IFRS 1 First-Time Adoption of IFRS PwC

PricewaterhouseCoopers First time adoption session outline Overview Exemptions and exceptions Disclosure

PricewaterhouseCoopers IFRS 1 General principles Application –To the first IFRS financial statements –Each interim report under IAS 34 in the first period Requires –Identification of date of transition –Selection of accounting policies that comply with IFRSs –Preparation of an opening IFRS balance sheet –Preparation of the first IFRS financial statements

PricewaterhouseCoopers IFRS 1 General principles IFRS 1 requires retrospective adoption of most IFRSs, BUT -There are specific exemptions and exceptions -The latest version of each IFRS will be applied -There is guidance on the use of previous estimates -The disclosure requirements are extensive

PricewaterhouseCoopers IFRS 1 First IFRS financial statements The first IFRS financial statements are: −The first financial statements to contain “an explicit and unreserved statement of compliance with IFRSs” Financial statements are NOT IFRS financial statements when −There is no explicit statement of compliance with IFRSs −They do not comply with all aspects of IFRSs −IFRSs are used to fill gaps in UK GAAP

PricewaterhouseCoopers IFRS 1 Key dates 1 Jan Jan Dec 2005 Date of transition for [SEC registrants] Any other entity requiring three years of income statements Opening IFRS balance sheet (not published) Date of transition for Most companies Recognise and measure all items using IFRS Opening IFRS balance sheet (not published) First IFRS reporting date Select policies Use standards in force at this date First IFRS financial statements Use the same accounting policies for all periods presented in first IFRS financial statements (except where specific relief given) 1 Jan 2005 Date of adoption

PricewaterhouseCoopers IFRS 1 Opening IFRS balance sheet IFRS 1 requires an entity in its opening IFRS balance sheet to: –Recognise all assets and liabilities required by IFRSs –Not recognise assets and liabilities not permitted by IFRSs; and –Classify all assets, liabilities and equity as required by IFRSs EXCEPT where an exemption or exception allows or requires otherwise

PricewaterhouseCoopers IFRS 1 Selection of accounting policies Accounting policies based on current version of IFRSs at the reporting date –All standards that will be mandatory in 2005 have now been published –Early adoption of other standards is permitted Retrospective application to opening IFRS balance sheet and all periods, subject to – some optional exemptions; and – some mandatory exceptions Earlier versions of the same IFRS are not used Transitional guidance in IFRSs not used by first time adopters unless specifically directed

PricewaterhouseCoopers IFRS 1 Exemptions summary Comparatives for financial Instruments Designation of financial assets and financial liabilities Insurance contracts Optional exemptions Business combinations Property, plant and equipment, investment properties, intangibles Employee benefits Cumulative translation adjustment Compound instruments Transition date for subsidiaries, associates and joint ventures Share-based payments Decommissioning liabilities Fair value measurement of financial instruments at initial recognition Exploration costs

PricewaterhouseCoopers IFRS 1 Exceptions summary Mandatory exceptions Derecognition of financial assets and liabilities Assets held for sale Hedge accounting Estimates

PricewaterhouseCoopers IFRS 1 Exemptions (1) ExemptionImpactApply to all ? Business combinations Previous business combinations need not be restated NO Property, plant and equipment, investment properties, intangibles Fair value or revaluation as deemed costNO Employee benefits Unrecognised gains and losses at date of transition need not be recognised YES Cumulative translation differences May be set to zero for all subsidiaries YES Decommissioning liabilities Adjustments to the asset cost required by IFRIC 1 need not be applied to changes to the liability occurring before transition NO Date of transition for some entities Balances already reported by subsidiary to parent need not be restated NO

PricewaterhouseCoopers IFRS 1 Exemptions (2) ExemptionImpactApply to all Compound financial instruments Circumstances at inception, but equity element not identified if liability is not outstanding NO Designation of financial assets and liabilities Designation as “at fair value through profit or loss” at transition, where permitted NO Fair value measurement of financial instruments at initial recognition Transitional rules for ‘day one profits’ NO Comparatives for financial instruments Comparatives need not be restated for IAS 32 and IAS 39 YES

PricewaterhouseCoopers IFRS 1 Exemptions (3) ExemptionImpactApply to all Share-based payments Only apply IFRS 2 to share-based payments vested/settled after date of transition/1 January 2005 YES Insurance contracts Comparatives need not be restated for IFRS 4 YES Exploration costs Comparatives need not be restated for IFRS 6 YES Leases Assessment of whether an arrangement contains a lease need not be applied to periods before transition date. NO

PricewaterhouseCoopers IFRS 3 need not be applied to combinations before date of transition –BUT, if one combination is restated, ALL subsequent combinations are restated When the exemption is used –No change in classification –Post combination carrying amount deemed cost for assets and liabilities measured at cost –Assets and liabilities measured at fair value restated at date of transition – adjust retained earnings IFRS 1 - Business combinations exemption

PricewaterhouseCoopers Goodwill is –Recognised at the carrying amount under previous GAAP and adjusted for Intangibles that are not recognised under IFRS Intangibles that must be recognised under IFRS Contingent consideration not recognised; and –Tested for impairment Goodwill deducted from equity remains in equity IFRS 1 - Business combinations exemption

PricewaterhouseCoopers IFRS 1 Mandatory exceptions (IAS 39) Retrospective application of IAS 39 is PROHIBITED for –Financial assets and liabilities derecognised before 1 January 2004 but: Recognise all derivatives and other interests retained from transition date; Consolidate all SPEs controlled at transition date (SIC- 12) –Hedge accounting post 1 January 2005 Where the relationship does not qualify Not applied until the documentation is in place Otherwise transitional guidance in IAS 39

PricewaterhouseCoopers Assets held for sale / discontinued operations –Apply IFRS 5 from 1 January 2005: no restatement of comparatives except: May apply from earlier date only if information obtained at earlier date –First-time adopters after 2005 must apply retrospectively and restate comparatives IFRS 1 Mandatory exception (IFRS 5)

PricewaterhouseCoopers IFRS 1 Mandatory exception (estimates) Estimate required by previous GAAP? Evidence of error? Calculation consistent with IFRS? NO YES NO YES NO Make estimate reflecting conditions at relevant date Use previous estimate Adjust previous estimate to reflect IFRS

PricewaterhouseCoopers IFRS 1 Disclosures (1) Reconciliation of equity from UK GAAP to IFRS at transition and last year end (eg 1 Jan 2004 and 31 Dec 2004) Reconciliation of last year’s net profit under UK GAAP to IFRS (eg year to 31 Dec 2004) Sufficient detail to understand adjustments to each line item Errors made under UK GAAP and identified during transition Fair value as deemed cost and the amount of the adjustment IAS 36 disclosures for impairment identified during transition

PricewaterhouseCoopers IFRS 1 Disclosures (2) Interim financial information –Reconciliation of equity/net profit as above for previous full year –Reconciliation of equity and net profit for comparative interim period (eg 6 months to 30 June 2004 ) –Further information to comply with IAS 34