ihg洲际酒店集团财务手册.doc

CORPORATE FINANCE MANUAL

This updated manual focuses on the IFRS accounting policies relevant to IHG. Guidance and interpretation is also provided on the key policies.

US GAAP is not covered as the technical US GAAP issues are all dealt with by the Controller’s Group.

Section
Contents

1
General

2
Updates and resolving queries

3
Accounting policies

4
Policy application

Section
Description
Page

1
general
5

2
updates and resolving queries
7

Section
Description
Page

3.1
basis of accounting
10
3.2
consolidation
11
3.2.1
subsidiary undertakings
11
3.2.2
minority interest
12
3.2.3
associates and joint ventures
13
3.2.4
off balance sheet items
14
3.2.5
acquisition of subsidiary undertakings
14
3.2.6
disposals of subsidiary undertakings
15
3.2.7
translation of overseas subsidiaries
15
3.2.8
consolidation adjustments
16
3.3
foreign currencies
17
3.4
prior period adjustments
18
3.5
post balance sheet events
19
3.6
tangible fixed assets
20
3.6.1
tangible fixed assets
20
3.6.2
capital expenditure and initial measurement
21
3.6.3
capitalisation of own labour
22
3.6.4
depreciation
22
3.6.5
disposal / sale of fixed assets
23
3.6.6
licences
24
3.6.7
impairment reviews
24
3.7
intangible assets
25
3.7.1
software costs
25
3.7.2
research and development
26
3.7.3
inducement payments
26
3.7.4
management contracts
27
3.8
associates, joint ventures and other equity investments
28
3.8.1
fixed asset investments
28
3.8.2
associates and joint ventures
28
3.8.3
other equity investments
29
3.9
other non-current financial assets
30
3.10
inventory
31
3.11
cash and cash equivalents
32
3.11.1
cash equivalents
32
3.12
provisions for liabilities
33
3.13
contingencies
34
3.14
revenue recognition
35
3.15
revenue expenditure
36
3.15.1
research and development
36
3.15.2
repairs and maintenance
36
3.15.3
advertising, sponsorship and promotions
37
3.15.4
pre-opening expense
37
3.16
pensions, holiday pay and employee benefits
38
3.16.1
defined benefit pension scheme costs
38
3.16.2
defined contribution pension scheme costs
38
3.16.3
Holiday / vacation pay / long term service awards
38
3.16.4
Severance / termination / redundancy payments
39
3.17
share based payments
40
3.18
leases
41
3.18.1
finance leases
41
3.17.2
operating leases
41
3.18.3
other lease issues
41
3.19
segmental reporting
42
3.20
assets held for sale and discontinued operations
44
3.20.1
assets held for sale
44
3.20.2
discontinued operations
44

