RNS Number:5956R
Nationwide Building Society
22 September 2005
NATIONWIDE BUILDING SOCIETY
Restatement of 2004/05 Financial Results to
International Financial Reporting Standards
CONTENTS
Page
1 Introduction 3
2 Financial highlights 4
3 Explanation of IFRS adjustments 6
4 Basis of preparation 9
APPENDICES
1 Consolidated financial statements
1.1 Income & expenditure accounts for the year ended 4 April 2005 11
and the 6 months ended 4 October 2004
1.2 Balance sheets as at 5 April 2005, 4 April 2005, and 4 October 12
2004
1.3 Other primary statements 13
2 Reconciliation of UK GAAP to IFRS financial statements
Income & expenditure accounts
2.1 For the year ended 4 April 2005 14
2.2 For the 6 months ended 4 October 2004 15
Balance sheets
2.3 At 4 April 2005 16
2.4 At 5 April 2005 17
2.5 At 4 October 2004 18
2.6 At 5 April 2004 19
3 Reconciliation of pro forma IFRS income and expenditure accounts
3.1 For the year ended 4 April 2005 20
3.2 For the 6 months ended 4 October 2004 21
4 PwC special purpose audit and review reports 22
5 Provisional IFRS accounting policies 26
Page 2 of 34
Forward looking statements
This report contains certain forward looking statements with respect to the
financial condition and results of operations of the Group. These statements
involve risk and uncertainty because they relate to events and depend upon
circumstances that will occur in the future. There are a number of factors
which could cause actual results or developments to differ materially from those
expressed or implied by these forward looking statements. Nothing in the
announcement should be construed as a profit forecast.
1. Introduction
With effect from 5 April 2005 Nationwide Building Society and its subsidiaries
(the 'Group') is required to prepare its Financial Statements in accordance with
International Financial Reporting Standards ('IFRS') as endorsed by the European
Union ('EU'). Previously the Group has prepared its Financial Statements in
accordance with UK Generally Accepted Accounting Principles ('UK GAAP').
The Group's first results prepared under IFRS will be published in the Interim
Results Announcement for the period ending 30 September 2005(1) ('Interim Report
2005/06'). The Group's first full year set of Financial Statements prepared
under IFRS will be published in the Annual Report and Accounts for the year
ending 4 April 2006 ('Annual Reports and Accounts 2005/06').
This document summarises the principal effects of IFRS on the opening position
for the current financial year and on the statutory comparative financial
information for 2004/05 that will appear in the Group's Interim Report 2005/06
and its Annual Report and Accounts 2005/06. The Group's main Financial
Statements have been restated including:
* Income and expenditure accounts for the year ended 4 April 2005 and
the 6 months ended 4 October 2004
* Balance sheets as at 4 April 2005, 5 April 2005, 4 October 2004 and
5 April 2004 and
* Statements of recognised income & expenditure for the year ended 4
April 2005 and the 6 months ended 4 October 2004
In addition a reconciliation of the differences between UK GAAP and IFRS for
each of the income and expenditure accounts and balance sheets is included.
Provisional accounting policies that the Group proposes to adopt in the
preparation of its 2005/06 half-year and full-year results are also provided.
IFRS is subject to on-going review and endorsement by the EU or possible
amendment by interpretative guidance from the International Accounting Standards
Board (IASB) and is therefore subject to change. In addition practice may
develop with regard to interpretation and application of the standards. We will
update our restated information for any such changes should they occur.
Subject to the potential changes noted above, the restated financial information
included in this document is expected to form the basis for comparatives when
reporting financial results for 2005/06.
Most of the changes under IFRS are applied retrospectively from 5 April 2004 and
are fully reflected in the restated Financial Statements for the 2004/05
accounting period. However, the standards that apply to financial instruments,
IAS 32 'Financial Instruments: Disclosure and Presentation' and IAS 39: '
Financial Instruments: Recognition and Measurement', and IFRS 4 'Insurance
Contracts' are being implemented from 5 April 2005 as permitted under the
transition rules. Other transitional arrangements are set out in Section 4.
To facilitate comparison and understanding of future results, in addition to the
statutory comparatives for the income and expenditure accounts for the year
ended 4 April 2005 and the 6 months ended 4 October 2004, pro-forma comparatives
have been prepared. These show how the results would have looked, assuming the
full application of IAS 32 and IFRS 4 and the application of IAS 39 excluding
fair value accounting volatility. In particular the pro-forma results
illustrate the impacts of the changes to effective yield recognition of fees/
costs and the more stringent evidence testing required for raising asset
impairment provisions. We have not shown the full impact from all the IAS 39
accounting rules in the pro forma income and expenditure accounts as hedges and
financial assets to be fair valued were only designated and documented from 5
April 2005.
(1) The Group is changing its interim reporting date from the 4 October to 30
September. Coinciding this date with a calendar month end reduces the complexity
and associated costs that would otherwise be incurred on transition to IFRS.
The 4 April year-end date remains unchanged.
Page 3 of 34
2. Financial highlights
The most significant effects of the transition to IFRS on the Group's financial
information are caused by differences in the accounting treatments of financial
instruments, retirement benefits, the recognition on an effective yield basis of
revenue and costs and the presentation on consolidation of Nationwide Life, a
life assurance subsidiary. The transition to IFRS does not change the Group's
net cash flows, the underlying economics or the risks of the business.
Details of adjustments are set out in Appendix 2 and 3 in respect of both the
income and expenditure account and balance sheet.
Effect of IFRS on the consolidated income and expenditure account
Year ended 6 months ended
4 April 2005 4 October 2004
Statutory Pro-forma Statutory Pro-forma
UK GAAP IFRS IFRS UK GAAP IFRS IFRS
#m #m #m #m #m #m
Profit before tax 517.1 513.9 463.6 244.9 241.4 223.7
Profit for the 365.3 367.0 331.3 172.4 171.2 158.9
period
% % % % % %
Net interest margin 1.12 1.12 1.09 1.16 1.15 1.13
Cost to income ratio 59.9 60.7 62.1 60.8 61.7 62.4
Cost to mean total 0.86 0.88 0.88 0.86 0.88 0.88
assets
As stated above, transitional arrangements have been implemented in preparing
the above statutory results with IAS 32, IAS 39 and IFRS 4 applied prospectively
from 5 April 2005. The impacts of the full application of IAS 32 and IFRS 4 and
the application of IAS 39 excluding fair value accounting volatility have been
incorporated in the pro-forma results above.
The impact of IFRS on the 2004/05 profit for the period, without the
implementation of IAS 32, IAS 39 and IFRS 4, is not material, although there are
some changes to the ratios mainly arising from the requirement to consolidate
our life assurance business on a line by line basis.
From 2005/06 the income and expenditure account will be affected by the
implementation of IAS 32, IAS 39 and IFRS 4. The impact of IFRS 4 is expected
to be minimal. The recognition of fees and costs relating to mortgages,
including early redemption penalty interest, on an IFRS effective yield basis in
2005/06 is anticipated to result in approximately #65m reduction (2004/05: #35m
reduction) to profit before tax when comparing to a UK GAAP recognition policy
where such items were mainly reported in the period in which they were received
or paid.
The above effective yield impact is the result of both anticipated 2005/06 net
fees receivable being deferred into future years, compounded by prior year net
costs being recapitalised under IFRS and charged during the period. For the six
years prior to 2005/06 the Group had an excess of effective yield relevant costs
over income i.e. new business origination costs exceeded fee income, largely
reflecting the low fee policy adopted by the Society. This policy was
subsequently aligned to the market practice in respect of charging reservation
fees and/or application fees for fixed and tracker mortgage products, but these
fees were positioned, on average, to be lower than those of its competitors. As
a consequence of this alignment, when comparing IFRS to UK GAAP, 2004/05 and
2005/06 total income will be reduced by the recognition of costs brought forward
from previous periods, compounded by the deferral of current year fees to future
years. Whilst impacting 2004/05, the transition is anticipated to have the most
pronounced effect in 2005/06. Over the life of a product the total profit
recognised is unchanged.
Page 4 of 34
The accounting rules for fair valuing derivatives are expected to cause some
degree of volatility in future earnings. The Group will endeavour to minimise
volatility by applying hedge accounting and will ensure that comparable
underlying business performance and trends are clearly identifiable on an
ongoing basis.
Effect of IFRS on the consolidated balance sheet
As at
5 April As at As at
2005 4 April 2005 4 October 2004
IFRS UK GAAP IFRS UKGAAP IFRS
#m #m #m #m #m
Total assets 112,086.1 111,591.6 111,596.8 107,842.2 108,010.9
Total reserves 4,584.3 4,938.9 4,563.6 4,725.4 4,273.2
% % % % %
Growth in assets N/A 10.0 9.9 6.3 6.3
Liquid assets ratio 15.0 14.9 14.9 15.8 16.6
Funding limit 29.1 28.6 29.2 29.6 30.1
Lending limit 12.4 12.2 12.2 12.6 12.6
Appendix 2.4 2.3 2.3 2.5 2.5
IFRS does not significantly change the total assets, but as at 5 April 2005
total reserves have reduced by #354.6m in moving from UK GAAP to IFRS, primarily
as a result of the recognition of the Group's pension fund deficit on the
balance sheet.
However there are differences between the UK GAAP balance sheet as at 4 April
2005 and the IFRS balance sheet as at 5 April 2005 in terms of categorisation
and the magnitude of balances recorded, primarily as a result of the application
of IAS 32 and IAS 39 and the requirement to consolidate the life assurance
business on a line by line basis.
Effect of IFRS on the capital ratios
The regulatory capital ratios, set out in the table below, have been calculated
in accordance with the FSA's policy statement 05/5: 'Implications of a changing
accounting framework'.
