The Building Societies (Accounts and Related Provisions) Regulations 1998

• (a) the amount of the reserve as at the date of the beginning of the financial year and as at the balance sheet date respectively;

• (b) the amount transferred to or from the reserve during that year; and

• (c) the source and application respectively of the amounts so transferred.

Information where investment property and living animals and plants are included at fair value

37

• (1) This paragraph applies where the amounts to be included in a society’s annual accounts in respect of investment property or living animals and plants have been determined in accordance with paragraph 31D of Schedule 7.

• (2) The balance sheet items affected and the basis of valuation adopted in determining the amounts of the assets in question in the case of each such item shall be disclosed in a note to the accounts.

• (3) In the case of investment property, for each balance sheet item affected there shall be shown, either separately in the balance sheet or in a note to the accounts—

• (a) the comparable amounts determined according to the historical cost accounting rules; or

• (b) the differences between those amounts and the corresponding amounts actually shown in the balance sheet in respect of that item.

• (4) In sub-paragraph (3) above, references in relation to any item to the comparable amounts determined in accordance with that sub-paragraph are references to—

• (a) the aggregate amount which would be required to be shown in respect of that item if the amounts to be included in respect of all the assets covered by that item were determined according to the historical cost accounting rules; and

• (b) the aggregate amount of the cumulative provisions for depreciation or diminution in value which would be permitted or required in determining those amounts according to those rules.

20A

The directors of a society shall, in determining how amounts are presented within items in the income and expenditure account and balance sheet, have regard to the substance of the reported transaction or arrangement, in accordance with generally accepted accounting principles or practice.

Part 6A — Valuation at Fair Value

Inclusion of financial instruments at fair value

31A

• (1) Subject to sub-paragraphs (2) to (4), financial instruments, including derivative financial instruments, may be included at fair value.

• (2) Sub-paragraph (1) only applies to financial instruments which constitute liabilities if—

• (a) they are held as part of a trading portfolio; ...

• (b) they are derivative financial instruments; or

• (c) they are financial instruments falling within sub-paragraph (3A).

• (3) Unless they are financial instruments falling within sub-paragraph (3A) below, sub-paragraph (1) does not apply to—

• (a) non-derivative financial instruments held to maturity;

• (b) loans and receivables originated by the society or connected undertakings of the society and not held for trading purposes;

• (c) interests in connected undertakings or joint ventures;

• (d) equity instruments issued by the society or connected undertakings of the society;

• (e) contracts for contingent consideration in a business combination; and

• (f) other financial instruments with such special characteristics that the instruments, according to generally accepted accounting principles or practice, should be accounted for differently from other financial instruments.

• (3A) Financial instruments which, under UK-adopted international accounting standards within the meaning of section 474(1) of the Companies Act 2006, may be included in accounts at fair value, may be so included, provided that the disclosures required by such accounting standards are made.

• (4) If the fair value of a financial instrument cannot be determined reliably in accordance with paragraph 31B, sub-paragraph (1) does not apply to that financial instrument.

• (5) In this paragraph, “joint venture” means an undertaking, other than a connected undertaking, which a society manages jointly with one or more undertakings.

Methods for determining fair value

31B

• (1) The fair value of a financial instrument is its value determined in accordance with this paragraph.

• (2) If a reliable market can readily be identified for the financial instrument, its fair value is to be determined by reference to its market value.

• (3) If a reliable market cannot readily be identified for the financial instrument but can be identified for its components or for a similar instrument, its fair value is to be determined by reference to the market value of its components or of the similar instrument.

• (4) If neither sub-paragraph (2) nor (3) apply, the fair value of the financial instrument is to be a value resulting from generally accepted valuation models and techniques.

• (5) Any valuation models and techniques used for the purposes of sub-paragraph (4) must ensure a reasonable approximation of the market value.

Hedged items

31C

A society may include any assets or liabilities, or identified portions of such assets or liabilities, which qualify as hedged items under a fair value hedge accounting system at the amount required under that system.

Other assets which may be included at fair value

31D

• (1) This paragraph applies to—

• (a) investment property, and

• (b) living animals and plants,

which under international accounting standards may be included in accounts at fair value.

• (2) Such investment property and such living animals and plants may be included at fair value, provided that all such investment property, or as the case may be, all such living animals and plants are so included where their fair value can reliably be determined.

