These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) as endorsed by the European Union (EU), with interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC), and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared on a going concern basis and under the historical cost convention, as modified by the revaluation of investment property, owner occupied property, available-for-sale financial assets, and financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss (FVTPL).
The principal accounting policies set out below have been consistently applied to all financial reporting periods presented in these consolidated financial statements.
(a)(i) New standards, interpretations and amendments to existing standards that have been adopted by the Group The Group has adopted the following new International Financial Reporting Standards (IFRSs), International Accounting Standards (IASs), interpretations and amendments to existing standards, which are effective by EU endorsement for annual periods
beginning on or after 1 January 2014 unless otherwise stated. The Group’s accounting policies have been updated to reflect these.
IFRS 10 Consolidated Financial Statements and amendments to IAS 27 Separate Financial Statements
IFRS 10 introduces a single consolidation model to be applied to all entities and replaces previous requirements on control and consolidation in IAS 27 Consolidated and Separate Financial Statements and Standing Interpretations Committee (SIC) 12 Consolidation – Special Purpose Entities. IFRS 10 defines control, determines how to identify if an investor controls an investee and requires an investor to consolidate entities it controls under the new definition. IFRS 10 identifies three elements, all of which must be present for an investor to control an investee, which are as follows:
• Power over the investee
• Exposure, or rights, to variable returns from its involvement with the investee • The ability to use that power over the investee to affect the amount of the returns.
The standard has been adopted retrospectively subject to the transition guidance which permits retrospective application only in circumstances when the outcome of the control assessment for individual entities at the date of initial application differs from the outcome under the previous accounting policy. The date of initial application for the Group’s financial statements is 1 January 2014.
The application of IFRS 10 has resulted in the consolidation of entities which were previously out of scope of consolidation. The impact of IFRS 10 on the consolidated income statement and the consolidated statement of financial position for the comparative period is shown in the tables in (a)(iii).
IFRS 11 Joint Arrangements
IFRS 11 defines and establishes accounting principles for joint arrangements and replaces previous requirements in IAS 31 Interests in Joint Ventures and SIC 13 Jointly Controlled Entities – Non-Monetary Contributions by Venturers. The standard distinguishes between two types of joint arrangements – joint ventures and joint operations – based on how rights and obligations are shared by the parties to the arrangement. Joint operators should recognise their share of the assets, liabilities, revenue and expenses of the interest in accordance with applicable IFRSs. Joint venturers should apply the equity method of accounting prescribed in IAS 28 Investments in Associates and Joint Ventures 2011 to account for their interest. The adoption of IFRS 11 has resulted in six entities which were previously classified as jointly controlled entities under IAS 31 being classified as joint
operations. As a result the Group’s share of these entities’ assets, liabilities, revenues and expenses are now recognised in accordance with applicable IFRS. The standard has been applied retrospectively and the impact on the consolidated income statement and the consolidated statement of financial position for the comparative period is shown in the tables in (a)(iii).
IFRS 12 Disclosure of Interests in Other Entities
IFRS 12 is a single disclosure standard which applies to all entities that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated structured entity. IFRS 12 requires entities to disclose information to enable users of the financial statements to evaluate the nature, risks and financial effects associated with interests in other entities. The required disclosures are grouped into the following main categories:
• Significant judgements and assumptions • Interests in subsidiaries
• Interests in joint arrangements and associates • Interests in unconsolidated structured entities.
The required disclosures are provided in the Group accounting policies, Note 1 – Group structure, Note 18 – Investments in associates and joint ventures, Note 33 – Non-controlling interests and third party interest in consolidated funds and Note 43 – Structured entities.
IAS 28 Investments in Associates and Joint Ventures (2011)
IAS 28 (2011) is revised to include joint ventures as well as associates. Additionally, the scope exception within IAS 28 for investments in associates held by venture capital organisations, or mutual funds, unit trusts and similar entities, including investment linked insurance funds, has been removed and as a result the scope of the standard has been widened to include all investments in any entity over which the Group has significant influence. The standard has been revised to allow an entity to elect to measure an investment in associate at fair value through profit or loss (FVTPL) where that investment is held by, or indirectly through, venture capital organisations, or mutual funds, unit trusts and similar entities, including investment linked insurance funds. The impact of the adoption of IAS 28 (2011) is that a number of equity investments in entities over which the Group has significant influence which were previously out of scope of IAS 28 have now been brought into scope resulting in the reclassification of these investments as investments in associates. Where the FVTPL election is available the Group has continued to measure these investments at FVTPL. All other investments in associates are measured using the equity method. The standard has been applied retrospectively and the impact on the consolidated income statement and the consolidated statement of financial position for the comparative period is shown in the tables in (a)(iii).