These incorporate the impacts of adopting IAS 32, IAS 39 and IFRS 4 on 5 April
2005. The capital ratios for prior periods have not been restated as these
remain as previously reported.
Tier 1 Total
Capital Capital
#m % #m %
As reported under UK GAAP at 4 April 5,410.9 9.1 6,938.8 11.7
2005
Impact of IFRS on reserves:
* General reserve (278.2) (278.2)
* Revaluation reserve - (125.0)
* AFS reserve 48.6 48.6
Sub Total 5,181.3 6,584.2
Regulatory adjustments:
* Intangibles (44.2) (44.2)
* Loan impairment provision - (29.6)
* Pension fund 113.0 113.0
* AFS reserve (48.6) (48.6)
As reported under IFRS at 5April 2005 5,201.5 8.8 6,574.8 11.1
Page 5 of 34
The total capital ratio has reduced by 0.6% with around half of this reduction
due to recognition of the Group's pension fund deficit with the remainder due to
other impacts, including the effect of fair valuing financial assets offset by
associated hedge accounting and reductions in loan impairment provisions.
However both the total capital and Tier 1 capital (which has reduced by only
0.3%) remain strong. There has been no material impact on risk weighted assets.
3. Explanation of IFRS adjustments
Reconciliations of the income & expenditure accounts, balance sheets and
reserves prepared under UK GAAP and IFRS are included in Appendix 2 and 3.
Explanation of IFRS adjustments are as follows:
3.1 Accounting policy changes effective from 5 April 2004
The following details the significant changes in accounting policies as they
impact the statutory IFRS restatement for 2004/05.
Retirement benefits (IAS 19)
IFRS requires that the net deficit in respect of defined benefit plans is
recognised in the balance sheet. We have also adopted the amendment to IAS 19 "
Employee Benefits" issued in December 2004, which is expected to be adopted by
the EU before the year end and will allow actuarial gains and losses to be
recognised immediately in reserves.
In contrast, the net deficit in respect of defined benefit plans was not
required to be recognised under UK GAAP prior to 5 April 2005.
The impact on general reserves at 5 April 2005 is a reduction, before and after
tax, of #444.3m and #311.2m respectively (5 April 2004: #551.4m and #386.1m),
mainly comprising of a deficit on the Nationwide Pension Fund of #341.0m (5
April 2004: #431.0m) and the write off of a prepayment carried under UK GAAP
standard SSAP 24 'Accounting for Pension Costs' of #96.0m (5 April 2004:
#108.3m).
The impact on the income and expenditure account is a reduction of #8.3m (for
the six months ended 4 October 2004: #3.9m) in the pension charge for the year
ended 4 April 2005, partly offset by an interest charge of #6.0m (for the six
months ended 4 October 2004: #4.0m).
Fixed assets and intangibles (IAS 16 and IAS 38)
Under UK GAAP depreciation was not charged on branches and other non-specialised
buildings on the grounds that any charge would have been immaterial because of
the length of the estimated useful economic lives. Nationwide continually
repair and improve these buildings maintaining the length of the estimated
useful economic life. Under IFRS, repair and maintenance does not negate the
need to depreciate, therefore depreciation will be charged on all buildings with
the exception of investment properties.
The impact on the income and expenditure account for 2004/05 is an increase in
the depreciation charge of #2.0m.
IAS 38 'Intangible Assets' requires software development costs to be capitalised
where they meet certain criteria. Previously, all in-house development costs
were expensed. In addition, software costs are now included in intangible
assets rather than tangible fixed assets ("Property, plant & equipment" under
IFRS).
The impact on the income and expenditure account for 2004/05 is a decrease in
staff costs of #9.3m and an increase in the depreciation charge of #5.6m.
The impact on the balance sheet as at 4 April 2005 is a reclassification of
software costs of #31.6m from property, plant & equipment to intangible fixed
assets and a further increase of #12.6m in intangible fixed assets representing
the capitalisation of software development costs previously written off.
IAS 16 'Property, Plant and Equipment' requires that all cumulative losses on
revalued property are dealt with in the income and expenditure account. Under
UK GAAP, cumulative gains and losses on revalued property - unless the result of
impairment - were dealt with in the revaluation reserve.
Page 6 of 34
The impact on the income and expenditure account for 2004/05 is an increase in
other income of #0.4m. At 4 April 2005 there is an increase of #13.5m in the
revaluation reserve primarily representing the transfer of cumulative losses on
certain Group properties to the general reserve.
Investment properties (IAS 40)
Under IFRS gains and losses arising on the revaluation of investment properties
to their fair values are included in the income and expenditure account. Under
UK GAAP, gains and losses on the revaluation of investment properties were
included in the revaluation reserve.
The impact on the income and expenditure account for 2004/05 is a reduction of
#2.8m in other operating income, representing net valuation losses in the year
on investment properties previously included in the revaluation reserve.
The impact on general reserves at 4 April 2005 is a transfer of #102.2m from the
revaluation reserve. This represents the net surplus of the fair values over
their historic cost.
Consolidation of life assurance business (IAS 27)
In line with other retail banking groups, under UK GAAP we used the embedded
value method of accounting for our life assurance business. Under this method,
changes in the value of the life insurance business were included in other
operating income, and long term life insurance assets and liabilities were
classified separately on the balance sheet.
IFRS requires a line by line consolidation of all income and expenditure and
balance sheet items. Therefore, all life insurance items are included in the
appropriate lines in the IFRS consolidated accounts. This is a major
presentational change, although there is no significant impact on the
profitability of the life business. The changes to each line item affected are
shown in Appendix 2.
Taxation (IAS 12)
Under IAS 12, deferred tax assets and liabilities are generally recognised in
respect of all temporary differences, rather than just timing differences,
subject to the assessment of the recoverability of deferred tax assets. This
amendment has had no impact on reserves as at 4 April 2005.
Additional deferred tax liabilities are required in respect of the revaluation
of properties, the recognition of which was specifically prohibited under UK
GAAP. The impact on general reserves as at 4 April 2005 is a decrease of #24.6m
and the impact on the revaluation reserve is a decrease of #36.3m.
All other adjustments made under IFRS have been tax effected where appropriate,
resulting in an increase in total reserves of #74.5m at 4 April 2005.
Under IAS 12 the tax charges in respect of the Life Assurance subsidiary are
included on an actual basis rather than using the 30% 'gross up' permitted under
UK GAAP. Due to life assurance companies paying tax on policyholder returns as
well as tax on profits this is likely to produce upward pressure on the Group's
effective tax rate.
3.2 Accounting policy changes effective from 5 April 2005
As explained in section 4 'Basis of Preparation' the Group has opted to apply
IAS 32, IAS 39 and IFRS 4 from 5 April 2005 without retrospective restatement in
2004/05. The following details the main impacts of IFRS resulting from these
standards. These are reflected in the Group balance sheet at 5 April 2005 shown
in Appendix 2.4 and in the pro forma income and expenditure accounts for the
year ended 4 April 2005 and the 6 months ended 4 October 2004 shown in Appendix
3. However we have not shown the full impact from all the IAS 39 accounting
rules in the pro forma income and expenditure accounts as hedges and financial
assets to be fair valued were only designated and documented from 5 April 2005.
Page 7 of 34
Effective yield (IAS 39)
Interest income and expense together with fees and costs paid/received
throughout the expected life of a loan that are considered direct and
incremental to a loan relationship are recognised on an effective yield basis.
Under UK GAAP the majority of these would have been recognised in the period
they were charged/incurred.
The impact of this change is to spread the timing of the recognition of these
fees and costs over a number of years - the expected life cycle of the loans and
mortgages to which they relate.
The opening IFRS adjustment at the 5 April 2005 is made up of the total amount
of fees, costs and early redemption penalty interest that would have been
deferred had the Group always recognised relevant income and costs on an
effective yield basis. The impact in general reserves at 5 April 2005 is a
reduction of #8.7m.
Due to the profile of income on mortgages, the transition to IFRS will, in early
years, result in lower profits reported under IFRS when comparing to a UK GAAP
recognition policy. Whilst impacting 2004/05, it is anticipated to have the
most pronounced effect in 2005/06.
Available for sale assets (IAS 39)
Under UK GAAP investment securities (except those held to back insurance
liabilities) were measured at amortised cost less provisions for any diminution
in value. Under IFRS, investment securities (except those held to back
insurance liabilities) have been designated as available for sale assets ('AFS')
and are included at their fair values at 5 April 2005. Investments in equity
shares have been similarly reclassified to AFS assets.
Under IAS 39, provisions against investment securities are made where there is
objective evidence of impairment at the balance sheet date. Consequently,
provisions previously made under UK GAAP have been released and replaced by an
impairment provision for assets where such objective evidence exists.
The overall impact of the measurement changes is an increase in reserves of
#86.8m at 5 April 2005.
Future movements in the fair values of available for sale assets will be
included in the available for sale reserve. On sale of investment securities,
the gain or loss measured against the original cost is reflected in the income
and expenditure account.
Derivatives and hedging (IAS 39)
The principal derivatives used by the Group in balance sheet risk management are
interest rate swaps, forward rate agreements, interest rate options,
cross-currency interest rate swaps, foreign exchange contracts and credit
derivatives. Derivatives are used to hedge Group balance sheet exposures arising
from fixed and capped rate mortgage lending and fixed rate savings products,
funding and investment activities in foreign currencies, fixed rate instruments
and instruments with embedded options.
UK GAAP permitted derivatives that had been designated as being held for hedging
purposes to be accounted for in a manner similar to the underlying hedged item.
Whilst the introduction of IFRS has had no impact on the Group's economic
hedging strategy, IAS 39 significantly changes hedge accounting by specifying
the accounting methods and introducing stringent conditions on when hedge
accounting can be applied. This makes it more difficult to establish and
maintain hedge accounting. Where hedge accounting is not applicable, earnings
volatility may result.
Under IFRS, derivatives are required to be carried at fair value on the balance
sheet with movements in fair value taken to the income and expenditure account.
To manage the accounting volatility that would otherwise arise, the Group uses
fair value hedge accounting, which matches changes in the fair value of the
hedged risk with changes in the fair value of the related derivatives within the
income and expenditure account to reduce the volatility that would otherwise
occur. However some degree of earnings volatility is expected to remain and we
will endeavour to ensure that comparable underlying business performance and
trends are clearly identifiable on an ongoing basis.
An adjustment has been made at 5 April 2005 to measure all derivatives at fair
value and to reflect the establishment as at that date of IAS 39 compliant hedge
relationships. The overall effect has been to reduce general reserves by
#94.4m.
Page 8 of 34
Recognition of financial liabilities (IAS 39)
IAS 39 does not permit de-recognition of financial liabilities until the legal
obligation has been extinguished. Certain liabilities, which were considered to
be inactive and had therefore previously been de-recognised under UK GAAP, have
been reinstated in the balance sheet at 5 April 2005.
The impact on general reserves is a decrease of #33.1m at 5 April 2005.
Loan impairment (IAS 39)
Under IAS 39 objective evidence that events have occurred by the balance sheet
date which indicate that the assets in question are impaired is required to
enable a loan loss provision to be raised. Where such evidence exists the
provision is calculated, either individually or on pools of assets with similar
credit risk characteristics, as the difference between the asset's carrying
value and the discounted value of future cash flows.
The more stringent evidence testing required under IFRS, partially offset by the
impact of discounting future cash flows, has the net impact of decreasing the
carrying value of loan provisions compared to UK GAAP at 5 April 2005 by #86.0m.
Financial Instruments: Disclosure and Presentation (IAS 32)
IAS 32 has determined the disclosure and presentation of the financial
instruments; however it has not resulted in a net impact on the reserves as at 5
April 2005.
Taxation (IAS 12)
Adjustments made as a result of accounting policy changes effective from 5 April
2005 have been tax effected where appropriate, resulting in a decrease in
reserves of #13.6m at 5 April 2005.
4. Basis of preparation
The Directors are responsible for the restated financial information contained
in this document, which has been prepared on the basis of the provisional
accounting policies set out in Appendix 5 and in accordance with IFRS standards
which have been, or are expected to be, endorsed by the EU and in effect for the
year ending 4 April 2006 to the extent that IFRS applies to the comparatives
under transitional arrangements.
IFRS is subject to on-going review and endorsement by the EU or possible
amendment by interpretative guidance from the International Accounting Standards
Board (IASB) and is therefore subject to change. In addition practice may
develop with regard to interpretation and application of the standards. We will
update our restated information for any such changes should they occur.
Subject to the potential changes noted above, the restated financial information
included in this document is expected to form the basis for comparatives when
reporting financial results for 2005/06.
The restated financial information included in this document does not constitute
accounts within the meaning of section 73 of the Building Societies Act 1986.
The Annual Accounts for the year ended 4 April 2005 have been filed with the
Financial Services Authority and Registry of Friendly Societies in England and
Wales. The Auditor's report on the Annual Accounts was unqualified.
Transitional arrangements: IAS 32, IAS 39 and IFRS 4
In accordance with the transitional provisions set out in IFRS 1 'First-time
Adoption of International Financial Reporting Standards' the Group has applied
the IFRS expected to be in force as at 4 April 2006 in its financial reporting
with effect from 5 April 2004, with the exception of IAS 32 'Financial
Instruments: Disclosure and Presentation', IAS 39 'Financial Instruments:
Recognition and Measurement' and IFRS 4 'Insurance Contracts'. The Group has
decided to take advantage of the IFRS 1 provisions that allow these
standards to be applied from 5 April 2005. Accordingly they are reflected
through adjustments of the opening balance sheet as at 5 April 2005 rather than
in the 2004/05 comparatives.
Page 9 of 34
Therefore, in the IFRS statutory 2004/05 restatement:
i) financial instruments are included using the measurement basis
and the disclosure requirements of UK GAAP.
ii) insurance contracts are included using the measurement basis of UK GAAP but
are presented on a line by line consolidation basis as required by IAS 27
'Consolidated and Separate Financial Statements' (previously only the value
of the long term life assurance business and its change in value were
consolidated).
The derecognition requirements of IAS 39 have been applied to transactions fully
retrospectively.
To facilitate comparison and understanding of future results, in addition to the
statutory comparatives for the income and expenditure accounts for the year
ended 4 April 2005 and the 6 months ended 4 October 2004, pro-forma comparatives
have been prepared. These show how the results would have looked, assuming the
full application of IAS 32 and IFRS 4 and the application of IAS 39 excluding
fair value accounting volatility. In particular the pro-forma results
illustrate the impacts of the changes to effective yield recognition of fees/
costs and the more stringent evidence testing required for raising asset
impairment provisions. We have not shown the full impact from all the IAS 39
accounting rules as hedges and financial assets to be fair valued were only
designated and documented from 5 April 2005.
Transitional arrangements: other
In addition to exempting companies from the requirement to restate comparatives
under IAS 32, IAS 39 and IFRS 4, IFRS 1 grants certain exemptions from the full
requirements of IFRS to companies adopting IFRS for the first time. The Group
has elected to use the following exemptions in arriving at the 5 April 2004
opening balances for the purposes of these financial statements:
(a) Business combinations
The Group has opted to apply IFRS 3 'Business Combinations' prospectively
from 5 April 2004. Consequently, goodwill previously amortised has not
been restated in the opening IFRS balance sheet at 5 April 2004.
(b) Employee benefits
The Group has elected to apply IAS 19 'Employee Benefits' prospectively.
As at 5 April 2004, all cumulative actuarial gains and losses on the
Group's retirement benefit schemes have been recognised.
Page 10 of 34
APPENDIX 1.1
Restated Financial Information
Consolidated Income & Expenditure Accounts
(unaudited)
Year ended 6 months ended
04.04.05 04.10.04
*IFRS UK GAAP *IFRS UK GAAP
#m #m #m #m
Interest receivable and similar income 5,139.1 5,094.8 2,436.8 2,414.5
Interest expense and similar charges 3,947.5 3,905.6 1,831.9 1,810.1
Net interest income 1,191.6 1,189.2 604.9 604.4
Fees and commissions receivable 384.0 377.4 172.8 169.5
Fees and commissions payable 102.8 109.1 63.2 66.3
Net fees and commissions income 281.2 268.3 109.6 103.2
Income from other financial assets at 55.6 - 10.6 -
fair value
Income from investments 0.3 0.3 0.2 0.2
Net premiums from insurance 155.6 - 84.4 -
Other operating income 17.6 69.9 6.4 30.0
Operating income 1,701.9 1,527.7 816.1 737.8
Other operating charges 152.4 - 69.3 -
Administrative expenses 833.2 815.8 406.4 397.3
Depreciation and amortisation 107.1 99.5 54.5 51.1
Operating profit before provisions 609.2 612.4 285.9 289.4
Impairment losses on loans and advances 46.6 46.6 20.1 20.1
Provisions for contingent liabilities and 46.7 46.7 20.8 20.8
commitments
Amounts written off fixed asset 2.0 2.0 3.6 3.6
investments
Profit before tax 513.9 517.1 241.4 244.9
Taxation expense 146.9 151.8 70.2 72.5
Net profit for the period 367.0 365.3 171.2 172.4
For detailed UK GAAP to IFRS reconciliations see appendicies 2.1 & 2.2
*Excludes the effects of IAS 32, IAS 39 and IFRS 4 Page 11 of 34
