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Rothschild & Co | Annual Report 2017
– Operating leases
Assets acquired for use by customers under operating lease agreements, including initial direct costs incurred by the lessor in negotiating an operating
lease, are capitalised in the relevant category of fixed assets. Depreciation is charged on a straight-line basis to write down the value of the asset to the
expected residual value over a period consistent with other assets of a similar type.
Operating lease income and the initial direct costs are then recognised in other operating income on a straight-line basis over the period of the lease.
WHERE THE GROUP IS THE LESSEE
The Group has entered into operating leases. The total payments made under those operating leases are charged to the income statement as operating
expenses. Commitments arising from operating leases are separately disclosed.
16 Carried interest
The Group is entitled to receive carried interest in relation to certain of the private equity and private debt funds that it manages. Carried interest receivable is
accrued if the performance conditions associated with earning it would be achieved, on the assumption that the remaining assets in the fund were realised
at the balance sheet date at fair value. Fair value is determined using the valuation methodology applied by the Group in its role as manager to its funds and
is measured at the balance sheet date. An accrual is made equal to the Group’s share of profits in excess of the performance conditions, taking into account
any cash already paid to the fund’s investors and the fair value of assets remaining in the fund.
Certain employees may also hold classes of share capital which give them a right to receive carried interest from investments managed by the Group. Where
such carry shares held by staff are in an investment vehicle which is not consolidated, the interests of the staff are reflected in a reduced investment return of
the Group’s own interests. Where the carry shares held by staff are in a vehicle which is consolidated, the interests of the staff are treated as non-controlling
interests of the Group. The valuation of the interests held by staff is calculated at the balance sheet date using the same method as the valuation of the
Group’s interests, as described above.
17 Long-term incentive schemes
LONG-TERM PROFIT SHARE SCHEMES
The Group operates long-term profit share schemes for the benefit of employees. The costs of such schemes are recognised in the income statement over
the period in which the services are rendered that give rise to the obligation. Where the payment of profit share is deferred until the end of a specified
vesting period, the deferred amount is recognised in the income statement over the period up to the date of vesting.
SHARE-BASED PAYMENTS
The Group has issued share options which are treated as equity-settled share-based payments. These are valued at the date they are granted to employees
and that value is recognised in staff costs over the vesting period, with a corresponding adjustment to shareholders’ equity. The fair value is calculated on
the basis of the overall plan value at the date of grant. In the absence of any market for stock options, models are used to value the share-based payments.
The only assumptions revised after the initial measurement, and hence resulting in a revaluation of the expense, are those relating to the probability that
employees will leave the Group.
18 Pensions
The Group operates a number of pension and other post-retirement benefit schemes, both funded and unfunded, and of the defined benefit and defined
contribution types.
For defined contribution schemes, the contribution payable in respect of the accounting period is recognised in the income statement.
Remeasurement gains and losses for defined benefit schemes are recognised outside the income statement and are presented in the statement of
comprehensive income.
The amount recognised in the balance sheet in respect of defined benefit schemes is the difference between the present value of the defined benefit
obligation at the balance sheet date and the fair value of the plan’s assets. Independent actuaries calculate the defined benefit obligation annually using
the projected unit credit method. The obligations’ present values are determined by discounting the estimated future cash outflows using interest rates of
high-quality corporate bonds that are denominated in the currencies in which the benefits will be paid and that have terms to maturity approximating to the
terms of the related pension liability.
19 Taxation
Tax payable on profits and deferred tax are recognised in the income statement, except to the extent that they relate to gains and losses that are
recognised in equity.
Deferred tax is provided in full, using the balance sheet liability method, on temporary differences arising between the tax bases of assets and liabilities
and their carrying amounts. Deferred tax is determined using tax rates and laws that are expected to apply when a deferred tax asset is realised, or the
deferred tax liability is settled.
Notes to the consolidated financial statements