Other
Additionally the Group has adopted the following amendments to existing standards which are effective by EU endorsement from 1 January 2014 and management considers the implementation of these amendments has had no significant impact on the Group’s financial statements:
• Amendments to IAS 39 Financial Instruments: Recognition and Measurement • Amendments to IAS 32 Financial Instruments: Presentation
• Amendments to IAS 36 Impairment of Assets.
(a)(ii) Standards, interpretations and amendments to existing standards that are not yet effective and have not been early adopted by the Group
Certain new standards, interpretations and amendments to existing standards have been published that are mandatory for the Group’s annual accounting periods beginning on or after 1 January 2015. The Group has not early adopted the standards, amendments and interpretations described below:
IFRS 15 Revenue from Contracts with Customers (effective for annual periods beginning on or after 1 January 2017)
IFRS 15 will replace IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements on the Construction of Real Estate, IFRIC 18 Transfer of Assets from Customers andSIC-31 Revenue Barter
Transactions Involving Advertising Services. IFRS 15 provides a new revenue recognition model for contracts with customers. The model provides a five step process for determining recognition and measurement of revenue, and considers two approaches to recognise revenue: at a point in time or over time. Extensive new disclosure requirements and estimate and judgment thresholds have been introduced. The adoption of IFRS 15 is expected to have a significant impact on the measurement and presentation of revenue and related balances in the consolidated financial statements of the Group. The standard has not yet been endorsed by the EU.
IFRS 9 Financial Instruments (effective for annual periods beginning on or after 1 January 2018)
IFRS 9 will replace IAS 39 Financial Instruments: Recognitionand Measurement. IFRS 9 allows only two measurement categories for financial assets: amortised cost and fair value. All equity instruments are measured at fair value. A debt instrument is measured at amortised cost only if it is held to collect contractual cash flows and the cash flows represent principal and interest, otherwise it is measured at fair value through other comprehensive income or fair value through profit or loss (FVTPL) depending on the business model it is held within or whether the option to adopt FVTPL has been applied. IFRS 9 also introduces a new impairment model, an expected credit loss model which will replace the current incurred loss model in IAS 39. An impairment loss may now be recognised prior to a loss event occurring. Financial liabilities may be designated as at FVTPL. The amortised cost measurement basis is applied to most other financial liabilities. For financial liabilities designated as at FVTPL, changes in the fair value due to changes in the liability’s credit risk are recognised directly in other comprehensive income.
Additionally IFRS 9 removes and replaces the current requirements for hedge effectiveness in IAS 39 and therefore the
requirements for the application of hedge accounting. The new requirements change what qualifies as a hedged item and some of the restrictions on the use of some hedging instruments. The accounting and presentation requirements remain largely unchanged. However, entities will now be required to reclassify the gains and losses accumulated in equity on a cash flow hedge to the carrying amount of a non-financial hedged item when it is initially recognised.
As well as presentation and measurement changes, IFRS 9 also introduces additional disclosure requirements. The standard has not yet been endorsed by the EU.
The adoption of IFRS 9 is expected to have a significant impact on the measurement and presentation of financial instruments and related balances in the consolidated financial statements of the Group.
3. Financial information – Group accounting policies continued
Group accounting policies continued
(a) Basis of preparation continued
(a)(ii) Standards, interpretations and amendments to existing standards that are not yet effective and have not been early adopted by the Group continued
Other
In addition to IFRS 9 and IFRS 15, the following interpretations and amendments to existing standards have not been early adopted and are not expected to have a significant impact on the financial statements of the Group:
Standard, amendment or
interpretation Effective Date
1 Detail EU endorsement
status IFRIC 21 Levies 17 June 2014 The interpretation clarifies that an entity recognises a liability
for a levy when and only when the triggering event specified in the legislation occurs.