APPENDIX 1.2
Restated Financial Information
Consolidated Balance Sheets
(unaudited)
05.04.05 04.04.05 04.10.04
IFRS *IFRS UK GAAP *IFRS UK GAAP
#m #m #m #m #m
Assets
Cash and balances with the Bank of 362.5 362.5 362.5 367.4 367.4
England
Loans and advances to banks 751.6 751.6 635.6 2,167.9 1,236.6
Investment securities - available for 14,272.1 14,145.0 14,145.0 13,941.8 13,941.8
sale
Derivative financial instruments 262.0 - - - -
Fair value adjustment for hedged risk (15.2) - - - -
Other financial instruments at fair 1,825.2 1,825.2 - 970.7 -
value through I&E
Loans and advances to customers 92,878.0 92,721.9 92,721.9 88,785.7 88,785.7
Investment in equity shares 21.8 14.9 14.9 11.1 11.1
Intangible fixed assets 44.2 44.2 - 49.9 -
Property, plant and equipment 620.0 620.0 660.9 566.8 614.6
Investment properties 242.6 242.6 233.3 248.7 243.1
Accrued income and expenses prepaid 323.9 366.7 463.6 395.4 489.1
Deferred tax assets 80.6 81.9 39.9 127.8 44.7
Other assets 416.8 420.3 396.7 377.7 322.4
Long term life assurance business assets - - 1,917.3 - 1,785.7
Total assets 112,086.1 111,596.8 111,591.6 108,010.9 107,842.2
Liabilities
Shares 72,627.2 72,594.1 72,594.1 69,485.5 69,485.5
Deposits from banks 2,453.3 2,453.3 1,650.6 2,857.6 2,057.3
Other deposits 2,802.4 2,802.4 2,819.5 3,354.0 3,375.7
Due to customers 2,257.0 2,257.0 2,257.0 1,979.3 1,979.3
Derivative financial instruments 452.5 - - - -
Debt securities in issue 22,350.8 22,377.6 22,377.6 21,731.9 21,731.9
Fair value adjustment for hedged risk 3.4 - - - -
Insurance contracts liabilities 1,131.6 1,132.1 - 1,129.9 -
Other liabilities 405.2 404.9 390.1 272.1 253.9
Provisions for liabilities and charges 55.2 55.2 60.7 60.0 65.6
Accruals and deferred income 309.2 367.2 353.5 688.3 673.5
Subordinated liabilities 1,472.9 1,439.8 1,439.8 943.9 943.9
Subscribed capital 712.4 692.2 692.2 692.0 692.0
Current taxes 117.1 105.8 100.3 78.1 72.5
Retirement benefit obligations 351.6 351.6 - 465.1 -
Long term life assurance business - - 1,917.3 - 1,785.7
liabilities
Total liabilities 107,501.8 107,033.2 106,652.7 103,737.7 103,116.8
General reserve 4,432.7 4,460.6 4,710.9 4,187.3 4,514.3
Revaluation reserve 103.0 103.0 228.0 85.9 211.1
Available for sale reserve 48.6 - - - -
Total equity & liabilities 112,086.1 111,596.8 111,591.6 108,010.9 107,842.2
For detailed UK GAAP to IFRS reconciliations see appendicies 2.3, 2.4 & 2.5
*Excludes the effects of IAS 32, IAS 39 and IFRS 4 Page 12 of 34
APPENDIX 1.3
Other Primary Statements
Consolidated IFRS Statements of Recognised Income and Expenditure
(unaudited)
Year 6 months
ended ended
04.04.05 04.10.04
#m #m
Profit for the period 367.0 171.2
Property revaluation gains 24.9 -
Actuarial gains / (losses) on retirement benefits schemes 104.9 (4.5)
Taxation on items through equity (38.2) 1.5
Total recognised income and expenditure for the period 458.6 168.2
Consolidated UK GAAP Statements of Total Recognised Gains and Losses
(unaudited)
Year 6 months
ended ended
04.04.05 04.10.04
#m #m
Profit for the period 365.3 172.4
Unrealsed surplus on revaluation of properties 20.6 -
Total gains and losses recognised relating to the period 385.9 172.4
Page 13 of 34
APPENDIX 2.1
Restated Financial Information for the Year Ended 4 April
2005(1)
Consolidated Statutory Income & Expenditure
Account
UK GAAP Retirement Fixed assets Investment Insurance Other Tax IFRS
benefits and properties
intangibles
#m #m #m #m #m #m #m #m
Interest receivable and similar 5,094.8 44.3 5,139.1
income
Interest expense and similar charges 3,905.6 6.0 35.9 3,947.5
Net interest income 1,189.2 (6.0) - - 8.4 - - 1,191.6
Fees and commissions receivable 377.4 4.8 1.8 384.0
Fees and commissions payable 109.1 (6.3) 102.8
Net fees and commissions income 268.3 - - - 11.1 1.8 - 281.2
Income from other financial assets at - 55.6 55.6
fair value
Income from investments 0.3 0.3
Net premiums from insurance - 155.6 155.6
Other operating income 69.9 0.4 (2.8) (49.9) 17.6
Operating income 1,527.7 (6.0) 0.4 (2.8) 180.8 1.8 - 1,701.9
Other operating charges - 152.4 152.4
Administrative expenses 815.8 (8.3) (9.3) 35.2 (0.2) 833.2
Depreciation and amortisation 99.5 7.6 107.1
Operating profit before provisions 612.4 2.3 2.1 (2.8) (6.8) 2.0 - 609.2
Impairment losses on loans and 46.6 46.6
advances
Provisions for contingent liabilities 46.7 46.7
and commitments
Amounts written off fixed asset 2.0 2.0
investments
Profit before tax 517.1 2.3 2.1 (2.8) (6.8) 2.0 - 513.9
Taxation expense 151.8 - - - (5.4) - 0.5 146.9
Net profit for the year 365.3 2.3 2.1 (2.8) (1.4) 2.0 (0.5) 367.0
(1)For explanation of the IFRS adjustments see Section 3.1 on pages 6 & 7
Page 14 of 34
APPENDIX 2.2
Restated Financial Information for the 6 Months Ended 4 October 2004
Consolidated Statutory Income & Expenditure Account
(unaudited)
UK GAAP Retirement Fixed Investment Insurance Other Tax IFRS
benefits assets and properties
intangibles
#m #m #m #m #m #m #m #m
Interest receivable and 2,414.5 22.3 2,436.8
similar income
Interest expense and 1,810.1 4.0 17.8 1,831.9
similar charges
Net interest income 604.4 (4.0) - - 4.5 - - 604.9
Fees and commissions 169.5 2.6 0.7 172.8
receivable
Fees and commissions 66.3 (3.1) 63.2
payable
Net fees and commissions 103.2 - - - 5.7 0.7 - 109.6
income
Income from other - 10.6 10.6
financial assets at fair
value
Income from investments 0.2 0.2
Net premiums from - 84.4 84.4
insurance
Other operating income 30.0 (2.6) (21.0) 6.4
Operating income 737.8 (4.0) - (2.6) 84.2 0.7 - 816.1
Other operating charges - 69.3 69.3
Administrative expenses 397.3 (3.9) (4.6) 0.1 17.4 0.1 406.4
Depreciation and 51.1 3.4 54.5
amortisation
Operating profit before 289.4 (0.1) 1.2 (2.7) (2.5) 0.6 - 285.9
provisions
Impairment losses on loans 20.1 20.1
and advances
Provisions for contingent 20.8 20.8
liabilities and
commitments
Amounts written off fixed 3.6 3.6
asset investments
Profit before tax 244.9 (0.1) 1.2 (2.7) (2.5) 0.6 - 241.4
Taxation expense 72.5 - - - (1.8) - (0.5) 70.2
Net profit for the six 172.4 (0.1) 1.2 (2.7) (0.7) 0.6 0.5 171.2
months ended 4 October
2004
Page 15 of 34
Restated Financial Information - Excludes the effects of IAS 32, IAS APPENDIX
39 & IFRS 4(1) 2.3
Consolidated Balance Sheet at 4 April 2005
UK GAAP Retirement Fixed Investment Insurance Other Tax IFRS
benefits assets and properties
intangibles
Assets #m #m #m #m #m #m #m #m
Cash and balances with 362.5 362.5
the Bank of England
Loans and advances to 635.6 116.0 751.6
banks
Investment securities - 14,145.0 14,145.0
available for sale
Other financial - 1,825.2 1,825.2
instruments at fair value
through I&E
Loans and advances to 92,721.9 92,721.9
customers
Investment in equity 14.9 14.9
shares
Intangible fixed assets - 44.2 44.2
Property, plant and 660.9 (31.6) (9.3) 620.0
equipment
Investment properties 233.3 9.3 242.6
Accrued income and 463.6 (96.0) 9.1 (10.0) 366.7
expenses prepaid
Deferred tax assets 39.9 (32.5) 74.5 81.9
Other assets 396.7 23.6 420.3
Long term life assurance 1,917.3 (1,917.3) -
business assets
Total assets 111,591.6 (96.0) 12.6 - 24.1 (10.0) 74.5 111,596.8
Liabilities
Shares 72,594.1 72,594.1
Deposits from banks 1,650.6 802.7 2,453.3
Other deposits 2,819.5 (17.1) 2,802.4
Due to customers 2,257.0 2,257.0
Debt securities in issue 22,377.6 22,377.6
Insurance contracts - 1,132.1 1,132.1
liabilities
Other liabilities 390.1 14.8 404.9
Provisions for 60.7 (5.5) 55.2
liabilities and charges
Accruals and deferred 353.5 2.2 1.2 10.3 367.2
income
Subordinated liabilities 1,439.8 1,439.8
Subscribed capital 692.2 692.2
Current taxes 100.3 5.5 105.8
Retirement benefit - 351.6 351.6
obligations
Long term life assurance 1,917.3 (1,917.3) -
business liabilities
Total liabilities 106,652.7 348.3 - - 21.9 10.3 - 107,033.2
General reserve 4,710.9 (444.3) (0.9) 102.2 2.2 (20.3) 110.8 4,460.6
Revaluation reserve 228.0 13.5 (102.2) (36.3) 103.0
Total equity & 111,591.6 (96.0) 12.6 - 24.1 (10.0) 74.5 111,596.8
liabilities
(1)For explanation of the IFRS
adjustments see Section 3.1 on
pages 6 & 7
Restated Financial Information - Includes the effects of IAS 32, IAS 39 & APPENDIX
IFRS 4(1) 2.4
Consolidated Balance Sheet at 5 April 2005
IFRS Effective AFS Derivatives Derecog- Insurance Loan Tax IFRS
04.04.05 Yield Assets and Hedging nition impairment 05.04.05
Assets #m #m #m #m #m #m #m #m #m
Cash and balances with the 362.5 362.5
Bank of England
Loans and advances to banks 751.6 751.6
Investment securities - 14,145.0 79.9 47.2 14,272.1
available for sale
Derivative financial - 262.0 262.0
instruments
Fair value adjustment for - (15.2) (15.2)
hedged risk
Other financial instruments 1,825.2 1,825.2
at fair value through I&E
Loans and advances to 92,721.9 (8.7) 78.8 86.0 92,878.0
customers
Investment in equity shares 14.9 6.9 21.8