Section
Description
Page

4.1
identification of subsidiaries
46
4.1.1
principles and definitions
46
4.2
acquisitions and disposals
47
4.2.1
principles and definitions
47
4.2.2
acquisitions
48
4.2.3
disposals
53
4.2.4
key information to be gathered and retained
53
4.3
foreign currencies
57
4.3.1
principles and definitions
57
4.3.2
approach to foreign currency translation
58
4.4
tangible fixed assets
59
4.4.1
principles and definitions
59
4.4.2
carrying value
59
4.4.3
categorisation of tangible fixed assets
60
4.4.4
properties
61
4.4.5
fixtures, fittings and equipment
62
4.4.6
payments on account and assets in the course of construction
62
4.5
capital and revenue expenditure
63
4.5.1
principles and definitions
63
4.5.2
initial measurement
64
4.5.3
capital retirements
65
4.6
depreciation
66
4.6.1
principles and definitions
66
4.6.2
timing of depreciation and depreciation base
66
4.6.3
accelerated depreciation
67
4.6.4
depreciation rates
68
4.6.5
standard depreciation assumptions
70
4.6.6
illustration of assets and asset components
71
4.7
sales / disposals of fixed assets
75
4.7.1
principles and definitions
75
4.7.2
disclosure
76
4.7.3
accounting treatment
76
4.8
impairment of fixed assets and goodwill
77
4.8.1
overview
77
4.8.2
key concepts
77
4.8.3
impairment review
79
4.8.4
allocation of impairment losses
80
4.8.5
subsequent monitoring of cash flows
80
4.9
associates, joint ventures and other equity investments
81
4.9.1
principles and definitions
81
4.9.2
consolidated accounts
83
4.9.3
checklist for qualification of an investment as an associate
84
4.9.4
disclosure required in consolidated financial statements
85
4.10
non-current financial assets
86
4.10.1
principles and definitions
86
4.10.2
accounting
86
4.11
provisions for liabilities and charges
87
4.11.1
definition
87
4.11.2
recognition of provision
87
4.11.3
measurement of provision
87
4.11.4
future operating losses
88
4.11.5
onerous contracts
88
4.11.6
restructuring costs
88
4.11.7
disclosures
89
4.12
contingencies
90
4.12.1
principles and definitions
90
4.12.2
normal uncertainties
90
4.12.3
contingent assets
91
4.12.4
identification of contingent liabilities
91
4.12.5
accounting treatment of contingent liabilities
92
4.13
revenue recognition
93
4.13.1
principles and definitions
93
4.13.2
treatment of franchise fees
93
4.13.3
treatment of management fees
94
4.13.4
technical service fees
94
4.13.5
supplier incentives and rebates
95
4.14
pension costs
96
4.14.1
principles and definitions
96
4.14.2
group income statement
97
4.14.3
balance sheet accounts
97
4.14.4
disposal of a subsidiary
98
4.14.5
acquisition of a subsidiary
98
4.15
leases
99
4.15.1
principles and definitions
99
4.15.2
accounting for finance leases
100
4.15.3
operating leases
102
4.15.4
sale and leaseback transactions
102
4.15.5
lease incentives
103
4.15.6
other lease issues
103
1.0 General

A. Context
The system of financial reporting within IHG is designed to ensure that the Group publishes accounting information in the public domain which is consistent and complies with best accounting practice. In order to achieve these objectives Group accounting polices and procedures are established which should be consistently applied throughout the Group for the purposes of Group reporting. These policies and procedures should also be applied to individual entity's financial statements unless to do so would contravene local legislation or standards.

The preparation of accounting information for release into the public domain is ultimately the responsibility of the IHG PLC directors. It is their responsibility to review this information and to ensure that the financial statements give a true and fair view of the company and comply with appropriate legislation. Quality control for accounting information is effectively achieved by the main board delegating the responsibility for preparing the underlying financial statements to the Finance Director. Ultimately it is the Board which must ensure that appropriate control procedures are adopted in order to achieve the group objectives.

Information contained in this Manual is strictly confidential and for use only by IHG Group personnel and the Group's professional advisers. It is not to be distributed or otherwise published outside the Group. Any external advisers using the manual are not permitted to copy any material or to remove the Manual from the premises.

B. Control

Control is exercised at three levels, namely:

1. Controllers Group (Global)
2. Regional and Functional Finance Director (divisional level)
3. Business Service Centres (global and divisional)
4. Project management

At the corporate level, information supplied by divisions is consolidated into a Group total and reviewed for compliance against published reporting standards. At the divisional level control is exercised by monitoring performance against specific operating targets. The BSCs are responsible for transaction processing.

C. Structure

Financial control and reporting recognises two related structures within the Group - the management structure and the legal structure.

The management structure is based on the Group's operating divisions plus those companies not falling naturally within a division. It links to the segments used for external reporting.

The legal structure represents the legally recognised entities (companies and branches) which comprise the total Group. For the sake of convenience, financial reporting is concentrated into certain reporting units (components) though still greater in number than divisions.

2.0 Updates and resolving queries

To: See Distribution
From: Ralph Wheeler
Ref:
Date:
Cc:
Page: 1 of 3

PROCEDURES FOR ESTABLISHING/AMENDING ACCOUNTING POLICIES

Decision Rights

Decision Rights for establishing and amending accounting policies resides with the Controller.

What is in scope?

All accounting policies and interpretations.

At a high level, Policies include all the accounting policies followed in the preparation of the Group Financial statements (IFRS and US GAAP). At a more detailed level the Controller responsibility extends to all interpretations of Group policies for specific local/regional application.

‘Interpretation’ includes, as required, establishing the accounting for specific transactions or types of transaction to enable a consistent global approach to be followed within the boundaries of Group policies.