Endorsed
Amendments to IAS 19 Defined Benefit Plans: Employee Contributions
1 July 2014 The amendments clarify the requirements for attributing employee and third party contributions to periods of service and recognising employee and third party contributions in certain situations.
Endorsed
Annual improvements 2010- 2012 cycle and Annual improvements 2011-2013 cycle
1 July 2014 These annual improvement cycles make 11 minor
amendments to existing standards. Endorsed
Amendment to IAS 16 Property, Plant & Equipment and IAS 38 Intangible Assets: Depreciation and Amortisation
1 January 2016 The amendment clarifies the appropriate application of revenue based depreciation or amortisation. The amendment clarifies that revenue based depreciation is not appropriate for property, plant and equipment and, in most circumstances, revenue based amortisation is not appropriate for intangible assets however this is rebuttable.
Not yet endorsed
Amendments to IAS 27 Separate Financial Statements: Equity Method in Separate Financial Statements
1 January 2016 The amendments now permit the application of the equity method of accounting in separate financial statements for associates and joint ventures as well as subsidiaries.
Not yet endorsed
Amendment to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
1 January 2016 The amendment addresses an inconsistency between IFRS 10 and IAS 28 and clarifies the treatment of a sale or contribution of assets between investors and associates or joint ventures.
Not yet endorsed
Amendment to IFRS 11 Joint arrangements: Accounting for Acquisitions of Interests in Joint Operations
1 January 2016 The amendment to IFRS 11 requires the application of business combination accounting for the acquisition of the interest in a joint operation which constitutes a business.
Not yet endorsed
Annual improvements 2012-
2014 cycle 1 January 2016 This annual improvements cycle makes five minor amendments to existing standards. Not yet endorsed Amendments to IFRS 10
Consolidated Financial Statements, IFRS 12
Disclosure of Interests in Other Entities, IAS 28 Investments in Associates and Joint Ventures: Applying the Consolidation Exception
1 January 2016 The amendments allow the fair value measurement of subsidiaries of associates or joint ventures to be retained in applying the equity method of accounting for interests in associates or joint ventures that are investment entities. Additionally the amendments clarify the circumstances in which the exemption for investment entities from preparing consolidated financial statements apply and that only a subsidiary which is not an investment entity and provides support services to an investment entity is consolidated.
Not yet endorsed
Amendments to IAS 1 Presentation of Financial Instruments: Disclosure Initiative
1 January 2016 The amendments clarify guidance on presentation in relation to materiality, disaggregation and subtotals, notes, disclosure of accounting policies and other comprehensive income arising from investments accounted for under the equity method.
Not yet endorsed
(a)(iii) Impact of retrospective application of new standards, interpretations and amendments to published standards
The following tables show the impact of the accounting policy changes as a result of the adoption of the new consolidation standards, (IFRS 10, IFRS 11, and IAS 28 (2011)) on the consolidated income statement for the year ended 31 December 2013.
As reported
previously Effect of IFRS 10 Effect of IFRS 11 IAS 28 (2011) Restated Effect of
Less discontinued
operations Continuing operations
2013 £m £m £m £m £m £m £m
Total revenue 20,545 110 3 - 20,658 (3,842) 16,816
Effect of restatement analysed as
Investment return 15,449 141 3 - 15,593 (2,259) 13,334
Fee and commission income 977 (31) - - 946 (130) 816
Total expenses 19,769 103 3 - 19,875 (3,679) 16,196
Effect of restatement analysed as
Administrative expenses 1,825 8 3 - 1,836 (474) 1,362
Change in liability for third party interest in
consolidated funds 865 95 - - 960 (131) 829
Share of profit from associates and joint
ventures 25 - - - 25 - 25
Profit before tax 801 7 - - 808 (163) 645
Total tax expense 305 7 - - 312 (32) 280
Effect of restatement analysed as
Tax expense attributable to policyholders’
returns 215 7 - - 222 - 222
Profit for the year 496 - - - 496 (131) 365
Other comprehensive income for the year 27 - - - 27 18 45
Total comprehensive income for the year 523 - - - 523 (113) 410
Attributable to:
Equity holders of Standard Life plc 493 - - - 493 (113) 380
Non-controlling interests 30 - - - 30 - 30
The following tables show the impact of the accounting policy changes as a result of the adoption of the new consolidation standards (IFRS 10; IFRS 11, and IAS 28 (2011)) on the consolidated statement of financial position for the year ended 31 December 2013.
