directors report and accounts 2006 - Changes in accounting policies


 Changes in accounting policies

In December 2005, the International Accounting Standards Board issued an amendment to IAS21 on foreign exchange rates. The amendment to IAS21 allowed inter company balances that form part of a reporting entity’s net investment in a foreign operation to be denominated in a currency other than the functional currency of either the ultimate parent or the foreign operation itself. This means that certain exchange differences previously taken to the income statement are instead reflected directly in changes in total equity. However, as this amendment was only adopted by the EU in 2006, the interim report to 30 June 2006 contained the first published results to reflect this change. The previously published results have been restated accordingly, which has resulted in an increase in net finance costs of £4 million for the year ended 31 December 2005.

While this amendment was not applicable for Group reporting until it was endorsed by the EU, as this was expected in 2006 it was allowed for in the adjusted earnings per share calculations in the published results for the year ended 31 December 2005.

The International Accounting Standards Board issued IFRIC Interpretation 4 which is applicable for annual reporting periods beginning on or after 1 January 2006. This interpretation is to determine whether an arrangement, which is not in the legal form of a lease, is in substance a lease and should be accounted for in accordance with IAS17 (Leases). This has resulted in the recognition of certain arrangements as leases. The previously published balance sheet for 2005 has been restated in respect of finance leases to increase property, plant and equipment by £4 million and borrowings by a similar amount but there was no impact on the Group’s reported profit.

In 2005, IAS32 and IAS39 on financial instruments were applied from 1 January 2005. This resulted in a £42 million reduction in the Group equity at that date, which is shown as the change in accounting policy in the Group statement of changes in total equity.