Intangible fixed assets 44.2 44.2
Property, plant and equipment 620.0 620.0
Investment properties 242.6 242.6
Accrued income and expenses 366.7 (42.8) 323.9
prepaid
Deferred tax assets 81.9 1.0 (2.3) 80.6
Other assets 420.3 (3.5) 416.8
Total assets 111,596.8 (8.7) 86.8 330.0 - (2.5) 86.0 (2.3) 112,086.1
Liabilities
Shares 72,594.1 33.1 72,627.2
Deposits from banks 2,453.3 2,453.3
Other deposits 2,802.4 2,802.4
Due to customers 2,257.0 2,257.0
Derivative financial - 452.5 452.5
instruments
Debt securities in issue 22,377.6 0.8 (27.6) 22,350.8
Fair value adjustment for - 3.4 3.4
hedged risk
Insurance contracts 1,132.1 (0.5) 1,131.6
liabilities
Other liabilities 404.9 0.3 405.2
Provisions for liabilities 55.2 55.2
and charges
Accruals and deferred income 367.2 (58.0) 309.2
Subordinated liabilities 1,439.8 (0.1) 33.2 1,472.9
Subscribed capital 692.2 (0.7) 20.9 712.4
Current taxes 105.8 11.3 117.1
Retirement benefit 351.6 351.6
obligations
Total liabilities 107,033.2 - - 424.4 33.1 (0.2) - 11.3 107,501.8
General reserve 4,460.6 (8.7) 16.0 (94.4) (33.1) (2.3) 86.0 8.6 4,432.7
Revaluation reserve 103.0 103.0
Available for sale reserve - 70.8 - (22.2) 48.6
Total equity & liabilities 111,596.8 (8.7) 86.8 330.0 - (2.5) 86.0 (2.3) 112,086.1
(1)For explanation of the IFRS adjustments see Section 3.2 on pages 7, 8 & 9
Restated Financial Information - Excludes the effects of IAS 32, IAS APPENDIX
39 & IFRS 4 2.5
Consolidated Balance Sheet at 4 October 2004
(unaudited)
UK GAAP Retirement Fixed Investment Insurance Other Tax IFRS
benefits assets and properties
intangibles
Assets #m #m #m #m #m #m #m #m
Cash and balances with 367.4 367.4
the Bank of England
Loans and advances to 1,236.6 931.3 2,167.9
banks
Investment securities - 13,941.8 13,941.8
available for sale
Other financial - 970.7 970.7
instruments at fair value
through I&E
Loans and advances to 88,785.7 88,785.7
customers
Investment in equity 11.1 11.1
shares
Intangible fixed assets - 49.9 49.9
Property, plant and 614.6 (39.6) (8.2) 566.8
equipment
Investment properties 243.1 5.6 248.7
Accrued income and 489.1 (94.1) 0.4 395.4
expenses prepaid
Deferred tax assets 44.7 (32.0) 115.1 127.8
Other assets 322.4 65.6 (10.3) 377.7
Long term life assurance 1,785.7 (1,785.7) -
business assets
Total assets 107,842.2 (94.1) 10.3 (2.6) 150.3 (10.3) 115.1 108,010.9
Liabilities
Shares 69,485.5 69,485.5
Deposits from banks 2,057.3 800.3 2,857.6
Other deposits 3,375.7 (21.7) 3,354.0
Due to customers 1,979.3 1,979.3
Debt securities in issue 21,731.9 21,731.9
Insurance contracts - 1,129.9 1,129.9
liabilities
Other liabilities 253.9 18.1 0.1 272.1
Provisions for 65.6 (5.6) 60.0
liabilities and charges
Accruals and deferred 673.5 2.4 1.0 11.4 688.3
income
Subordinated liabilities 943.9 943.9
Subscribed capital 692.0 692.0
Current taxes 72.5 5.6 78.1
Retirement benefit - 465.1 465.1
obligations
Long term life assurance 1,785.7 (1,785.7) -
business liabilities
Total liabilities 103,116.8 461.9 - - 147.5 11.5 - 103,737.7
General reserve 4,514.3 (556.0) (1.7) 105.0 2.8 (21.8) 144.7 4,187.3
Revaluation reserve 211.1 12.0 (107.6) (29.6) 85.9
Total equity & 107,842.2 (94.1) 10.3 (2.6) 150.3 (10.3) 115.1 108,010.9
liabilities
Page 18 of 34
Restated Financial Information - Excludes the effects of IAS 32, IAS APPENDIX
39 & IFRS 4 2.6
Consolidated Balance Sheet at 5 April 2004
UK GAAP Retirement Fixed Investment Insurance Other Tax IFRS
benefits assets and properties
intangibles
Assets #m #m #m #m #m #m #m #m
Cash and balances with 310.5 310.5
the Bank of England
Loans and advances to 1,464.1 941.3 2,405.4
banks
Investment securities - 15,650.8 15,650.8
available for sale
Other financial - 990.2 990.2
instruments at fair value
through I&E
Loans and advances to 80,706.2 80,706.2
customers
Investment in equity 9.0 9.0
shares
Intangible fixed assets - 56.4 56.4
Property, plant and 621.0 (47.4) (8.2) 565.4
equipment
Investment properties 236.6 8.2 244.8
Accrued income and 237.4 (108.3) 0.4 (10.2) 119.3
expenses prepaid
Deferred tax assets 40.5 (31.0) 113.4 122.9
Other assets 369.4 25.5 394.9
Long term life assurance 1,782.9 (1,782.9) -
business assets
Total assets 101,428.4 (108.3) 9.0 - 143.5 (10.2) 113.4 101,575.8
Liabilities
Shares 65,943.9 65,943.9
Deposits from banks 2,229.3 806.4 3,035.7
Other deposits 3,069.1 (11.0) 3,058.1
Due to customers 1,767.4 1,767.4
Debt securities in issue 19,706.5 19,706.5
Insurance contracts - 1,106.9 1,106.9
liabilities
Other liabilities 361.5 9.0 0.3 370.8
Provisions for 55.4 (5.5) 49.9
liabilities and charges
Accruals and deferred 284.6 2.6 1.7 12.0 300.9
income
Subordinated liabilities 925.6 925.6
Subscribed capital 691.7 691.7
Current taxes 57.5 9.9 67.4
Retirement benefit - 446.0 446.0
obligations
Long term life assurance 1,782.9 (1,782.9) -
business liabilities
Total liabilities 96,875.4 443.1 - - 140.0 12.3 - 97,470.8
General reserve 4,341.1 (551.4) (3.0) 108.5 3.5 (22.5) 142.9 4,019.1
Revaluation reserve 211.9 12.0 (108.5) (29.5) 85.9
Total equity & 101,428.4 (108.3) 9.0 - 143.5 (10.2) 113.4 101,575.8
liabilities
Page 19 of 34
APPENDIX
3.1
Reconciliation of Statutory and Pro forma Results for the Year Ended 4 April
2005(1)
Consolidated Pro-forma IFRS Income & Expenditure Account (unaudited)
Statutory Effective AFS assets Insurance Loan Pro- forma
IFRS Yield Impairment IFRS
#m #m #m #m #m #m
Interest receivable and similar 5,139.1 (24.2) 5,114.9
income
Interest expense and similar 3,947.5 3,947.5
charges
Net interest income 1,191.6 (24.2) - - - 1,167.4
Fees and commissions receivable 384.0 (111.0) 273.0
Fees and commissions payable 102.8 (99.9) 2.9
Net fees and commissions income 281.2 (11.1) - - - 270.1
Income from other financial assets 55.6 55.6
at fair value
Income from investments 0.3 0.3
Net premiums from insurance 155.6 (4.2) 151.4
Other operating income 17.6 17.6
Operating income 1,701.9 (35.3) - (4.2) - 1,662.4
Other operating charges 152.4 (4.3) 148.1
Administrative expenses 833.2 833.2
Depreciation and amortisation 107.1 107.1
Operating profit before provisions 609.2 (35.3) - 0.1 - 574.0
Impairment losses on loans and 46.6 10.0 56.6
advances
Provisions for contingent 46.7 46.7
liabilities and commitments
Amounts written off fixed asset 2.0 5.1 7.1
investments
Profit before tax 513.9 (35.3) (5.1) 0.1 (10.0) 463.6
Taxation expense 146.9 (10.6) (1.5) 0.5 (3.0) 132.3
Net profit for the year 367.0 (24.7) (3.6) (0.4) (7.0) 331.3
(1)For explanation of the IFRS adjustments see Section 3.2 on pages 7, 8 & 9
Page 20 of 34
APPENDIX
3.2
Reconciliation of Statutory and Pro forma Results for the 6 Months Ended
4 October 2004
Consolidated Pro-forma IFRS Income & Expenditure Account
(unaudited)
Statutory Effective AFS assets Insurance Loan Pro-forma
IFRS Yield Impairment IFRS
#m #m #m #m #m #m
Interest receivable and 2,436.8 (12.9) 2,423.9
similar income
Interest expense and similar 1,831.9 1,831.9
charges
Net interest income 604.9 (12.9) - - - 592.0
Fees and commissions 172.8 (56.3) 116.5
receivable
Fees and commissions payable 63.2 (60.4) 0.4 3.2
Net fees and commissions 109.6 4.1 - (0.4) - 113.3
income
Income from other financial 10.6 10.6
assets at fair value
Income from investments 0.2 0.2
Net premiums from insurance 84.4 (1.8) 82.6
Other operating income 6.4 6.4
Operating income 816.1 (8.8) - (2.2) - 805.1
Other operating charges 69.3 (2.6) 66.7
Administrative expenses 406.4 406.4
Depreciation and 54.5 54.5
amortisation
Operating profit before 285.9 (8.8) - 0.4 - 277.5
provisions
Impairment losses on loans 20.1 5.7 25.8
and advances
Provisions for contingent 20.8 20.8
liabilities and commitments
Amounts written off fixed 3.6 3.6 7.2
asset investments
Profit before tax 241.4 (8.8) (3.6) 0.4 (5.7) 223.7
Taxation expense 70.2 (2.6) (1.1) - (1.7) 64.8
Net profit for the six 171.2 (6.2) (2.5) 0.4 (4.0) 158.9
months ended 4 October 2004
Page 21 of 34
Appendix 4
Special Purpose Audit Report of PricewaterhouseCoopers LLP to Nationwide
Building Society ('the Society') on its International Financial Reporting
Standards ('IFRS') Financial Information
We have audited the accompanying consolidated IFRS balance sheets of Nationwide
Building Society and its subsidiaries ('the Group') as at 5 April 2004 and 4
April 2005, the related consolidated IFRS income and expenditure account for the
year ended 4 April 2005, the 5 April 2005 balance sheet and transition
adjustments relating to the adoption of IAS 32, IAS 39 and IFRS 4, set out on
pages 11 and 12 and the associated IFRS 1 reconciliations and consolidated
statement of recognised income and expenditure set out on pages 13, 14, 16, 17
and 19 prepared in accordance with the basis of preparation and the provisional
accounting policies set out on pages 26 to 33 (hereinafter referred to as 'the
IFRS financial information').