As reported
previously Effect of IFRS 10 Effect of IFRS 11 IAS 28 (2011) Effect of Restated
At 31 December 2013 £m £m £m £m £m
Total assets 184,605 4,528 7 - 189,140
Effect of restatement analysed as
Investment in associates and joint ventures 328 - (60) 1,516 1,784
Investment property 8,545 - 61 - 8,606
Derivative financial assets 1,767 224 - - 1,991
Equity securities and interests in pooled
investment funds 90,316 (4,146) - (1,516) 84,654
Debt securities 62,039 7,170 - - 69,209
Receivables and other financial assets 1,042 65 - - 1,107
Other assets 269 2 1 - 272
Cash and cash equivalents 9,104 1,213 5 - 10,322
Total equity 4,560 - - - 4,560
Total liabilities 180,045 4,528 7 - 184,580
Effect of restatement analysed as
Third party interest in consolidated funds 11,803 4,255 - - 16,058
Derivative financial liabilities 795 137 - - 932
3. Financial information – Group accounting policies continued
Group accounting policies continued
(a) Basis of preparation continued
(a)(iii) Impact of retrospective application of new standards, interpretations and amendments to published standards continued
In addition to the above, the Group has restated comparative periods presented in the cash flow statement. The overall impact is a decrease in net cash flows from operating activities for the year ended 31 December 2013 of £612m, and an increase in net cash flows from financing activities for the year ended 31 December 2013 of £1,832m. There was no impact on cash flows from investing activities.
(a)(iv) Critical accounting estimates and judgement in applying accounting policies
The preparation of financial statements requires management to make estimates and assumptions and exercise judgements in applying the accounting policies that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses arising during the year. Estimates and judgements are continually evaluated and based on historical experience and other factors, including expectations of future events, that are believed to be reasonable under the circumstances. The areas where judgements, estimates and assumptions have the most significant effect on the amounts recognised in the consolidated financial statements are as follows:
Financial statement area Critical accounting judgements, estimates or assumptions Related accounting policies and notes Classification of insurance, reinsurance
and investment contracts Assessment of the significance of insurance risk transferred (f) Classification of financial instruments Classification of asset as either held for trading, available-for-sale,
FVTPL (g)(iii), (q), and Notes 4 and 22
Participating contracts,
non-participating insurance contracts and reinsurance contracts
Determination of the valuation interest rates
Determination of longevity and mortality assumptions Determination of persistency assumptions
Determination of expense assumptions
(u), (v), (w), (x) and Notes 3 and 34
Deferred acquisition costs on insurance
and investment contracts Determination of the acquisition costs to be deferred on insurance and and investment contracts Determination of the amortisation pattern to be applied to deferred acquisition costs
(k) and Note 17
Financial instruments at fair value
through profit or loss Determination of the fair value of complex financial instruments (q) and Note 44 Investment property and owner
occupied property Determination of the fair value of investment property and owner occupied property (l), (m) and Notes 19, 20 and 44 Defined benefit pension plans Determination of assumptions for mortality, discount rate, inflation and
the rate of increase in salaries and pensions Assessment of the recoverability of any surplus
(aa) and Note 38
Assets whose carrying value is subject
to impairment testing Determination of the recoverable amount (i), (j), (k), (o), (p) and Notes 16, 17, 18, 20, 23 and 42 Business combinations Identification and valuation of identifiable intangible assets arising from
business combinations (c)(i), j(ii) and Note 1
Intangible assets Determination of useful lives of intangible assets (j)(ii) and Note 16
Consolidation assessment Assessment of control (b)(i) and Notes 1 and 43
(a)(v) Exchange rates
The income statements and cash flows, and statements of financial position of Group entities that have a different functional currency from the Group’s presentation currency have been translated using the following principal exchange rates:
2014 2014 2013 2013 Income statement (average rate) Statement of financial position (closing rate) Income statement (average rate) Statement of financial position (closing rate) Euro 1.244 1.289 1.182 1.202 US Dollar 1.647 1.559 1.571 1.656 Canadian Dollar 1.818 1.806 1.620 1.760 Indian Rupee 100.735 98.425 92.106 102.449