-
Pension costs
Under IFRS, pension and other post-retirement benefits costs and obligations are determined in accordance with the International Accounting Standard IAS 19 'Employee Benefits' ('IAS 19'), whereas under US GAAP these costs and liabilities are determined primarily in accordance with the requirements of Financial Accounting Standards Board ('FASB') Statement of Financial Accounting Standards ('FAS') No. 87 'Employers' Accounting for Pensions', FAS 88 'Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits', and FAS 106 'Employers' Accounting for Post Retirement Benefits other than Pensions' except where amended by FAS 158 'Employers' Accounting for Defined Benefit Pension and Other Post Retirement Plans' ('FAS 158') – an amendment of FASB Statements No. 87, 88, 106 and 132(R), which was adopted in entirety as at 31 December 2006 prospectively.
Actuarial gains and losses are recognised under IAS 19 (Amended), in full in the period in which they occur. They are recognised outside of the income statement in retained earnings and presented in the statement of recognised income and expense in equity. Under US GAAP the Group will continue to apply the 'corridor approach' whereby variations from expected costs are recognised in the income statement over the expected service lives of the employees.
Under FAS 158, the Group has recognised the funded status of defined benefit post-retirement plans in its balance sheet as at 31 December 2006, with offsetting adjustments to accumulated other comprehensive income, where previously such balances had not been recognised for the year ended 31 December 2005. The Group has adopted early the special dispensation contained in FAS 158 to change the measurement date to coincide with the financial statement date, thus the measurement period will run over a 15-month period from 1 October 2005 to 31 December 2006. The net periodic benefit cost for the 15-month period has been allocated proportionately between retained earnings and the income statement for 2006.
Under IFRS, the return on plan assets is measured using the market value, whereas, under US GAAP, the Group uses a calculated market-related value, which incorporates asset-related gains and losses over a period of not more than five years.
-
Financial instruments
Under IFRS, the carrying value of non-derivative financial liabilities has been adjusted for changes in their fair value, with the change recognised in earnings, where subject to effective fair value hedges. Changes in the fair value of foreign exchange derivatives are recognised immediately in earnings except where they are an effective hedge of a net investment in foreign operations in which case the changes are taken direct to equity.
Under US GAAP FAS No. 133 'Accounting for Derivative Instruments and Hedging Activities' ('FAS No. 133'), the requirements for determining whether a fair value or net investment hedge is effective differ from the rules provided by relevant standards under IFRS. The Group has decided not to hedge account for any derivative financial instrument under FAS No. 133, and accordingly, changes in the fair values of these instruments have been recognised in the income statement. In addition, no changes in the fair values of the non-derivative financial liabilities hedged under IFRS have been recognised under US GAAP.
Back to top
-
Intangible assets
Under UK generally accepted accounting principles ('UK GAAP'), prior to transition to IFRS, intangible assets acquired in business combinations, such as brands, were regarded as indistinguishable from goodwill and were subsumed within the goodwill balance. On transition to IFRS, such UK GAAP amounts remain within goodwill.
US GAAP requires that the cost of investment is allocated to the acquired entity's assets and liabilities based on fair values to the acquirer at the date of acquisition. FAS No. 141 'Business Combinations' provides specific criteria for the initial recognition and measurement of intangible assets separately from goodwill, including the establishment of deferred tax liabilities in respect of those intangible assets acquired.
On transition to IFRS, goodwill is no longer amortised and its transition value is, as under US GAAP, tested annually for impairment and whenever events or circumstances occur that would more likely than not reduce the recoverable amount of the cash-generating unit to which goodwill is allocated to below its carrying value.
Under US GAAP, an impairment loss is indicated only when the carrying value of a long-lived asset is not recoverable from its discounted cash flows.
Under IFRS, negative goodwill is credited to the income statement in the year of acquisition. Under US GAAP FAS No. 141, negative goodwill is allocated on a pro-rata basis, to the fair value of all non-current assets acquired.
-
Other US GAAP adjustments
Other US GAAP adjustments primarily relate to the accounting for capitalised interest, restructuring costs and payroll taxes in relation to share-based payment expenses.
-
Deferred taxation
Deferred tax is provided on the US GAAP adjustments and on items for which there can be a timing difference in recognition under US GAAP from IFRS. The adjustment at 31 December 2006 relates principally to deferred tax liabilities recognised on acquiring intangible assets under US GAAP that were not recognised under transition rules from UK GAAP to IFRS.