In addition to the above noted opening and year end balance sheets, full year
income and expenditure account, associated IFRS reconciliations and statement of
recognised income and expenditure, included with the financial information set
out on pages 11 to 13 are the half-year balance sheet, half-year income and
expenditure account, associated IFRS reconciliations and statement of recognised
income and expenditure. We have not audited the half-year balance sheet,
half-year income and expenditure account, associated IFRS reconciliations and
statement of recognised income and expenditure, and these are not covered by
this opinion and do not form part of the above defined IFRS financial
information.
The IFRS financial information has been prepared by the Group as part of its
transition to IFRS and to establish the financial position, and results of
operations of the Group to provide the comparative financial information
expected to be included in the first complete set of consolidated IFRS financial
statements of the Group for the year ended 4 April 2006.
Respective responsibilities of Directors and PricewaterhouseCoopers LLP
The Directors of the Society are responsible for the preparation of the
consolidated IFRS financial information which has been prepared as part of the
Group's transition to IFRS. Our responsibilities, as independent auditors, are
established in the United Kingdom by the Auditing Practices Board, our
profession's ethical guidance and the terms of our engagement. Under the terms
of engagement we are required to report to you our opinion as to whether the
IFRS financial information has been prepared, in all material respects, in
accordance with the basis of preparation and provisional accounting policies set
out on pages 26 to 33.
This report, including the opinion, has been prepared for, and only for, the
Society for the purposes of assisting with the Group's transition to IFRS and
for no other purpose. To the fullest extent permitted by law we do not, in
giving this opinion, accept or assume responsibility for any other purpose or to
any other person to whom this report is shown or into whose hands it may come
save where expressly agreed by our prior consent in writing.
We read the other information contained in this Restatement of 2004/05 Financial
Results to International Financial Reporting Standards and consider its
implications for our report if we became aware of any apparent misstatements or
material inconsistencies with the above defined IFRS financial information.
Basis of audit opinion
We conducted our audit in accordance with Auditing Standards issued by the UK
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the IFRS financial
information. It also includes an assessment of the significant estimates and
judgements made by the Directors in the preparation of the IFRS financial
information, and of whether the accounting policies are appropriate to the
Group's circumstances and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the IFRS financial
information is free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the IFRS financial information.
Page 22 of 34
Emphasis of matter
Without qualifying our opinion, we draw your attention to the fact that the IFRS
financial information may require adjustment before its inclusion as comparative
information in the Group's first set of IFRS financial statements for the year
ended 4 April 2006. This is because Standards currently in issue and adopted by
the EU are subject to interpretation issued from time to time by the
International Financial Reporting Interpretations Committee (IFRIC) and further
Standards may be issued by the International Accounting Standards Board (IASB)
that will be adopted for financial years beginning on or after 1 January 2005.
Additionally, without qualifying our opinion, IFRS is currently being applied in
the United Kingdom and in a large number of other countries simultaneously for
the first time. Furthermore, due to a number of new and revised Standards
included within the body of Standards that comprise IFRS, there is not yet a
significant body of established practice on which to draw in forming opinions
regarding interpretation and application. Accordingly, practice is continuing to
evolve. At this preliminary stage, therefore, the full financial effect of
reporting under IFRS as it will be applied and reported on in the Group's first
IFRS financial statements for the year ended 4 April 2006 may be subject to
change.
Opinion
In our opinion, the accompanying IFRS financial information comprising the
consolidated IFRS balance sheets as at 5 April 2004 and 4 April 2005, the
related consolidated IFRS income and expenditure account for the year ended 4
April 2005, the 5 April 2005 balance sheet and transition adjustments relating
to the adoption of IAS 32, IAS 39 and IFRS 4, set out on pages 11 and 12 and the
associated IFRS 1 reconciliations and the consolidated IFRS statement of
recognised income and expenditure set out on pages 13, 14, 16, 17 and 19, have
been prepared, in all material respects, in accordance with the basis of
preparation and the provisional accounting polices set out on pages 26 to 33,
which describe how IFRS have been applied under IFRS 1, including the
assumptions made by the Directors of the Society about the standards and
interpretations expected to be effective, and the policies expected to be
adopted, when they prepare the first complete set of IFRS financial statements
of the Group for the year ended 4 April 2006.
PricewaterhouseCoopers LLP
Chartered Accountants
London
21 September 2005
Page 23 of 34
Special Purpose Review Report of PricewaterhouseCoopers LLP to Nationwide
Building Society (the 'Society') on its Preliminary Interim Comparative
International Financial Reporting Standards ('IFRS') Information for the Six
Months ended 4 October 2004
Introduction
We have been instructed by the Society to review the preliminary interim
comparative (IFRS) consolidated financial information of Nationwide Building
Society and its subsidiaries ('the Group') for the six months ended 4 October
2004 which comprise the consolidated balance sheet as at 4 October 2004, the
consolidated income and expenditure account and the consolidated statement of
recognised income and expenditure for the six months ended 4 October 2004
(hereinafter referred to as 'the preliminary interim comparative IFRS financial
information').
Directors' Responsibilities
The preliminary interim comparative IFRS financial information is the
responsibility of, and has been approved by, the Directors. It has been
prepared as part of the Group's conversion to IFRS, in accordance with the basis
set out in the basis of preparation on page 9 and provisional accounting
policies set out on pages 26 to 33, including the assumptions the directors have
made about the standards and interpretations expected to be effective, and the
policies expected to be adopted, when the Group prepares its first complete set
of IFRS financial statements as at 4 April 2006.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
'Review of interim financial information' issued by the Auditing Practices
Board. A review consists principally of making enquiries of group management
and applying analytical procedures to the financial information and underlying
financial data and, based thereon, assessing whether the accounting policies and
presentation have been consistently applied unless otherwise disclosed. A
review excludes audit procedures such as tests of controls and verification of
assets, liabilities and transactions. It is substantially less in scope than an
audit performed in accordance with Auditing Standards and therefore provides a
lower level of assurance than an audit. Accordingly we do not express an audit
opinion on the financial information. The report, including the conclusion, has
been prepared for, and only for, the Society for the purposes of assisting with
the Group's transition to IFRS and for no other purpose. We do not, in
producing this report, accept or assume responsibility for any other purpose or
to any other persons to whom this report is shown or into whose hands it may
come save where expressly agreed by our prior consent in writing.
Emphasis of matter
Without modifying our review conclusion, we draw your attention to the fact
that, as explained on page 9, the preliminary IFRS financial information may
require adjustment before its inclusion as comparative information in the
Group's first set of IFRS interim results for the period ended 30 September
2005. This is because Standards currently in issue and adopted by the EU are
subject to interpretation issued from time to time by the International
Financial Reporting Interpretations Committee (IFRIC) and further Standards may
be issued by the International Accounting Standards Board (IASB) that will be
adopted for financial years beginning on or after 1 January 2005.
Additionally, without modifying our review conclusion, IFRS is currently being
applied in the United Kingdom and in a large number of other countries
simultaneously for the first time. Furthermore, due to a number of new and
revised Standards included within the body of Standards that comprise IFRS,
there is not yet a significant body of established practice on which to draw in
forming opinions regarding interpretation and application. Accordingly,
practice is continuing to evolve. At this preliminary stage, therefore, the
full financial effect of reporting under IFRS as it will be applied and reported
on in the Group's first set of IFRS interim results for the period ended 30
September 2005 and the Group's first full annual IFRS financial statements as at
4 April 2006 may be subject to change.
Page 24 of 34
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the preliminary interim comparative IFRS financial information
as presented for the six months ended 4 October 2004.
PricewaterhouseCoopers LLP
Chartered Accountants
London
21 September 2005
Page 25 of 34
Appendix 5 - Provisional IFRS accounting policies
As noted in Section 4, the Group has taken advantage of the provisions in IFRS 1
not to restate prior year information for the requirements of IAS 32, IAS 39 and
IFRS 4.
Basis of consolidation
The Group accounts consolidate the assets, liabilities and results of the
Society and all its subsidiaries and associate undertakings.
Subsidiaries are all entities including special purpose entities over which the
Society has the power to govern the financial and operating policies generally.
Subsidiaries are fully consolidated from the date on which control is
transferred to the Group and are de-consolidated from the date that control
ceases. Upon consolidation, inter-company transactions, balances and unrealised
gains on transactions are eliminated.
