Notes 1. Basis of preparation The condensed consolidated financial statements should be read in conjunction with RBS’s 2016 Annual Report and Accounts which was prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and interpretations issued by the IFRS Interpretations Committee of the IASB as adopted by the European Union (EU) (together IFRS). Accounting policies RBS’s principal accounting policies are set out on pages 297 to 306 of the 2016 Annual Report and Accounts. Amendments to IFRSs effective for 2016 have not had a material effect on RBS’s 2016 results. IFRS 9, Financial Instruments, becomes effective from 1 January 2018. Pages 308 to 313 of the Annual Report and Accounts sets out the expected qualitative affects on RBS. Critical accounting policies and key sources of estimation uncertainty The judgements and assumptions that are considered to be the most important to the portrayal of RBS’s financial condition are those relating to pensions, goodwill, provisions for liabilities, deferred tax, loan impairment provisions and fair value of financial instruments. These critical accounting policies and judgements are described on pages 306 to 308 of RBS’s 2016 Annual Report and Accounts. Going concern Having reviewed RBS’s forecasts, projections and other relevant evidence, the directors have a reasonable expectation that RBS will continue in operational existence for the foreseeable future. Accordingly, the results for the period ended 31 December 2016 have been prepared on a going concern basis. 2. Pensions As at 31 December 2016, the Main scheme had an unrecognised surplus under IAS 19 valuation principles. The surplus is unrecognised because the trustee’s power to enhance member benefits could consume that surplus meaning that RBS does not control its ability to realise an asset. The existence of the asset, albeit unrecognised, limits RBS’s exposure to changes in actuarial assumptions and investment performance. See Note 4 on the 2016 Annual Report and Accounts for further details. 55 RBS – Annual results 2016