IHG » Topics » ACCOUNTING POLICY DIFFERENCES BETWEEN UK GAAP AND INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

This excerpt taken from the IHG 6-K filed Mar 10, 2005.

ACCOUNTING POLICY DIFFERENCES BETWEEN UK GAAP AND INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

The Group’s financial statements are prepared in accordance with accounting principles generally accepted in the United Kingdom (UK GAAP) which differ from IFRS. The significant differences, as they apply to the Group, are summarised below.

Assets held for sale

Under UK GAAP there is no held for sale definition and no reclassification is required.

Under IFRS, assets are classified as held for sale when their value will be recovered through a sale transaction rather than continuing use, and management consider a sale to be highly probable.

Assets classified as held for sale are held at the lower of their carrying value and fair value less costs to sell. No depreciation or amortisation is charged on assets held for sale.

Discontinued operations

Under UK GAAP, operations are classified as discontinued when the sale or termination of operations is completed in the reporting period, or before approval of the financial statements. In addition, the operations concerned must have a material effect on the nature and focus of operations resulting in either a withdrawal from a particular class of business or geographical market or a material reduction in turnover in a continuing market.

Under IFRS, the results of operations arising from assets classified as held for sale are classified as discontinued operations when the results relate to a separate line of business, or geographical area of operations, or where there is a coordinated plan to dispose of a separate line of business or geographical area of operations.

Discontinued operations are shown as a separate figure, net of tax, on the face of the profit and loss account.

Goodwill

Under UK GAAP, goodwill is amortised over 20 years and tested for impairment annually.

Under IFRS, goodwill is subject to annual impairment testing and is not amortised.

Impairment

Under UK GAAP, impairment is measured for an income-generating unit when indicators of impairment exist. All assets are reviewed for indicators of impairment at the balance sheet date.

Under IFRS, all assets are reviewed for evidence of the existence of impairment indicators at each reporting date. Assets with an indefinite life (such as goodwill) are subject to impairment testing at least annually.

Pension costs

Under UK GAAP, the Group provides for the cost of retirement benefits based upon a consistent percentage of employees’ pensionable pay as recommended by independent qualified actuaries. Variations in regular pension costs are amortised over the average expected service life of current employees on a straight line basis. Scheme assets and liabilities are not recognised on the Group’s balance sheet.

Under IFRS, the cost of providing defined benefit retirement benefits is recognised over the service life of scheme members. This cost is calculated by an independent qualified actuary, based on estimates of long-term rates of return on scheme assets and discount rates on scheme liabilities.

Any excess or deficit of scheme assets over scheme liabilities is recorded as an asset or liability, respectively, in the Group’s balance sheet to the extent that it does not relate to unrecognised actuarial gains and losses.

Each year the scheme net assets or liabilities are adjusted for actuarial gains and losses which are recognised directly in reserves.

Share-based payments

Under IFRS, the fair value of all share-based payments is expensed over the vesting period of the related equity instruments, based on the Group’s best estimate of the number of shares that will vest.


Fair value is determined by an option pricing model applied to all share-based payments granted after 7 November 2002.

Deferred taxation

Under UK GAAP, deferred tax is provided on all timing differences, subject to certain exceptions. Accordingly, deferred tax is not provided on revaluation gains and gains rolled over into replacement assets unless there exists a binding agreement for sale, nor on unremitted earnings of investments except to the extent of accrued dividends or where there exists a binding agreement to distribute earnings.

Under IFRS, deferred tax is recognised on all temporary differences between the tax base and carrying value of assets and liabilities, including those arising from revaluation of assets, on gains rolled over into replacement assets and on unremitted earnings of investments where the Group does not control the timing of distributions.

In addition, IFRS requires the tax base of assets and liabilities to be determined by management’s current intended use and the intended manner of realisation of the asset or liability.

Cash and cash equivalents

Under UK GAAP, there is no equivalent definition.

Under IFRS, cash equivalents are defined as short-term highly liquid investments with a maturity of less than 90 days that are readily convertible into a known amount of cash.

Dividends

Under UK GAAP, dividends are recognised as an expense in the period in which they are declared.

Under IFRS, dividends are recognised as an appropriation of reserves in the period in which they are approved.