Annual Report for the year ended 31 December 2008

shareholding of more than one half of the voting rights. The existence and
effect of potential voting rights that are currently exercisable or convertible
are considered when assessing whether the Group controls another entity.
subsidiaries are fully consolidated from the date on which control is transferred
to the Group. They are deconsolidated from the date that control ceases.
All intra-Group transactions and balances are eliminated on consolidation
and consistent accounting policies are used throughout the Group for the
purposes of the consolidation.
Investments in fund entities
Where the Group is an investor and has at least significant influence over the
fund entities either through a majority investment or through its role as investment
manager, those fund entities are considered to be subsidiaries of the Group.
b) Transactions with minority interests
The Group applies a policy of treating transactions with minority interests as
transactions with parties external to the Group. Disposals to minority
interests result in gains and losses for the Group that are recorded in the
consolidated income statement. purchases from minority interests result in
goodwill, being the difference between any consideration paid and the
relevant share acquired of the carrying value of net assets of the subsidiary.
Business combinations
The purchase method of accounting is used to account for the acquisition
of subsidiaries as prescribed under iFrs 3, ‘Business combinations’.
The cost of an acquisition is measured at the fair value of the identifiable
assets given, equity instruments issued and liabilities or contingent liabilities
incurred or assumed at the date of exchange, together with any costs
directly related to the acquisition. The excess of the cost of an acquisition
over the Group’s share of the fair value of the identifiable assets, liabilities
and contingent liabilities acquired is recorded as goodwill. if the cost
of the acquisition is less than the fair value of the Group’s share of the
identifiable assets, liabilities and contingent liabilities of the subsidiary
acquired, the difference is recognised immediately in the consolidated
income statement as negative goodwill.
Income recognition
The Group follows the principles of iAs 18, ‘revenue recognition’, in
determining appropriate revenue recognition policies. in principle, therefore,
revenue is recognised to the extent that it is probable that the economic
benefits associated with the transaction will flow into the Group.
a) Fee and commission income
Fee and commission income includes transaction income, commission
income, trail commission, placing commission, retainer income, initial
commission and fees from asset management activities (including interest
income on private client assets), net of payaway to independent Financial
Advisers, introducers and self-employed half commission persons.
initial commissions received from clients are capitalised, when received, in
the Balance sheet, as deferred income. These amounts are amortised over
the average holding period of five years, the relevant period in which the
relationship between the commission earned (and paid away) and the assets
under management to which such commissions relate is believed to exist.
notes to tHe FinanCial statements CONTINuED
FOR THE YEAR ENDED 31 DECEMBER 2008
Fees and commissions are recognised in the income statement when the
related services are performed and all legal conditions have been satisfied,
and when considered recoverable.
b) Fee and commission expenses
Fee and commission expenses includes amounts paid to other third
parties in connection with corporate finance fee income such as introduction
fees. costs incurred in the normal course of executing commission
transactions across our exchanges and settling through recognised
networks are also included.
initial commissions paid to advisors are capitalised, when paid, in the
Balance sheet as an asset. These amounts are amortised over the average
holding period of five years, the relevant period in which the relationship
between the commission earned (and paid away) and the assets under
management to which such commissions relate is believed to exist. The
amortised amount appears within fee and commission expense.
c) Trading income
Trading income from market making and principal trading activities
comprises all gains and losses from changes in the fair value of financial
assets and liabilities held for trading, together with any related dividend
income on positions held. costs incurred in the normal course of executing
trading transactions across our exchanges and settling through recognised
networks are included within other administrative expenses.
Derivative contracts relating to equity options and warrants received in lieu
of corporate finance fees, which have been acquired at zero cost are initially
accounted and measured at fair value on the date a derivative contract is
entered into. This is included within trading income and subsequently measured
at fair value with the gain or loss on re-measurement taken to the
consolidated income statement within trading income.
d) Other income
other income includes fees for probate valuations and foreign exchange
gains and losses resulting from the re-translation and settlement of foreign
currency transactions and any dividend income on available-for-sale financial
assets. interest income on segregated client money accounts which relates
to evolution securities is included within this category.
Operating leases
rentals applicable to operating leases where substantially all the benefits
and risk of ownership remain with the lessor are charged to the income
statement on a straight line basis over the lease term.
lease incentives are credited to the consolidated income statement and
spread over the life of the lease.
Exceptional items
exceptional items are shown on the face of the consolidated income
statement of the Group. The Group presents them separately, in order to
simplify comparability between different financial periods. An exceptional
item is defined in terms of its size and/or nature. These do not arise from
normal trading operations and may not be individually significant in size
but in aggregate are worthy of separate disclosure.
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