What is not in scope?

In some circumstances local GAAP or statutory requirements will necessitate variations to Group policies. In these instances, those responsible for the preparation of local accounts should agree an interpretation with the local auditors and ensure a consistent regional application. The Controller Group should be advised of all material deviations and can be involved in local discussions if technical support is required.

This document deals only with accounting policies and interpretations and not with issues related to Delegation of Authority, Chart of Accounts or Standard Reporting.

Procedures

i) New policies required because of changes in GAAP

The need for new policies will generally arise because of changes to the statutory environment in which the Group operates. In most cases the need for a new policy will be driven by the introduction of new Accounting Standards in the UK.

Within three months of the issue of a new Standard, the Controller Group will summarise the key points of the Standard and issue this summary, together with a timetable for establishing a new policy, to the Regional Finance Directors and the BSC Global Process Owners.

When possible, the timetable will target finalisation of the new policy at least three months ahead of implementation date to ensure that systems changes and impact can be properly assessed. For Standards with accelerated implementation dates this may not be possible.

The process will include interpretation of the Standard, Industry view, Technical view, Auditor input, assessment of impact, policy recommendation, Business Unit and BSC input.

The final policy will be drafted by the Controller Group and circulated to the Regional Finance Directors and BSC Global Process Owners for comment, prior to finalisation and submission to the Executive Committee, if appropriate.

ii) New policies required because of changes in the business operating environment; and
iii) Amendments to existing policies and interpretations

In most cases, requests for amendments will come from the Regions or Global Functions in conjunction with the BSC, in light of experience of the application of existing policies or changes in business processes. BSC requests must be in a globally agreed format before submission.

All requests for amendments must be sent to the Controller indicating:

· reason for change
· financial impact of change
· requested timetable for implementation
· potential impact on CoA, RCoA and Standard Reports
· potential impact on other policies (non-accounting policies)
· requesting Business Unit/BSC sign off
· SVP Global BSC sign off if the request is driven from the BSC

Within 2 weeks of receipt of a request for change, the Controller will assess whether the change requested appears acceptable under relevant GAAP – if not, then the request will be denied. If compliance is not an issue, the Controller will send the request to the Regional and Functional Heads of Finance, the BSC Global Process Owners and the SVP Global Business Service Centres (and tax if appropriate) for comment within 3 weeks.

Once all comments are received the Controller Group will summarise the responses and report to the originator any questions raised.

Following receipt of clarification from the originator, the Controller will decide on approval/non-approval.

Notification of changes

Once approved the Controller Group will issue formal notification to the Executive Committee, if appropriate, Business Unit Finance Heads and the BSC Global Process Owners, who will then distribute as appropriate

All changes will be included in the next update version of the relevant accounting manual.

3.1 Basis of accounting

A. Definition
The basis of accounting is the convention under which the Groups financial statements are expressed. The Group financial statements are prepared on a historic cost basis, except for certain items of property plant and equipment which are held at revalued amounts under the transitional rules of IFRS 1, and derivative financial instruments and available-for-sale financial assets that are measured at fair value. The consolidated financial statements are presented in sterling and all values are rounded to the nearest thousand (£000) except when otherwise indicated.
B. Group policy
The Group’s consolidated accounts are prepared on the basis of applicable IFRS, including all International Accounting Standards (IAS), Standing Interpretations Committee (SIC) and International Financial Reporting Interpretations Committee (IFRIC) interpretations issued by the International Accounting Standards Board (IASB) as published.
In 2005 IFRS 1, first-time Adoption of International Financial Reporting Standards, was applied in preparing the financial statements. The Group adopted the following exemptions available under IFRS 1:
a) Not to restate the comparative information disclosed in the 2005 financial statements in accordance with IAS 32 ‘Financial Instruments: Disclosure and Presentation’ and IAS 39 ‘Financial Instruments: Recognition and Measurement’.
b) Not to restate business combinations before 1 January 2004.
c) To recognise all actuarial gains and losses on pensions and other post-retirement benefits directly in shareholders’ equity at 1 January 2004.
d) To retain UK GAAP carrying values of property plant and equipment, including revaluations, as deemed cost at transition.
e) Not to recognise separately cumulative foreign exchange movements u