BOC Report and accounts 2005 - Alle jaarverslagen

Financial review 61
Current asset provisions In the course of normal trading activities, management uses its judgement in establishing
the net realisable value of various elements of working capital – principally stocks, work-in-progress and accounts
receivable. Provisions are established for obsolete or slow moving stocks, bad or doubtful debts and product
warranties.Actual costs in future periods may be different from the provisions established and any such differences
would affect future earnings of the Group.
The provisions are established at levels appropriate to the circumstances within individual Group business
units, and not on a Group-wide systematic basis. It is therefore considered that any estimate of the impact on
annual Group operating profit of any change in such provisions may not be meaningful. Nevertheless, a change of
ten per cent in the level of provision for bad and doubtful debts at 30 September 2005 would have an impact of
approximately £3 million on annual Group operating profit.
The areas covered by critical accounting policies under UK GAAP do not materially differ from those
under US GAAP. Further details of the differences between UK and US GAAP are given in note 30 to the
financial statements.
Accounting
The Group’s accounting policies are based on accounting principles generally accepted in the UK (UK GAAP).
During the year, the following new UK standards were issued:
FRS22 – Earnings per share
FRS23 – The effects of changes in foreign exchange rates
FRS24 – Financial reporting in hyperinflationary economies
FRS25 – Financial instruments: Disclosure and presentation
FRS26 – Financial instruments: Measurement
FRS27 – Life assurance
FRS28 – Corresponding amounts
RS1– Operating and financial review
None of these standards are effective for the Group for the financial year ended 30 September 2005.The accounts
for the financial year ended 30 September 2005 have therefore been prepared on an accounting basis consistent
with that applied in the financial year ended 30 September 2004.With effect from 1 October 2005 the Group’s
accounting policies will be based on International Financial Reporting Standards, as outlined in the following section.
International Financial Reporting Standards
In accordance with EU legislation, the Group is required to adopt International Financial Reporting Standards
(IFRS) in accounting periods commencing on or after 1 January 2005.Accordingly, IFRS will first apply to the
Group’s financial statements for the financial year commencing 1 October 2005. Results for the quarter ending
31 December 2005, which will be announced in February 2006, will be presented on an IFRS basis. In January 2006
the Group intends to present results for each quarter of the financial year to 30 September 2005 restated
on an IFRS basis.
The Group established an IFRS project team in 2003.This is overseen by a formal steering committee, which
includes the Group finance director.There have been regular reports on progress to the audit committee and
executive management board.A comprehensive training programme has been undertaken covering Group finance
personnel worldwide.The Group’s auditors have been kept informed of, and consulted on, the development of the
IFRS project and the preparation and implementation of the new Group accounting policies.
The Group is still in the process of finalising the full effects of adopting IFRS but management is confident that
all areas have been identified where significant differences will arise between UK GAAP and IFRS.These areas are
set out below.This is based on the IFRS that are expected to be in effect for the year to 30 September 2006.
However, it is possible that there could be further changes to IFRS and interpretations prior to this date.The Group
has elected to adopt early the amendment to IAS19 as set out below, but does not currently intend to adopt early
any other IFRS or interpretations.
The principal differences which management expects to affect the Group are as follows:
a) Goodwill. Under UK GAAP, goodwill is amortised over a period up to a maximum of 20 years. Under IFRS,
goodwill is not amortised but instead is reviewed for impairment annually.
b) Share based payments. Under UK GAAP the cost of share options is calculated by reference to their intrinsic
value, which means that there is no charge for options granted at the market price. Under IFRS, the Group will
record a charge for the fair value of all share options including Save As You Earn schemes.
c) Taxation. Preliminary estimates indicate that the tax rate will be slightly higher under IFRS and the impact will
be fully quantified as part of the restated results to be announced in January 2006.
d) Pensions.The Group has already adopted FRS 17 under UK GAAP.The equivalent IFRS is IAS 19 and the
Group intends to adopt early the amendment to IAS 19 allowing for immediate recognition of actuarial gains
and losses in a Statement of Recognised Income and Expense.Accordingly, the impact of accounting for
pensions under IFRS will be similar, although not identical, to UK GAAP and as a result management does not
expect a significant impact on earnings.There will be a difference in presentation in the balance sheet, and
differences relating to the calculation of certain assets and liabilities. Under UK GAAP, net pension assets or
liabilities are shown after deduction of the appropriate deferred tax. Under IFRS, net pension assets or
liabilities are shown before the deduction of any deferred tax, which is then included with other deferred
tax items.