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Section 4

Principal differences between UK GAAP and IFRSwhich affect the Group

The most significant changes in the Group’s accounting policies andpresentation as a result of the adoption of IFRS are set out below.

IAS 10 “Events after the balance sheet date”: dividends

Under UK GAAP, dividends were recognised in the profit and loss account inthe period to which they related.

Under IFRS, dividends are recognised as a liability and a deduction fromequity in the period in which they have been declared and approved by theCompany in general meeting. Interim dividends are recognised as adeduction from equity in the period in which they are paid.

As a result, the final dividend for the year ended 30 September 2005, whichwas not declared and approved until after the balance sheet date, has beenreversed in the 30 September 2005 balance sheet and will be deducted fromequity in the year ending 30 September 2006.

IAS 12 “Income taxes” 

IAS 12 takes a balance sheet approach to deferred tax whereby deferred taxis recognised in the balance sheet by applying the appropriate tax rate to thetemporary differences arising between the carrying value of assets andliabilities and their tax base. This contrasts to UK GAAP (FRS19) whichconsidered timing differences arising in the profit and loss account. However,there is no impact of this change for the Group.

Adjustments made to the financial statements on the transition to IFRSresulted in related adjustments to deferred tax, particularly with regards tolease incentives, share based payments and pensions. The net deferred tax

asset on the pension deficit has also been reclassified from deferred taxliabilities.

IAS 17 “Leases” 

Under UK GAAP, operating lease incentives (principally rent free periods)were recognised to the profit and loss account over the period to the first rentreview. IAS 17 requires the benefit of any lease incentives received to berecognised over the life of the lease.

As a result, there will be a reduction in reported profits and an increase inliabilities (deferred income).

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IAS 19 “Employee benefits”: pension scheme adjustments

Under UK GAAP, the Group accounted for the defined benefit scheme under FRS17 “Retirement benefits”. Under FRS17, the Group recognised the netdeficit in the defined benefit scheme in its balance sheet.

Under IAS 19, the Group will continue to recognise the net deficit on thebalance sheet. However, IAS19 uses the bid value in measuring schemeassets as opposed to the mid-market value under FRS 17 and this gives riseto a different net deficit and profit and loss account charge (although bothdifferences are small).

In addition, under UK GAAP, the associated deferred tax asset was netted off the pension scheme deficit. Under IFRS the deferred tax asset will be shownseparately (within non current assets) and not netted off the scheme deficit.

IAS 38 “Intangible assets” 

Under UK GAAP, all capitalised software development and websitedevelopment costs are included within tangible fixed assets. IAS 38 requiresthat where such costs are not an integral part of the associated hardware,they should be classified as intangible assets. Accordingly, certain items of property, plant and equipment have been reclassified to intangible assets ateach reference date.

There is no impact on the income statement as a result of this reclassification.

IAS 39 “Financial instruments: recognition and measurement” 

Under IAS 39, any foreign exchange forward contracts and interest ratehedges are recognised at their initial fair value and subsequently remeasuredat fair value at future balance sheet dates. Changes in fair value are taken tothe income statement in the period in which they arise.

As noted in section 3, the Group has elected to apply IAS 39 from 1 October 

2005. However, there is no adjustment to make at this date as the fair valueof the interest rate collar was zero at this date. This contract did not meet thecriteria of an ‘effective hedging agreement’ under IAS39.

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IFRS 2 “Share based payments” 

Under IFRS2, the fair value of all share-based payments is recognised as acharge to the income statement over the vesting period of the award. Under UK GAAP, the charge was based on the difference between the exercise

price and the market price at the date of the award (the intrinsic value). Sincethis was typically nil, the UK GAAP charge was also nil.

A charge has therefore been recognised under IFRS 2 in the year ended 30September 2005 and the period ended 27 March 2005, calculated using theMonte Carlo pricing method.

A deferred tax asset is recognised in respect of share options based on theintrinsic value of the share options at the balance sheet date and the length of vesting period which has elapsed at the balance sheet date. The associatedtax credit to the income statement is restricted to 30% (i.e. the effective tax

rate) of the pre tax charge under IFRS2 with the balance recorded in equity.

IFRS 3 “Business combinations” 

The Group carries goodwill on its balance sheet relating to the secondary buy-out in October 2002. As stated in Section 3, the Group has elected not toapply IFRS 3 retrospectively to this business combination. As a result, thecarrying value of goodwill recorded under UK GAAP has been fixed at 1

st 

October 2004 as deemed cost and will no longer be amortised. Rather, it willbe tested for impairment annually and whenever events or changes incircumstances indicate that the carrying value may not be recoverable.

Goodwill balances were reviewed for impairment as at 1 October 2004 and 30September 2005 and no adjustments were identified. The amortisationcharged in the UK GAAP profit and loss account for the year ended 30September 2005 has been reversed.

IAS 7 “Cash flow statements” 

Under IFRS, cash flows are classified by three types of activities: operating,investing and financing. These headings are different to those used under UKGAAP and there will therefore be reclassifications within the cash flowstatement but otherwise there is no change.