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Rothschild & Co | Annual Report 2017
5 Non-controlling interests
For all business combinations, the Group assesses non-controlling interests as either:
• based on its share of the fair value of the identifiable assets and liabilities at the date of the acquisition, without recognising the goodwill for non-
controlling interests (partial goodwill method); or
• at fair value at the date of acquisition. Consequently the recognition of the goodwill is allocated to Group share and to non-controlling interests (full
goodwill method).
On the date of acquisition of an entity, any stake in this entity already held by the Group is revalued at fair value through profit or loss because taking
control is accounted for as a sale and repurchase of the shares previously held.
In the event of an increase in the Group’s stake in entities over which it already exercises control, the difference between the price paid for the additional
stake and the fair value of the share of net assets acquired at this date is booked in the Group’s reserves as a reallocation from non-controlling interests to
other equity. In the same way, any reduction in the Group’s stake in an entity which it continues to control is accounted for as an equity transaction between
shareholders. At the date when the Group loses control of a consolidated subsidiary, any investment retained in the former subsidiary is revalued at fair
value through the income statement.
6 Contracts to purchase non-controlled shares in subsidiaries
Where non-controlling shareholders have a contract to sell their equity interests in a subsidiary to the Group, the Group applies the anticipated-acquisition
method of accounting for the unowned interests. This means that the contract is accounted for as if the non-controlling shareholders had sold their shares
to the Group, even though legally they are still NCI. This happens regardless of how the exercise price is determined (e.g. fixed or variable) and how likely it
is that the contract will be exercised.
B. Accounting principles and valuation methods
1 Accounting judgements and estimates
The preparation of financial statements in accordance with IFRS requires the use of certain critical accounting estimates. It also requires management to
exercise judgement in applying the accounting policies. The key areas involving a higher degree of judgement or complexity, or areas where assumptions
are significant to the accounts, include:
VALUATION OF FINANCIAL ASSETS AND LIABILITIES
Fair value is the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants.
The fair value used to measure a financial instrument is, where available, the listed price when the financial instrument is listed on an active market. In the
absence of an active market, fair value is determined using measurement techniques.
A description of the valuation techniques used, analysis of assets and liabilities carried at fair value by valuation hierarchy, and a sensitivity analysis of
valuations not primarily based on observable market data is provided in section IV.E of the financial statements.
IMPAIRMENT OF FINANCIAL ASSETS AT AMORTISED COST
Financial assets are assessed at each balance sheet date to determine whether there is objective evidence that a financial asset or group of financial
assets is impaired as a result of one or more events occurring after initial recognition of the asset (a “loss event”). If there is such objective evidence, and
this has a negative effect on the estimated future cash flows from the asset, then an impairment loss is incurred. Management determines the size of the
impairment allowance required using a range of factors such as the realisable value of any collateral, the likely recovery on liquidation or bankruptcy, the
viability of the customer’s business model and their capacity to trade successfully out of financial difficulties and generate sufficient cash flow to service
debt obligations.
Portfolios of financial assets with similar economic characteristics where there is objective evidence to suggest that they contain impaired assets, but the
individually impaired items cannot yet be identified, are collectively assessed for impairment. The collectively assessed impairment allowance is calculated
on the basis of future cash flows that are estimated based on historical loss experience.
The accuracy of the allowances made depends on how accurately the Group estimates future cash flows for specific counterparties, in particular the fair
value of any collateral, and the model assumptions and parameters used in determining collective allowances. While this necessarily involves judgement,
the Group believes that its allowances are reasonable and supportable.
PENSIONS
The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method and the principal assumptions used
are set out in note 19. The assumptions that have the greatest impact on the measurement of the pension fund liability, along with their sensitivities, are
also set out in note 19.
Notes to the consolidated financial statements