Experian 2009 Annual Report Download - page 85

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83Experian Annual Report 2009
Introduction
2 – 7
Business review
8 – 43
Governance
44 – 72
Financial statements
Group nancial statements
2. Basis of preparation and signicant accounting policies (continued)
Cash and cash equivalents
Cash and cash equivalents include cash in hand, term and call deposits held with banks and other short-term highly liquid
investments with original maturities of three months or less. Bank overdrafts are shown within borrowings in current liabilities
on the Group balance sheet. For the purposes of the Group cash ow statement, cash and cash equivalents are as dened
above, net of bank overdrafts.
Borrowings and borrowing costs
Borrowings are recognised initially at fair value, net of any transaction costs incurred. Borrowings are subsequently stated at
amortised cost except where they are hedged by an effective fair value hedge, in which case the carrying value is adjusted to
reect the fair value movements associated with the hedged risk.
Borrowings are classied as non-current to the extent that the Group has an unconditional right to defer settlement of the
liability for at least one year after the balance sheet date.
Incremental transaction costs which are directly attributable to the issue of debt are capitalised and amortised over the
expected life of the borrowing using the effective interest rate method. All other borrowing costs are expensed in the year in
which they are incurred.
Accounting for derivative nancial instruments and hedging activities
The Group uses derivative nancial instruments to manage its exposures to uctuations in foreign exchange rates, interest
rates and certain obligations, including social security obligations, in respect of share-based payments. Derivative instruments
utilised by the Group include interest rate swaps, cross currency swaps, foreign exchange contracts and equity swaps.
These are recognised as assets or liabilities as appropriate.
Derivative nancial instruments are recognised at cost, being the fair value at the date a contract is entered into, and are
subsequently remeasured at their fair value. Depending on the type of the derivativenancial instrument, fair value calculation
techniques include, but are not limited to, quoted market value, present value of estimated future cash ows (of which the valuation
of interest rate swaps is an example) and exchange rates at the balance sheet date (of which the valuation of foreign exchange
contracts is an example). The method of recognising the resulting gain or loss depends on whether the derivative is designated as a
hedging instrument and, if so, the nature of the hedge relationship. The Group designates certain derivatives as:
Fair value hedges – hedges of the fair value of recognised assets or liabilities or a rm commitment; or
-
Cash ow hedges – hedges of a particular risk associated with a recognised asset or liability or a highly probable -
forecast transaction; or
Net investment hedges – hedges of net investments in operations whose functional currency is not the US dollar. -
The Group documents the relationship between hedging instruments and hedged items at the hedge inception, as well as its risk
management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both
at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in
offsetting changes in fair values of hedged items. This effectiveness testing is performed at every reporting date throughout the life
of the hedge to conrm that the hedge has remained and will continue to remain highly effective.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised or no longer
qualies for hedge accounting.
Derivative assets and liabilities are classied as non-current unless they mature within one year after the balance sheet date.
Amounts payable or receivable in respect of interest rate swaps are taken to net nancing costs over the period of the
contracts, together with the interest differentials reected in foreign exchange contracts.