BP (BP)

Accounting policy changes in 2004

        From January 1, 2004, BP changed its accounting policies for pensions and other postretirement benefits. In addition, BP also changed its accounting policy for shares held in employee share ownership plans for the benefit of employee share schemes.

        With effect from January 1, 2004, BP has adopted a new UK accounting standard: Financial Reporting Standard No. 17 'Retirement Benefits' (FRS 17). FRS 17 requires that the assets and liabilities arising from an employer's retirement benefit obligations and any related funding should be included in the financial statements at fair value and that the operating costs of providing retirement benefits to employees should be recognized in the income statement in the periods in which the benefits are earned by employees. This contrasts with SSAP 24, which requires the cost of providing pensions to be recognized on a systematic and rational basis over the period during which the employer benefits from the employee's services. The difference between the amount charged in the income statement and the amount paid as contributions into the pension fund is shown as a prepayment or provision on the balance sheet.

        Urgent Issues Task Force Abstract No. 38 'Accounting for Employee Share Ownership Plan (ESOP) Trusts' (Abstract No. 38) changes the presentation of an entity's own shares held in an ESOP trust from requiring them to be recognized as assets to requiring them to be deducted in arriving at shareholders' funds. Transactions in an entity's own shares by an ESOP trust are similarly recorded as changes in shareholders' funds and do not give rise to gains or losses. This treatment is in line with the accounting for purchases and sales of own shares set out in Urgent Issues Task Force Abstract No. 37 'Purchases and Sales of Own Shares' (Abstract 37).

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        Abstract No. 37 requires a holding of an entity's own shares to be accounted for as a deduction in arriving at shareholders' funds, rather than being recorded as assets. Transactions in an entity's own shares are similarly recorded as changes in shareholders' funds and do not give rise to gains or losses. Abstract No. 37 applies where a company purchases treasury shares under new legislation that came into effect in December 2003.

        Urgent Issues Task Force Abstract No. 17 'Employee share schemes' (Abstract 17) was amended by Abstract No. 38 to reflect the consequences for the profit and loss account of the changes in the presentation of an entity's own shares held by an ESOP trust. Amended Abstract No. 17 requires that the minimum expense should be the difference between the fair value of the shares at the date of award and the amount that an employee may be required to pay for the shares (i.e. the 'intrinsic value' of the award). The expense was previously determined either as the intrinsic value or, where purchases of shares had been made by an ESOP trust at fair value, by reference to the cost or book value of shares that were available for the award.

        These changes in accounting policy have resulted in a prior year adjustment. BP shareholders' interest at January 1, 2002 has been reduced by $150 million, profit for the year ended December 31, 2002 decreased by $50 million and profit for the year ended December 31, 2003 increased by $215 million.

Accounting policy changes in 2004

        From January 1, 2004, BP changed its accounting policies for pensions and other postretirement benefits. In addition, BP also changed its accounting policy for shares held in employee share ownership plans for the benefit of employee share schemes.

        With effect from January 1, 2004, BP has adopted a new UK accounting standard: Financial Reporting Standard No. 17 'Retirement Benefits' (FRS 17). FRS 17 requires that the assets and liabilities arising from an employer's retirement benefit obligations and any related funding should be included in the financial statements at fair value and that the operating costs of providing retirement benefits to employees should be recognized in the income statement in the periods in which the benefits are earned by employees. This contrasts with SSAP 24, which requires the cost of providing pensions to be recognized on a systematic and rational basis over the period during which the employer benefits from the employee's services. The difference between the amount charged in the income statement and the amount paid as contributions into the pension fund is shown as a prepayment or provision on the balance sheet.

        Urgent Issues Task Force Abstract No. 38 'Accounting for Employee Share Ownership Plan (ESOP) Trusts' (Abstract No. 38) changes the presentation of an entity's own shares held in an ESOP trust from requiring them to be recognized as assets to requiring them to be deducted in arriving at shareholders' funds. Transactions in an entity's own shares by an ESOP trust are similarly recorded as changes in shareholders' funds and do not give rise to gains or losses. This treatment is in line with the accounting for purchases and sales of own shares set out in Urgent Issues Task Force Abstract No. 37 'Purchases and Sales of Own Shares' (Abstract 37).

100

        Abstract No. 37 requires a holding of an entity's own shares to be accounted for as a deduction in arriving at shareholders' funds, rather than being recorded as assets. Transactions in an entity's own shares are similarly recorded as changes in shareholders' funds and do not give rise to gains or losses. Abstract No. 37 applies where a company purchases treasury shares under new legislation that came into effect in December 2003.

        Urgent Issues Task Force Abstract No. 17 'Employee share schemes' (Abstract 17) was amended by Abstract No. 38 to reflect the consequences for the profit and loss account of the changes in the presentation of an entity's own shares held by an ESOP trust. Amended Abstract No. 17 requires that the minimum expense should be the difference between the fair value of the shares at the date of award and the amount that an employee may be required to pay for the shares (i.e. the 'intrinsic value' of the award). The expense was previously determined either as the intrinsic value or, where purchases of shares had been made by an ESOP trust at fair value, by reference to the cost or book value of shares that were available for the award.

        These changes in accounting policy have resulted in a prior year adjustment. BP shareholders' interest at January 1, 2002 has been reduced by $150 million, profit for the year ended December 31, 2002 decreased by $50 million and profit for the year ended December 31, 2003 increased by $215 million.