1 Basis of preparation

Legal & General Group Plc, a public limited company incorporated and domiciled in the United Kingdom (UK), together with its subsidiaries, transacts life assurance and long-term savings business, fund management and most classes of general insurance and health business through its subsidiaries and associates in the UK, the United States and other countries throughout the world.

Significant accounting policies

The group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB) as adopted by the European Union (EU), and with those parts of the UK Companies Act 2006 applicable to companies reporting under IFRS. The group financial statements also comply with IFRS and interpretations by the IFRS Interpretations Committee as issued by the IASB as adopted by the EU. The group financial statements have been prepared under the historical cost convention, as modified by the revaluation of land and buildings, available-for-sale financial assets, and financial assets and financial liabilities (including derivative instruments) at fair value through profit and loss.

The group has selected accounting policies which state fairly its financial position, financial performance and cash flows for a reporting period. The accounting policies have been consistently applied to all years presented, unless otherwise stated. Accounting policies that relate specifically to a balance or transaction are presented above the relevant numerical disclosure.

The group presents its balance sheet in order of liquidity. This is considered to be more relevant than a before and after 12 months’ presentation, given the long term nature of the group’s core business. However, for each asset and liability line item which combines amounts expected to be recovered or settled before and after 12 months from the balance sheet date, disclosure of the split is made by way of a note.

Financial assets and financial liabilities are disclosed gross in the balance sheet unless a legally enforceable right of offset exists and there is an intention to settle recognised amounts on a net basis. Income and expenses are not offset in the income statement unless required or permitted by any accounting standard or IFRIC interpretation, as detailed in the applicable accounting policies of the group.

Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the date of the transactions. The functional currency of the group’s foreign operations is the currency of the primary economic environment in which the entity operates. The assets and liabilities of all of the group’s foreign operations are translated into sterling, the group’s presentation currency, at the closing rate at the date of the balance sheet. The income and expenses for each income statement are translated at average exchange rates. On consolidation, exchange differences arising from the translation of the net investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such investments, are taken to a separate component of shareholders’ equity.

Standards, interpretations and amendments to published standards that are not yet effective

Certain standards, amendments and interpretations to existing standards have been published which are mandatory for the group’s accounting periods beginning on or after 1 January 2015 or later periods but which the group has not adopted early. Details of these are contained within Note 13 (Financial investments and Investment property) and Note 23 (Investment contract liabilities).

Use of estimates

The preparation of the financial statements includes the use of estimates and assumptions which affect items reported in the consolidated balance sheet and income statement and the disclosure of contingent assets and liabilities at the date of the financial statements. Although these estimates are based on management’s best knowledge of current circumstances and future events and actions, actual results may differ from those estimates, possibly significantly. This is particularly relevant for the determination of fair values of investment property (Note 13) and unquoted and illiquid financial investments (Note 13(iv)); the estimation of deferred acquisition costs (Note 11); tax balances (Note 36); and the estimation of insurance and investment contract liabilities (Note 22 and Note 23). The basis of accounting for these areas, and the significant judgements used in determining them, are outlined in the respective notes to the financial statements.

Consolidation principles

Subsidiary undertakings

The consolidated financial statements incorporate the assets, liabilities, equity, revenues, expenses and cash flows of the Company and of its subsidiary undertakings drawn up to 31 December each year. All intra-group balances, transactions, income and expenses are eliminated in full. Subsidiaries are those entities (including special purpose entities, mutual funds and unit trusts) over which the group directly or indirectly (when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee) (Note 47). Profits or losses of subsidiary undertakings sold or acquired during the period are included in the consolidated results up to the date of disposal or from the date of gaining control. The interests of parties, other than the group, in investment vehicles, such as unit trusts, are classified as liabilities and appear as ‘Net asset value attributable to unit holders’ (Note 13(v)) in the Consolidated Balance Sheet.

