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Rothschild & Co | Annual Report 2017
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1. Overview
4. Financial statements
3.
Management report
2. Business review
III Accounting policies
A. Consolidation method
1 Financial year end of the consolidated companies
As explained in Section I. Highlights, the Company’s accounting period being reported on is for the nine months to 31 December 2017, following the change
announced on 21 March 2017. The next full accounting period will be for the year to 31 December 2018, with interim financial statements being prepared
as at 30 June 2018 for the six-month period.
For this reporting period, the financial statements of the Group are drawn up to 31 December 2017 and consolidate the financial statements of the
Company and its subsidiary undertakings. At each closing date, the Group draws conclusions from past experience and all relevant factors relating to
its business.
R&Co and the majority of its subsidiaries are now consolidated on the basis of a financial reporting date as of 31 December 2017. A few entities report on
the basis of a different financial reporting date. If a material subsequent event occurs between the closing date of these subsidiaries and 31 December
2017, this event is accounted for in the consolidated financial statements of the Group as at 31 December 2017.
2 Subsidiaries
Subsidiaries are all entities which are controlled by the Group. The Group controls an entity if it is exposed to, or has rights to, variable returns from its
involvement with the entity and has the ability to affect those returns through its power over the entity.
In assessing control, potential voting rights that are currently exercisable or convertible are taken into account. Subsidiaries are fully consolidated from
the date on which the Group acquires control and cease to be consolidated from the date that control ceases.
3 Associates and joint arrangements
Associates are companies over whose financial and operational decisions the Group exercises significant influence but not control (this is generally
demonstrated when the percentage of voting rights is equal to or greater than 20% but less than or equal to 50%).
Joint arrangements are where two or more parties, through a contractual arrangement, have joint control over the assets and liabilities of an arrangement.
Depending on what those rights and obligations are, the joint arrangement will either be a joint operation (where the parties subject to the arrangement
have rights to the assets and obligations for the liabilities of the arrangement) or a joint venture (where the parties subject to the arrangement have rights
to the net assets of the arrangement).
The Group’s investments in associated undertakings are initially recorded at cost. Subsequently they are increased or decreased by the Group’s share
of the post-acquisition profit or loss, or by other movements reflected directly in the equity of the associated undertaking. Positive goodwill arising on the
acquisition of an associated undertaking is included in the cost of the investment (net of any accumulated impairment loss).
4 Business combinations and goodwill
Business combinations are accounted for using the acquisition method stipulated by IFRS 3 Business Combinations. Thus, upon initial consolidation of a
newly acquired company, the identifiable assets acquired, liabilities assumed and any contingent liabilities of the acquired entity are measured at fair value
in accordance with the provisions of IFRS. The costs directly attributable to business combinations are recognised in the income statement for the period.
Contingent cash consideration is normally included in the acquisition cost at its fair value on the acquisition date, even if its payment is not certain. It is
recognised as a liability in the balance sheet; any subsequent adjustments to its value are booked in the income statement in accordance with IAS 39.
However, sometimes arrangements are made in which contingent payments to acquire a company are made to a vendor who is an employee, and these
can be forfeited if the employee leaves voluntarily. In this case, these contingent payments are not considered as part of the acquisition cost. Instead,
these payments are accounted for as a post-purchase staff expense.
Goodwill in an associate or subsidiary represents the excess, at the date of acquisition, of an acquisition’s cost over the fair value of the Group’s share of
net identifiable assets acquired. Identifiable intangible assets are those which can be sold separately or which arise from legal rights, regardless of whether
those rights are separate. If the fair value exceeds the cost, the difference (“negative goodwill”) is immediately recognised in the income statement. All
necessary valuations of assets and liabilities must be carried out within 12 months of the date of acquisition, as must any corrections to the value based
on new information.
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is not amortised, but is tested annually for impairment, or more frequently
when circumstances indicate that its carrying amount is too high. Goodwill is allocated to cash-generating units for the purposes of impairment testing.
If the value of each of the cash-generating units is insufficient to support its carrying value, then the goodwill is impaired. Impairment losses on goodwill
are recognised in the income statement and are not reversed.
As explained in note 10 on goodwill, the goodwill allocated to cash-generating units has been reallocated to units that correspond to the revised segmental
analysis (see note 34), presented for the first time during the nine-month period ended 31 December 2017.
Results from subsidiaries acquired during the financial year are included from their acquisition dates and income from subsidiaries sold is included up to
their disposal dates.
Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.