Associates are all entities over which the Group has significant influence but
not control of the operating and financial management policy decisions,
generally demonstrated by a shareholding of between 20% and 50% of the voting
rights. Investments in associates initially recognised at cost are accounted
for using the equity method of accounting.
Interest receivable and expense
For instruments measured at amortised cost the effective interest method is used
to measure the carrying value of a financial asset or a liability and to
allocate associated interest income or expense over the relevant period. The
effective interest rate is the rate that exactly discounts estimated future cash
payments or receipts through the expected life of the financial instrument or,
when appropriate, a shorter period to the net carrying amount of the financial
asset or financial liability.
In calculating the effective interest rate, the Group estimates cash flows
considering all contractual terms of the financial instrument (for example,
early redemption penalty charges) but does not consider future credit losses.
The calculation includes all fees received and paid and costs borne that are an
integral part of the effective interest rate and all other premiums or discounts
above or below market rates.
Once a financial asset or a group of similar financial assets has been written
down as a result of an impairment loss, interest income is recognised using the
rate of interest used to discount the future cash flows for the purpose of
measuring the impairment loss.
Fees and commissions
Direct fees and costs incremental to generating a financial instrument are
deferred and spread as interest receivable or expense on an effective interest
basis.
Other fees and commissions are recognised on the accruals basis as services are
provided, or on the performance of a significant act.
Goodwill
Goodwill arising on the acquisition of subsidiary undertakings represents the
excess of the acquisition cost over the Group's share of the fair value of net
identifiable assets acquired. Goodwill arising on the acquisition of subsidiary
undertakings is capitalised and included in 'intangible assets'. After initial
recognition, goodwill is carried at cost less accumulated impairment losses.
Goodwill is tested annually for impairment. On disposal of a subsidiary, the
carrying amount of goodwill relating to the entity sold is included in the
determination of the profit or loss on disposal.
Where the Group's share of the fair value of net identifiable assets acquired
exceeds the acquisition cost ('negative goodwill'), the excess is recognised
immediately in the income and expenditure account.
Page 26 of 34
Software
IAS 38 'Intangible Assets' requires the capitalisation of certain expenditure
relating to software development costs. Software development costs are
capitalised if it is probable that the asset created will generate future
economic benefits. Costs incurred to establish technological feasibility or to
maintain existing levels of performance are recognised as an expense.
Where software costs are capitalised, they are amortised using the straight-line
method over their estimated useful lives (3 to 5 years). The amortisation
periods used are reviewed annually.
Computer application software licences are recognised as intangible fixed assets
and amortised using the straight-line method over their useful lives.
Leases
Leases entered into by the Group are primarily operating leases.
(a) As lessee
Operating leases are leases that do not transfer substantially all the risks and
rewards incidental to ownership of the lessee. The Group has entered into
operating leases for land and buildings. Operating lease payments are charged
to the income and expenditure account on a straight line basis over the life of
the lease.
(b) As lessor
Lease income receivable under operating leases is credited to the income and
expenditure account on a straight line basis over the life of the lease.
Deferred tax
Deferred tax is provided in full, using the liability method, on temporary
differences arising between the tax bases of assets and liabilities and their
carrying amounts in the financial statements. Deferred tax is determined using
tax rates and laws that have been enacted or substantially enacted by the
balance sheet date and are expected to apply when the related deferred income
tax asset is realised or the deferred income tax liability is settled.
Deferred tax assets are recognised where it is probable that future taxable
profit will be available against which the temporary differences can be
utilised. Deferred tax is provided on temporary differences arising from
investments in subsidiaries and associates, except where the timing of the
reversal of the temporary difference is controlled by the Group and it is
probable that the difference will not reverse in the foreseeable future.
Corporation tax payable on profits, based on the applicable tax law in each
jurisdiction, is recognised as an expense in the period in which profits arise.
The tax effects of tax losses available for carry forward are recognised as an
asset when it is probable that future taxable profits will be available against
which these losses can be utilised.
Deferred tax related to fair value re-measurement of available-for-sale
investments, which are charged or credited directly to the available-for-sale
reserve, is also credited or charged directly to the available-for-sale reserve
and is subsequently recognised in the income statement together with the
deferred gain or loss.
Property, plant and equipment
Freehold and long leasehold properties comprise mainly branches and office
buildings.
Branches and non-specialised buildings are stated at revalued amounts, being the
fair value, on the basis of their existing use, at the date of the valuation
less any subsequent accumulated depreciation and subsequent impairment.
Valuations are completed annually by independent surveyors.
Page 27 of 34
Increases in the valuations of branches and non-specialised buildings are
credited to the revaluation reserve except where they reverse decreases for the
same asset previously recognised in the income and expenditure account, in which
case the increase in the valuation is recognised in the income and expenditure
account. Decreases in valuations are recognised in the income and expenditure
account except where they reverse amounts previously credited to the revaluation
reserve for the same asset, in which case the decrease in valuation is
recognised in the revaluation reserve.
Other property, plant and equipment, including specialised administration
buildings and short leasehold buildings, are included at historical cost less
depreciation. Historical cost includes expenditure that is directly
attributable to the acquisition of the items, major alterations and
refurbishments. Where applicable, directly attributable borrowing costs
incurred in the construction of qualifying assets are capitalised.
Land is not depreciated. Depreciation on other assets commences when the assets
are ready for their intended use and is calculated using the straight line
method to allocate their cost or valuation over the following estimated useful
lives:
Branches and non-specialised buildings 60 years
Specialised administration buildings 25 to 43 years
Short leasehold buildings over the period of the
lease
Other Equipment 3 to 10 years
Estimated useful lives are reviewed regularly, and adjusted if appropriate, in
the light of technological developments, usage and other relevant factors.
Assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. An asset's carrying
amount is written down immediately to its recoverable amount if the asset's
carrying amount is greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing the net disposal
proceeds with the carrying amount of the asset and are included in income and
expenditure account.
Investment properties
Investment properties, which comprise properties held for rental, are stated at
fair value. The properties are revalued annually by independent surveyors
supported by market evidence. Changes in fair value are included in the income
and expenditure account.
Depreciation is not charged on investment properties.
Borrowings
Debt securities in issue and subordinated liabilities are recognised initially
at fair value, being the issue proceeds net of premiums, discounts and
transaction costs incurred.
Borrowings are subsequently measured at amortised cost using the effective
interest method. Amortised cost is adjusted for the amortisation of any
transaction costs and premiums and discounts. The amortisation is recognised in
interest expense and similar charges using the effective interest method.
Permanent Interest Bearing Shares (subscribed capital), which are redeemable at
specific dates at the option of the Society, are classified as financial
liabilities and measured at amortised cost.
Borrowings that are designated as hedged items are subject to measurement under
the hedged accounting requirements described in the derivatives and hedge
accounting policy note.
Financial assets
The Group classifies its financial assets at inception into the following three
categories:
(i) Financial assets at fair value through the income and expenditure account
Page 28 of 34
This category consists of derivative financial assets and those assets
designated as financial assets at fair value through the income and
expenditure account at inception. Certain of the Group's investment
securities are included in this category, as well as mortgage commitments
entered into where a loan has not yet been made.
Financial assets at fair value through the income and expenditure account
are carried at fair value. The fair values are current market prices
(where there is an active market), or are based on valuation techniques
(where there is no active market or the securities are unlisted).
Valuation techniques include the use of recent arm's length transactions,
discounted cash flow analysis and other commonly used valuation
techniques.
Gains and losses arising from the changes in the fair values are
recognised in the income and expenditure account.
(ii) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. The
Group's residential and commercial mortgage loans, personal loans and
loans to banks are classified as loans and receivables.
Loans are recognised when the funds are advanced to customers. Loans and
receivables are carried at amortised cost using the effective interest
method.
(iii) Available-for-sale ('AFS')
AFS assets are non-derivative financial assets that are not classified
into either of the two categories above.
AFS assets are initially measured at fair value. Subsequently, AFS assets
are carried at fair value. The fair values are current market prices
(where there is an active market), or based on valuation techniques (where
there is no active market or the securities are unlisted).
Unrealised gains and losses arising from changes in the fair values are
recognised directly in reserves, except for impairment losses, and foreign
exchange gains and losses, which are recognised in the income and
expenditure account. Gains and losses arising on the sale of AFS assets,
including any cumulative gains or losses previously recognised in reserves
are recognised in the income and expenditure account.
Financial Assets are derecognised when the rights to receive cash flows have
expired or where substantially all of the risks and rewards of ownership have
been transferred.
The impact of hedging on the measurement of financial assets is detailed in the
derivatives and hedge accounting policy note.
Impairment of financial assets
(a) Assets carried at amortised cost
The Group assesses at each balance sheet date whether, as a result of one
or more events that occurred after initial recognition, there is objective
evidence that a financial asset or group of financial assets is impaired.
Evidence of impairment may include indications that the borrower or group
of borrowers are experiencing significant financial difficulty, default or
delinquency in interest or principal payments or the debt being
restructured to reduce the burden on the borrower.
The Group first assesses whether objective evidence of impairment exists
either individually for assets that are separately significant or
individually or collectively for assets that are not separately
significant. If there is no objective evidence of impairment for an
individually assessed asset it is included in a group of assets with
similar credit risk characteristics and collectively assessed for
impairment.
Page 29 of 34
If there is objective evidence that an impairment loss has been incurred,
the amount of the loss is measured as the difference between the asset's
carrying amount and the present value of estimated future cash flows
discounted at the asset's original effective interest rate.
The methodology and assumptions used for estimating future cash flows are
reviewed regularly by the Group to reduce any differences between loss
estimates and actual loss experience.