Associates and joint ventures

The group has interests in associates and joint ventures (Note 48) which form part of an investment portfolio held through private equity partnerships, mutual funds, unit trusts and similar entities. In accordance with the choice permitted by IAS 28, ‘Investments in associates’, these interests have been classified as fair value through profit or loss and measured at fair value within financial investments, with changes in fair value recognised in the Consolidated Income Statement.

Associates which do not form part of an investment portfolio are initially recognised in the Consolidated Balance Sheet at cost. The carrying amount of the associate is increased or decreased to reflect the group’s share of the profit or loss after the date of the acquisition.

Product classification

The group’s products are classified for accounting purposes as either insurance contracts (participating and non-participating) or investment contracts (participating and non-participating). The basis of accounting for these products is outlined in Note 22 and Note 23 respectively.

Fiduciary activities

Assets associated with fiduciary activities and the income arising from those assets, together with associated commitments to return such assets to customers, are not included in these consolidated financial statements. Where the group acts in a fiduciary capacity, for instance as a trustee or agent, it has no contractual rights over the assets concerned.

Foreign exchange and exchange rates

Foreign exchange gains and losses are recognised in the Consolidated Income Statement, except when recognised in equity as qualifying cash flow or net investment hedges.

The year end exchange rates at 31 December 2014 were 1.56 United States Dollar and 1.29 Euro (at 31 December 2013: 1.66 United States Dollar and 1.20 Euro).

The average exchange rates for year ended 31 December 2014 were 1.65 United States Dollar and 1.24 Euro (year ended 31 December 2013: 1.57 United States Dollar and 1.18 Euro).

Changes to accounting policy – IASB consolidation project

On 1 January 2014 the application of IFRS 10, ‘Consolidated Financial Statements’, IFRS 11, ‘Joint Arrangements’ and IFRS 12, ‘Disclosures of Interests in Other Entities’ became compulsory for entities reporting in the EU.

IFRS 10, ‘Consolidated Financial Statements’ defines the principle of control and establishes control as the basis for determining which entities are consolidated in the consolidated financial statements. This states that an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The application of IFRS 10 has resulted in the group consolidating a small number of investment vehicles which were not previously consolidated. There is no material impact on the profit reported for the year ended 31 December 2013. The effect on profit, total equity and cash flow previously reported at 31 December 2013 is shown below. A statement of consolidated financial position as at 31 December 2012 has not been presented as the effect is not material. The prior period information in Note 13, Note 15Note 16, Note 26, Note 28, Note 33 and Note 42 has been restated to reflect the adoption by the group of IFRS 10, ‘Consolidated Financial Statements’.

IFRS 11, ‘Joint Arrangements’ defines and establishes accounting principles for joint arrangements. Based on how rights and obligations are shared by parties to the arrangements, it distinguishes between two such types: joint ventures and joint operations. As all of our joint arrangements are classified as joint ventures the adoption of this Standard has no impact upon the group.

IFRS 12, ‘Disclosures of Interests in Other Entities’ requires an entity to disclose information that enables users of its financial statements to evaluate the nature of, and risks associated with, its interests in other entities, and the effects of those interests on its financial position, financial performance and cash flows. As a result we have enhanced the disclosures we provide around our interests in subsidiaries (Note 47), associates and joint ventures (Note 48), together with providing additional information on structured entities (Note 49) which we do not consolidate.

Consolidated Income Statement

As previously reported

IFRS 10 Impact


Investment return




Finance costs




Profit for the period








Attributable to:




Non-controlling interests




Equity holders of the Company







Consolidated Balance Sheet





Investment property




Financial investments




Other assets




Cash and cash equivalents












Non-controlling interests












Operational borrowings




Payables and other financial liabilities




Other liabilities




Net asset value attributable to unit holders








Consolidated Cash Flow Statement

Net cash flows from operating activites




Cash and cash equivalents at 1 January




Cash and cash equivalents at 31 December