report 2014, s.l.: Barclays.
Chisnall, P., 2012. The way ahead on financial instruments: the banks have their say. Balance Sheet, 9(4), pp. 11-21.
Clark, K. N., 2012. The Effects of Sarbanes Oxley on Current Financial Reporting Standards, s.l.: Liberty University.
Dunn, P., 2013. The Impact of Insider Power on Fraudulent Financial Reporting. Journal of Management, 30(3), pp. 397-412.
Garrett, J., 2014. Trust and Financial Reporting Quality. Journal of Accounting Research, 52(5), pp. 1087-1125.
Graham, J. R., 2010. The economic implications of corporate financial reporting. Journal of Accounting and Economics, 40(5), pp. 3-73.
Zeff, S. A., 2010. Some obstacles to global financial reporting comparability and convergence at a high level of quality. The British Accounting Review, 39(2), pp. 290-302.
Zineldin, M., 2012. Bank strategic positioning and some determinants of bank selection. International Journal of Bank Marketing, 14(6), pp. 12-22.