• (3) In this paragraph “fair value” means fair value determined in accordance with relevant international accounting standards.

Accounting for changes in value of financial instruments

31E

• (1) This paragraph applies where a financial instrument is valued in accordance with paragraph 31A or 31C.

• (2) Notwithstanding paragraph 4 in Part 1 of this Schedule, and subject to sub-paragraphs (3) and (4) below, a change in the value of the financial instrument shall be included in the income and expenditure account.

• (3) Where—

• (a) the financial instrument accounted for is a hedging instrument under a hedge accounting system that allows some or all of the change in value not to be shown in the income and expenditure account, or

• (b) the change in value relates to an exchange difference arising on a monetary item that forms part of a society’s net investment in a foreign entity,

the amount of the change in value shall be credited to or (as the case may be) debited from a separate reserve (“the fair value reserve”).

• (4) Where the instrument accounted for—

• (a) is an available for sale financial asset, and

• (b) is not a derivative financial instrument,

the amount of the change in value may be credited to or (as the case may be) debited from the fair value reserve.

The fair value reserve

31F

• (1) The fair value reserve shall be adjusted to the extent that the amounts shown in it are no longer necessary for the purposes of paragraph 31E(3) or (4).

• (2) The treatment for taxation purposes of amounts credited or debited to the fair value reserve shall be disclosed in a note to the accounts.

Financial risk management objectives and policies

11

The directors' report shall contain, in relation to the use of financial instruments by the society and by any subsidiary undertaking, and where material for the assessment of the society’s or (as the case may be) group’s assets, liabilities, financial position and profit or loss—

• (a) the financial risk management objectives and policies of the society or (where applicable) the group, including the policy for hedging each major type of forecasted transaction for which hedge accounting is used, and

• (b) the exposure of the society or (where applicable) of the group to price risk, credit risk, liquidity risk and cash flow risk.

Financial instruments

12A

References to “derivative financial instruments” are deemed to include commodity-based contracts that give either contracting party the right to settle in cash or some other financial instrument, except where such contracts—

• (a) were entered into and continue in order to meet the society’s expected purchase, sale or usage requirements;

• (b) were designated for such purpose at their inception; and

• (c) are expected to be settled by delivery of the commodity.

Other defintions

14

• (1) The expressions listed in sub-paragraph (2) have the same meaning as they have in Council Directive 78/660/EC on the annual accounts of certain types of companies, as amended; and for the purposes of those expressions, it shall be assumed that a society is subject to the provisions of that Directive.

• (2) “Available for sale financial asset”, “business combination”, “cash flow risk”, “commodity-based contracts”, “credit risk”, “equity instrument”, “exchange difference”, “fair value hedge accounting system”, “financial fixed asset”, “financial instrument”, “foreign entity”, “hedge accounting”, “hedge accounting system”, “hedged items”, “hedging instrument”, “held to maturity”, “held for trading purposes”, “liquidity risk”, “monetary item”, “price risk”, “receivables”, “reliable market”, and “trading portfolio”.

PARTIA — Format of summary financial statement (IAS accounts society)

SECTIONA — Prescribed form of statement for the purposes of section 76(4) of the Act

SECTIONB — Summary Directors’ Report

SECTIONC — Format of Summary Statement

SECTIOND — Format of summary of key financial ratios

5A

Subject to paragraph 3, the items in section C of Part IA shall be derived from the society’s annual accounts.

7A

Subject to paragraph 3, the items in section D of Part IA shall be derived from the society’s annual accounts.

Related Party Transactions

38

• (1) Particulars may be given of transactions which the society has entered into with related parties, and must be given if such transactions are material and have not been concluded under normal market conditions.

• (2) The particulars of transactions required to be disclosed by sub-paragraph (1) must include—

• (a) the amount of such transactions,

• (b) the nature of the related party relationship,

• (c) other information about the transactions necessary for an understanding of the financial position of the society.

• (3) Information about individual transactions may be aggregated according to their nature, except where separate information is necessary for an understanding of the effects of related party transactions on the financial position of the society.

• (4) Particulars need not be given of transactions entered into between two or more members of a group, provided that any subsidiary undertaking which is a party to the transaction is wholly-owned by such a member.

• (5) In this paragraph, “related party” has the same meaning as in international accounting standards.