Experian 2008 Annual Report Download - page 78

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76 Experian Annual Report 2008
2. Basis of preparation and significant accounting policies (continued)
Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is
recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately within cost of sales or
operating expenses, as appropriate, in the Group income statement.
Amounts accumulated in equity are recycled in the Group income statement in the period when the hedged item will impact
the Group income statement. However, when the forecast transaction that is hedged results in the recognition of a non-
financial asset or liability, the gains and losses previously deferred in equity are transferred from equity and included in the
initial measurement of the cost of the asset or liability. When a hedging instrument expires or is sold, or when a hedge no
longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity
and is recognised when the forecast transaction is ultimately recognised in the Group income statement. When a forecast
transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is transferred immediately
to the Group income statement.
Net investment hedges
Any gain or loss on the hedging instrument relating to the effective portion of the hedge of a net investment in an entity
whose functional currency is not the US Dollar is recognised in equity; the gain or loss relating to the ineffective portion is
recognised immediately in net financing costs in the Group income statement. Gains and losses accumulated in equity are
included in the Group income statement when the entity is disposed of.
Non-hedging derivatives
Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised immediately
in the Group income statement. Costs in respect of derivatives entered into in connection with social security obligations on
employee share incentive schemes are charged as an employment cost; other changes are charged within financing fair value
remeasurements in the Group income statement.
Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their
risks and characteristics are not closely related to those of host contracts, and the host contracts are not carried at fair value
with unrealised gains or losses reported in the Group income statement.
Fair value estimation
The fair value of derivative financial instruments and other financial assets and liabilities is determined by using market data
and established estimation techniques such as discounted cash flow and option valuation models.
Impairment of non-financial assets
Assets that are not subject to amortisation are tested annually for impairment. Assets that are subject to amortisation
are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not
be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell, and value-in-use.
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately
identifiable cash flows which are CGUs.
Trade payables
Trade payables are recognised initially at fair value. Where the time value of money is material, payables are carried at
amortised cost.
Contingent consideration
Where part or all of the amount of purchase consideration is contingent on future events, the cost of the acquisition initially
recorded includes a reasonable estimate of the fair value of the contingent amounts expected to be payable in the future. The
cost of the acquisition is adjusted when revised estimates are made, with corresponding adjustments made to goodwill until
the ultimate outcome is known.
Where part or all of the amount of disposal consideration is contingent on future events, the disposal proceeds initially
recorded include a reasonable estimate of the fair value of the contingent amounts expected to be receivable in the future.
The proceeds are adjusted when revised estimates are made, with corresponding adjustments made to debtors, and profit
and loss on disposal, until the ultimate outcome is known.
Notes to the Group financial statements continued