If, in a subsequent period, the amount of the impairment loss decreases
and the decrease can be related objectively to an event occurring after
the impairment was recognised the provision is adjusted and the amount of
the reversal is recognised in the income and expenditure account.
Where a loan is not recoverable, it is written off against the related
provision for loan impairment once all the necessary procedures have been
completed and the amount of the loss has been determined. Subsequent
recoveries of amounts previously written off decrease the amount of
impairment losses recorded in the income and expenditure account.
(b) Available for sale assets
The Group assesses at each balance sheet date whether there is objective
evidence that a financial asset or a group of financial assets is
impaired. In the case of investment securities classified as
available-for-sale, a significant or prolonged decline in the fair value
of the asset below its cost is considered in determining whether the
assets are impaired. If any such evidence exists for available-for-sale
financial assets, the cumulative loss - measured as the difference between
the acquisition cost and the current fair value, less any impairment loss
on that asset previously recognised - is recognised in the income and
expenditure account.
If, in a subsequent period, the fair value of an investment security
classified as available for sale increases and the increase can be
objectively related to an event occurring after the impairment loss was
recognised in income and expenditure account, the impairment loss is
reversed through the income and expenditure account.
Derivatives and hedge accounting
Derivatives are entered into to reduce exposures to fluctuations in interest
rates, exchange rates, market indices and credit risk.
(a) Derivative Financial Instruments
Derivatives are initially measured at fair value and are subsequently
remeasured to fair value at each reporting date. Fair values are obtained
from quoted prices prevailing in active markets and valuation techniques,
including discounted cash flow models, as appropriate. All derivatives are
classified as assets where their fair value is positive and liabilities
where their fair value is negative. Where there is the legal ability and
intention to settle net, then the derivative is classified as a net asset
or liability, as appropriate.
(b) Embedded derivatives
A number of complex contracts contain both a derivative and a
non-derivative component, in which case the derivative is termed an
embedded derivative. If the economic characteristics and risks of embedded
derivatives are not closely related to those of the host contract, and the
overall contract itself is not carried at fair value, the embedded
derivative is accounted for separately and reported at fair value with
gains and losses being recognised in the income and expenditure account.
(c) Hedge accounting
When transactions meet the criteria specified in IAS 39, the Group applies
fair value hedge accounting so that changes in the fair value of the
underlying asset or liability that are attributable to the hedge risk are
recorded in the income and expenditure account to offset the fair value
movement of the related derivative.
Page 30 of 34
To qualify for hedge accounting at inception the hedge relationship must
be clearly documented. At inception the derivative must be expected to be
highly effective in offsetting the hedged risk, and effectiveness must be
tested throughout the life of the hedge relationship.
The Group discontinues hedge accounting when:
i) it is evident from testing that a derivative is not, or has ceased to
be, highly effective as a hedge;
ii) the derivative expires, or is sold, terminated or exercised; or
iii) the underlying item matures or is sold or repaid.
The Group may also decide to cease hedge accounting even though the hedge
relationship continues to be highly effective by ceasing to designate the
financial instrument as a hedge.
If the derivative no longer meets the criteria for hedge accounting, the
cumulative fair value hedging adjustment is amortised over the period to
maturity of the previously designated hedge relationship using the
effective interest rate method. If the underlying item is sold or repaid,
the unamortised fair value adjustment is immediately reflected in the
income and expenditure account.
Employee benefits
(a) Pensions
The Group operates a number of pension arrangements. The majority of the
Group's employees are members of the Nationwide Pension Fund ('the Fund').
The Group also operates other arrangements for certain current and former
Directors and Officers and for one subsidiary undertaking.
All of the pension arrangements are defined benefit plans. A defined
benefit plan is one that defines the benefit an employee will receive on
retirement, depending on such factors as age, length of service and
salary.
The liability recognised in the balance sheet in respect of the defined
benefit pension plans is the present value of the defined benefit
obligation at the balance sheet date less the fair value of plan assets.
The defined benefit obligation is calculated by the independent actuary
using the projected unit credit method and assumptions agreed with the
Group. The present value of the defined benefit obligation is determined
by discounting the estimated future cash flows using interest rates of
high-quality corporate bonds that have terms to maturity approximating to
the terms of the related pension liability.
Actuarial gains and losses arise from experience adjustments (the effects
of differences between previous actuarial assumptions and what has
actually occurred) and changes in actuarial assumptions. Actuarial gains
and losses are recognised in full, in the year they occur, in the
statement of recognised income and expenditure.
Past-service costs are recognised immediately in the income and
expenditure account, unless the changes to the benefits are conditional on
the employees remaining in service for a specified period of time (the
vesting period). In this case, the past-service costs are amortised on a
straight-line basis over the vesting period.
(b) Other post-retirement obligations
The Group provides post-retirement healthcare to a small number of former
employees. The Group recognises the defined benefit obligation and the
actuarial gains and losses in a similar manner to the defined benefit
pension plans.
(c) Other long-term employee benefits
The cost of bonuses payable twelve months or more after the end of the
year in which they are earned are recognised immediately in the year in
which the employees render the related service.
Page 31 of 34
(d) Short-term employee benefits
The cost of short-term employee benefits, including wages and salaries,
social security costs and healthcare for current employees is recognised
in the year of service.
Long term life assurance
(a) Classification of contracts
The Group issues linked contracts that transfer both insurance risk and
financial risk, and term and annuity contracts that transfer insurance
risk. Contracts that contain significant insurance risk for the Group are
accounted for as insurance liabilities. Such contracts may also contain
financial risk. Contracts that do not contain significant insurance risk
are classified as investment contracts and are accounted for as financial
liabilities.
(b) Recognition and measurement of insurance liabilities
Premiums on term insurance contracts are recognised as revenue when they
become due for payment. Single premiums on linked contracts are
recognised as revenue when the policy comes into force. A liability for
contractual benefits that are expected to be incurred in the future is
recognised when the premiums are recognised. Benefits are accounted for
on maturity or when the insured event occurs. The increase or decrease in
the liability for contractual benefits and benefits paid are included in
other operating charges.
The liability for contractual benefits under term insurance contracts is
the discounted value of future benefit payments, allowing for assumptions
as to mortality, persistency, future premiums, maintenance expenses and
investment income. The liability for linked contracts is adjusted for the
changes in the fair value of the underlying assets.
The Group enters into reinsurance contracts in relation to some long term
insurance contracts. Insurance liabilities that are re-insured are
included gross with corresponding re-insurance assets included in other
assets.
A liability adequacy test is performed using current best estimates of
future contractual cash flows, claims handling and administrative expenses
and investment income from assets backing the liabilities. Any deficiency
is immediately charged to the income and expenditure account by
establishing a provision for losses arising from the liability adequacy
test.
(c) Embedded value and consolidation.
The embedded value method of accounting is used to measure the Group's
interest in the long term life assurance business. This represents the
present value of in-force business together with the net assets and the
surplus retained within the long term life assurance fund.
The value of in-force business is determined using assumed economic
parameters (future investment returns, expense inflation and risk discount
rate) and mortality, persistency and expense assumptions. The present
value of the in-force business is determined on a pre tax basis and is
included in Other Assets in the Balance Sheet with changes in the
valuation included in other operating income.
Other assets and liabilities relating to the life assurance business are
included in the appropriate categories in the group balance sheet.
Foreign currency translation
The consolidated financial statements are presented in Sterling, which is the
functional currency of the parent undertaking. Items included in the financial
statements of each of the Group's entities are measured using their functional
currency, being the currency of the primary economic environment in which the
entity operates.
Page 32 of 34
Foreign currency transactions are translated into the appropriate functional
currency using the exchange rates prevailing at the dates of the transactions.
Balances denominated in foreign currencies are retranslated at the rate
prevailing at the period end. Foreign exchange gains and losses resulting from
the retranslation and settlement of these items are recognised in the income and
expenditure account.
Non-monetary assets that are measured at fair value are translated using the
exchange rate at the date that the fair value was determined. Exchange
differences on equities and similar non-monetary items held at fair value
through the income and expenditure account, are reported as part of the fair
value gain or loss.
Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the
balance sheet if, and only if, there is a currently enforceable legal right to
set off the recognised amounts and there is an intention to settle on a net
basis, or to realise an asset and settle the liability simultaneously.
Sale and repurchase agreements (including stock borrowing and lending)
Investment and other securities may be lent or sold subject to a commitment to
repurchase them (a 'repo'). Such securities are retained on the balance sheet
when substantially all the risks and rewards of ownership remain within the
Group, and the counterparty liability is included separately on the balance
sheet as appropriate.
Similarly, where the Group borrows or purchases securities subject to a
commitment to resell them (a 'reverse repo') but does not acquire the risks and
rewards of ownership, the transactions are treated as collateralised loans, and
the securities are not included in the balance sheet.
The difference between sale and repurchase price is accrued over the life of the
agreements using the effective interest method.
Page 33 of 34
Contacts
Alan Oliver
Head of External Affairs
01793 655956
07850 810745 (mobile)
alanm.oliver@nationwide.co.uk
Jennifer Williams
Media Relations Manager
01793 655203
07715 546275 (mobile)
jennifer.williams@nationwide.co.uk
Nationwide Building Society
Nationwide House
Pipers Way
Swindon
SN38 1NW
www.nationwide.co.uk
Legal Information
These materials are not an offer of securities for sale in the United States.
Securities may not be offered or sold in the United States absent registration
or an exemption from registration. Any public offering to be made in the United
States will be made by the means of a prospectus that may be obtained from the
Society and will contain detailed information about the Society and management
as well as financial statements.
Page 34 of 34
This information is provided by RNS
The company news service from the London Stock Exchange
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