Tullett Prebon plc Annual Report 2010
Notes to the Consolidated Financial Statements continued
for the year ended 31 December 2010
3. Summary of signiﬁcant accounting policies continued (m) Settlement balances Certain Group companies engage in Matched Principal brokerage whereby securities are bought from one counterparty and simultaneously sold to another counterparty. Settlement of such transactions typically takes place within a few business days of the transaction date according to the relevant market rules and conventions. The amounts due from and payable to counterparties in respect of as yet unsettled Matched Principal transactions are shown gross. (n) Securities borrowing Securities are borrowed in the ordinary course of business. All borrowing is collateralised and such collateral is included in settlement balances. (o) Cash and cash equivalents Cash comprises cash in hand and demand deposits which may be accessed without penalty. Cash equivalents comprise short term highly liquid investments with a maturity of less than three months from the date of acquisition. For the purposes of the Consolidated Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as deﬁned above, net of outstanding bank overdrafts. (p) Interest bearing loans and borrowings All loans and borrowings are initially recognised at fair value, being the consideration received net of issue costs associated with the borrowing. After initial recognition, interest bearing loans and borrowings are measured at amortised cost using the effective interest rate method. Amortised cost is calculated taking into account any issue costs and any discounts or premium on settlement. Gains and losses are recognised in the income statement when the liabilities are derecognised, as well as through the amortisation process. (q) Client money Client money to settle transaction bargains is held separately and included in the Group’s balance sheet. The net return received on managing client money is included within interest. (r) Provisions Provisions are recognised when the Group has a present obligation, legal or constructive as a result of a past event where it is probable that this will result in an outﬂow of economic beneﬁts that can be reasonably estimated. Provisions for restructuring costs are recognised when the Group has a detailed formal plan for the restructuring, which has been notiﬁed to affected parties. (s) Foreign currencies The individual ﬁnancial statements of each Group company are prepared in the currency of the primary economic environment in
which it operates (its functional currency). For the purpose of the consolidated ﬁnancial statements, the results and ﬁnancial position of each Group company are expressed in pounds sterling, which is the functional currency of the Group and the presentation currency for the consolidated ﬁnancial statements. In preparing the ﬁnancial statements of the individual companies, transactions in currencies other than the functional currency are recorded at the rates of exchange prevailing on the dates of the transactions. Gains and losses arising from the settlement of these transactions, and from the retranslation of monetary assets and liabilities denominated in currencies other than the functional currency at rates prevailing at the balance sheet date, are recognised in the income statement. Non-monetary assets and liabilities denominated in currencies other than the functional currency that are measured at historical cost or fair value, are translated at the exchange rate at the date of the transaction or at the date the fair value was determined. For the purpose of presenting consolidated ﬁnancial statements, the assets and liabilities of the Group’s foreign operations are translated at exchange rates prevailing on the balance sheet date. Exchange differences arising are classiﬁed as other comprehensive income and transferred to the Group’s translation reserve. Such translation differences are recognised as income or as expense in the year in which the operation is disposed of. Income and expense items are translated at average exchange rates for the year. (t) Taxation The tax expense represents the sum of tax currently payable and movements in deferred tax. The tax currently payable is based on taxable proﬁt for the year using tax rates that have been enacted or substantively enacted by the balance sheet date, and any adjustment to tax payable in respect of prior years. Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising between the carrying amount of assets and liabilities in the ﬁnancial statements and the corresponding tax basis used in the computation of taxable proﬁt. Deferred tax liabilities are generally recognised for all temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable proﬁts will be available against which deductible temporary differences may be utilised. Temporary differences are not recognised if they arise from goodwill or from initial recognition of other assets and liabilities in a transaction which affects neither the tax proﬁt nor the accounting proﬁt. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.