IFRS condensed financial statements
A1 - Basis of preparation
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The condensed financial statements for the six months to 30 June 2009 have been prepared using International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and endorsed by the European Union (EU). These include IAS 34, Interim Financial Reporting, which specifically addresses the contents of interim condensed financial statements. The results apply the accounting policies set out in Aviva plc's 2008 Annual Report and Accounts, except as below.
During 2007 and 2008, the IASB issued IAS 1, Presentation of Financial Statements : A Revised Presentation, and amendments to IFRS 1, First Time Adoption of IFRS, IFRS 2, Share-Based Payment, IAS 23, Borrowing Costs, IAS 27, Consolidated and Separate Financial Statements, and IAS 32, Financial Instruments : Presentation, and the results of its annual improvements project. IFRIC interpretation 13, Customer Loyalty Programmes, and IFRIC interpretation 16, Hedges of a Net Investment in a Foreign Operation have also been endorsed by the EU. These are all applicable for the current accounting period and are now reflected in the group's financial reporting, with no material impact.
The results for the six months to 30 June 2009 and 2008 are unaudited but have been reviewed by the auditor, Ernst & Young LLP. The interim results do not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. The results for the full year 2008 have been taken from the group's 2008 Annual Report and Accounts and do not in themselves constitute statutory accounts. The auditor has reported on the 2008 financial statements and the report was unqualified and did not contain a Statement under section 237(2) or (3) of the Companies Act 1985. The group's 2008 Report and Accounts have been filed with the Registrar of Companies.
After making enquiries, the directors have a reasonable expectation that the company and the group as a whole have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.
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Items included in the financial statements of each of the group's entities are measured in the currency of the primary economic environment in which that entity operates (the "functional currency"). The consolidated financial statements are stated in sterling, which is the Company's functional and presentational currency. Unless otherwise noted, the amounts shown in the financial statements are in millions of pounds sterling (£m). As supplementary information, consolidated financial information is also presented in euros.
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Restatement of prior period figures
The following restatements were actioned in the group's 2008 financial statements. As these restatements took place in the second half of the year, the comparative figures for the six months to 30 June 2008 are now restated in this report.
Consolidation of managed funds
The group manages a number of specialised investment vehicles around the world, in which our insurance and investment funds have invested. The group's percentage ownership in these vehicles can fluctuate from day to day according to the group's and third party participation in them, and control is determined based on an analysis of the guidance in IAS 27. During 2008, we identified that certain such vehicles required consolidation in accordance with IAS 27 which therefore results in grossing up assets and liabilities for the effect of the third party participation.
The impact on the income statement for the six month period to 30 June 2008 has been to restate net investment income and fee and commission expense, reducing both by £57 million. None of these adjustments has any impact on profit for the period, operating profit, earnings per share or retained earnings for the six month period to 30 June 2008.
In addition, certain property investment vehicles, which were consolidated in accordance with IAS 27, required restatement in the period ended 30 June 2008 to reanalyse amounts previously classified as minority interests to net asset value attributable to unit holders. This change recognises that the property investment vehicles are unit trusts and, as a result, the third party holding should have been recognised as a liability rather than as a non-controlling interest. Prior period comparatives have been restated with a reduction in minority interests and an increase in amounts due to unit holders of £838 million at 30 June 2008.
Restatement for the change in accounting policy for latent reserves
As part of the Company's aim to continuously improve the relevance and reliability of its external financial reporting, Aviva undertook a review of the group's General Insurance Reserving Policy in 2008.
As part of this review, the group concluded that estimating our latent claim provisions on an undiscounted basis, and discounting back to current values, represented an improvement to the existing estimation technique. This approach is in line with best practice for long-term liabilities and moves the measurement of latent claims onto a more economic basis, consistent with our internal model for economic capital and the measurement model being proposed for both IFRS Phase II and Solvency II. This approach also improves consistency with the reporting of other long-tail classes of business which are already being discounted, namely certain London Market latent claims and our Dutch Permanent Health and Injury Business.
The application of discounting to our latent claims reserves represents a change in accounting policy and has therefore been applied retrospectively. The cumulative impact of discounting on our opening reserves as at 1 January 2008 is to reduce insurance liabilities by £201 million and reinsurance assets by £55 million, and to increase retained earnings by £105 million. These have been treated as prior year adjustments in these financial statements.
Treatment of shares held by employee trusts
Employee share trusts have purchased the Company's shares in the market to satisfy awards under various share plans. At 30 June 2008, these trusts held shares with a cost of £10 million which, on materiality grounds, were included within other financial assets rather than being shown as a deduction from total shareholders' equity in the consolidated statement of financial position. In view of the Company's current policy of purchasing shares in the market rather than issuing new shares, which will lead to larger balances on this account, we have restated the 30 June 2008 figures accordingly.
