british american tobacco p.l.c. annual report 2008 - Financial review 5 of 5

ANNUAL REPORT 2009

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Accounting developments

The Group has prepared its annual consolidated financial statements in accordance with International Financial Reporting Standards (IFRS), as endorsed by the EU. Generally, the move to IFRS has made the reporting of performance more complex.

The disclosure of segmental information has been updated to meet the requirements of IFRS 8 on Operating Segments. This standard, which requires segmental reporting to be on the same basis as is used for internal management reporting to the chief operating decision maker, has not required any changes to the segments reported. However, it has resulted in certain changes to the disclosures.

The Group has also amended the format of its financial statements in accordance with IAS1 Revised (Presentation of Financial Statements) and Improvements to IFRSs (issued in May 2008). These amendments have required certain changes in the format of the financial statements and a reclassification of derivatives held for trading from current to non-current on the balance sheet. The effect at 31 December 2008 has been to increase non-current assets and decrease current assets by £3 million, while increasing non-current liabilities and decreasing current liabilities by £23 million.

Other changes in accounting requirements that were implemented but had limited or no material impact on the results, are the clarification of vesting conditions in respect of share-based payments, the capitalisation of borrowing costs for acquisitions, construction or longer-term projects and the additional disclosures regarding fair value measurements and liquidity risks.

During 2008, the Group amended its accounting policy in respect of the recognition of actuarial gains and losses under IAS 19 and adopted IFRIC 14.

The next few years are likely to see more changes in the financial statements given the aims of standard setters and regulators.

Going concern

Given the Group’s history of growth in profit from operations, the high cash conversion rate from profit into cash, the access to the £1.75 billion revolving credit facility which is used only as a back stop and the spread of banks providing the facilities, the Group remains confident in its ability to access the debt capital markets.

This, together with the maturity profile of debt, spread over a long period with only limited redemptions scheduled for 2010, provides confidence that the Group has sufficient working capital for the foreseeable future.

After reviewing the Group’s budget, plans and refinancing arrangements, the Directors consider that the Group has adequate resources to continue operating for the forseeable future. The financial statements have therefore been prepared on a going concern basis. See the Corporate governance statement for full details.

Foreign currencies

The results of overseas subsidiaries and associates have been translated to sterling at the following exchange rates in respect of principal currencies: