Notes to the Group financial statements

for the year ended 31 March 2009

2. Basis of preparation and significant accounting policies


Basis of preparation

The Group financial statements are prepared in accordance with International Financial Reporting Standards (‘IFRS’) as adopted for use in the European Union (the ‘EU’) and as issued by the International Accounting Standards Board (‘IASB’). These are those standards, subsequent amendments and related interpretations issued and adopted by the IASB that have been endorsed by the EU. Although the Company is incorporated and registered in Jersey, the Group financial statements include disclosures sufficient to comply with those parts of the UK Companies Acts 1985 and 2006 applicable to companies reporting under IFRS.

The Group financial statements are presented in US dollars, as this is the most representative currency of the Group’s operations, and they are rounded to the nearest million. They are prepared on the historical cost basis modified for the revaluation of certain financial instruments. The principal exchange rates used in preparing the Group financial statements are set out in note 5. The Company financial statements are prepared and presented in sterling. The financial statements for the Company for the year ended 31 March 2010 will be prepared and presented in US dollars as the US dollar has become the dominant currency to which the Company is now exposed.

As indicated below, during the year ended 31 March 2009, there have been a number of new accounting standards, amendments and interpretations effective for accounting periods beginning on or after 1 April 2008. None of these has had a material impact on the results or financial position of the Group for the year under review.

In compliance with the requirements for companies whose shares are listed on the London Stock Exchange, the financial statements of the Company are included within the Group annual report. The Company has elected to prepare its financial statements under UK accounting standards.

Comparative information

There have been a number of developments which change the presentation of the comparative financial information and these are summarised as follows:

Except as indicated above, the Group financial statements have been prepared on a basis consistent with that reported for the year ended 31 March 2008.

Significant accounting policies

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to both years presented, unless otherwise stated.

Basis of consolidation

Subsidiaries
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They cease to be consolidated from the date that the Group no longer has control. As required by IFRS 3 all business combinations are accounted for using the purchase method.

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

Accounting policies of subsidiaries are consistent with the policies adopted by the Group for the purposes of the Group’s consolidation. The Group financial statements incorporate the financial statements of the Company and its subsidiary undertakings for the financial year ended 31 March 2009. A list of the significant subsidiaries is given in note Q to the parent company financial statements.

Equity minority interests
The Group applies a policy of treating transactions with minority interests as transactions with parties external to the Group. Disposals to minority interests result in gains and losses for the Group that are recorded in the Group income statement. Purchases from minority interests result in goodwill, being the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary.

Associates
Associates are entities over which the Group has significant influence but not control, generally achieved by a shareholding of between 20% and 50% of the voting rights. The equity method is used to account for investments in associates and investments are initially recognised at cost.

The Group’s share of net assets of its associates and loans made to associates are included in the Group balance sheet. The Group’s share of its associates’ post-acquisition after tax profits or losses is recognised in the Group income statement, and its share of post-acquisition movements in equity is recognised in the Group’s equity. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. The carrying amount of an investment in an associate is tested for impairment by comparing its recoverable amount to its carrying amount whenever there is an indication that the investment may be impaired.

Revenue recognition

Revenue represents the fair value of consideration receivable on the sale of goods and services to external customers, net of value added tax and other sales taxes, rebates and discounts, including the provision and processing of data, subscriptions to services, software and database customisation and development and the sale of software licences, maintenance and related consulting services.

Revenue in respect of the provision and processing of data is recognised in the year in which the service is provided. Subscription revenues, and revenues in respect of services to be provided by an indeterminate number of acts over a specified period of time, are recognised on a straight line basis over those periods. Customisation, development and consulting revenues are recognised by reference to the stage of completion of the work. Revenue from software licences is recognised upon delivery. Revenue from maintenance agreements is recognised on a straight line basis over the term of the maintenance period.

Where a single arrangement comprises a number of individual elements which are capable of operating independently of one another, the total revenues are allocated amongst the individual elements based on an estimate of the fair value of each element. Where the elements are not capable of operating independently, or reasonable measures of fair value for each element are not available, total revenues are recognised on a straight line basis over the contract period.

Foreign currency translation

Presentation currency
The Group’s financial statements are presented in US dollars.

Transactions and balances
Transactions in foreign currencies are recorded in the functional currency of the relevant Group undertaking at the exchange rate prevailing on the date of the transaction. At each balance sheet date, monetary assets and liabilities denominated in foreign currencies are retranslated at the exchange rate prevailing at the balance sheet date. Translation differences on monetary items are taken to net financing costs in the Group income statement except when deferred in equity, as qualifying net investment hedges or cash flow hedges.

Translation differences on non-monetary available for sale financial assets are reported as part of the fair value gain or loss in equity.

Group undertakings
The results and financial position of Group undertakings whose functional currencies are not US dollars are translated into US dollars as follows:

On consolidation, exchange differences arising from the translation of the net investment in Group undertakings whose functional currency is not the US dollar, and of borrowings and other currency instruments, primarily foreign exchange contracts, designated as hedges of such investments, are taken directly to equity. Tax charges and credits attributable to those exchange differences are taken directly to equity. When such an undertaking is sold, such exchange differences are recognised in the Group income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of such entities are treated as assets and liabilities of the entities and are translated into US dollars at the closing exchange rate.

Discontinued operations

A discontinued operation is a component of the Group’s business that represents a separate geographical area of operation or a separate major line of business. Classification as a discontinued operation occurs upon disposal or earlier, if the operation meets the criteria to be classified as held for sale, under IFRS 5.

Share-based payments

The Group has a number of equity settled, share-based employee incentive plans. These include awards in respect of shares in the Company made at or after the demerger of Experian and Home Retail Group from GUS plc in October 2006, together with awards previously made in respect of shares in GUS plc which were rolled over into awards in respect of shares in the Company at demerger. The fair value of options and shares granted is recognised as an expense in the Group income statement on a straight line basis over the vesting period, after taking into account the Group’s best estimate of the number of awards expected to vest. The Group revises the vesting estimate at each balance sheet date. Non-market performance conditions are included in the vesting estimates. Expenses are incurred over the vesting period. Fair value is measured at the date of grant using whichever of the Black-Scholes model, Monte Carlo model and closing market price is most appropriate to the award. Market-based performance conditions are included in the fair value measurement on grant date and are not revised for actual performance.

Goodwill

Goodwill is the excess of the fair value of the consideration payable for an acquisition over the fair value of the Group’s share of identifiable net assets of a subsidiary or associate acquired at the date of acquisition. Fair values are attributed to the identifiable assets, liabilities and contingent liabilities that existed at the date of acquisition, reflecting their condition at that date. Adjustments are made where necessary to bring the accounting policies of acquired businesses into alignment with those of the Group.

Goodwill on acquisitions of subsidiaries is separately recognised in the balance sheet. Goodwill on acquisitions of associates is included in the carrying amount of the investment. Goodwill is stated at cost less any impairment. Goodwill is not amortised but is tested annually for impairment. An impairment charge is recognised for any amount by which the carrying value of goodwill exceeds its recoverable amount.

Goodwill is allocated to cash generating units (‘CGUs’) and monitored for internal management purposes by geographical segment. The allocation is made to those CGUs or groups of CGUs that are expected to benefit from the business combination in which the goodwill arose. Where the recoverable amount of the CGU is less than its carrying amount, including goodwill, an impairment loss is recognised in the Group income statement.

Gains and losses on the disposal of an undertaking include the carrying amount of goodwill relating to the undertaking sold, allocated where necessary on the basis of relative fair value.

Other intangible assets

Intangible assets acquired as part of an acquisition of a business are capitalised separately from goodwill, if those assets are identifiable, separable or arise from legal rights and their fair value can be measured reliably. Intangible assets acquired separately from the acquisition of a business are capitalised at cost. Certain costs incurred in the developmental phase of an internal project are capitalised as intangible assets provided that a number of criteria are satisfied. These criteria include the technical feasibility of completing the asset so that it is available for use or sale, the availability of adequate resources to complete the development and to use or sell the asset and how the asset will generate probable future economic benefit.

The cost of other intangible assets with finite useful economic or contractual lives is amortised over those lives. The carrying values of intangible assets are reviewed for impairment when events or changes in circumstances indicate that the carrying values may not be recoverable. If impaired, the carrying values are written down to the higher of fair value less costs to sell, and value-in-use which is determined by reference to projected future income streams using assumptions in respect of profitability and growth.

Research expenditure is charged in the Group income statement in the year in which it is incurred.

Databases and computer software
Databases
Capitalised databases comprise the fair value of databases acquired as part of a business combination or the data purchase and data capture costs of internally developed databases.

Databases are held at cost and are amortised on a straight line basis over three to seven years.

Computer software
Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring into use the specific software. Computer software licences are held at cost and are amortised on a straight line basis over three to five years.

Costs that are directly associated with the production of identifiable and unique software products controlled by the Group, and that will generate economic benefits beyond one year, are recognised as intangible assets. Computer software development costs recognised as assets are amortised on a straight line basis over three to five years.

Other costs associated with developing or maintaining computer software programmes are recognised as an expense as incurred.

Acquisition intangibles
Customer and advertiser relationships
Contractual and non-contractual customer and advertiser relationships acquired as part of a business combination are capitalised at fair value on acquisition and amortised on a straight line basis over three to eighteen years, based on management’s estimates of the average lives of such relationships.

Trademarks and licences
Trademarks and licences acquired as part of a business combination are capitalised at fair value on acquisition and are amortised on a straight line basis over their contractual lives, up to a maximum period of 20 years.

Trade names
Legally protected or otherwise separable trade names acquired as part of a business combination are capitalised at fair value on acquisition and amortised on a straight line basis over three to fourteen years, based on management’s expectations to retain trade names within the business.

Completed technology
Completed technology acquired as part of a business combination is capitalised at fair value on acquisition and amortised on a straight line basis over three to eight years, based on the expected life of the asset.

Property, plant and equipment

Property, plant and equipment is held at cost less accumulated depreciation and any impairment in value.

Land is not depreciated.

Equipment on hire or lease is depreciated over the lower of the useful life and period of the lease.

Depreciation is provided on other property, plant and equipment at rates calculated to depreciate the cost, less estimated residual value based on prices prevailing at the balance sheet date, of each asset evenly over its expected useful life as follows:

Financial assets

The Group classifies its financial assets in four categories: loans and receivables, derivatives used for hedging, assets at fair value through the profit and loss account and available for sale. The classification is determined at initial recognition and depends on the purpose for which the financial assets are acquired.

Loans and receivables
Loans and receivables are non-derivative financial assets, with fixed or determinable payments, that are not quoted in an active market. They are included in current assets, except for maturities more than one year after the balance sheet date which are classified as non-current assets. The Group’s loans and receivables comprise trade and other receivables and cash and cash equivalents.

Derivatives used for hedging
Derivative financial assets used for hedging are included in current assets, except for maturities more than one year after the balance sheet date which are classified as non-current assets. Derivatives utilised by the Group include interest rate swaps, cross currency swaps, foreign exchange contracts and equity swaps.

Assets at fair value through the profit and loss account
Assets at fair value through the profit and loss account comprise holdings of listed equity securities, principally those held in the UK to secure unfunded pension benefit arrangements.

Available for sale financial assets
Available for sale financial assets are non-derivative financial assets that are either designated to this category or not classified in the other financial asset categories.

Available for sale financial assets are carried at fair value and are included in non-current assets unless management intends to dispose of the assets within one year of the balance sheet date. Purchases and disposals of such assets are accounted for at settlement date. Unrealised gains and losses on available for sale financial assets are recognised directly in equity. On disposal or impairment of such assets, the gains and losses in equity are recycled through the income statement. Gains and losses recognised on disposal exclude dividend and interest income.

At each balance sheet date, the Group assesses whether there is objective evidence to suggest that available for sale financial assets are impaired. In the case of equity securities, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the security is impaired. If any such evidence exists, the cumulative loss is removed from equity and recognised in the Group income statement. Impairment losses recognised in the Group income statement on equity instruments are not subsequently reversed through the Group income statement.

Trade receivables

Trade receivables are initially recognised at fair value (original invoice amount) and subsequently measured at this value less any provision for impairment. Where the time value of money is material, receivables are carried at amortised cost less any provision for impairment.

A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. Such evidence is based primarily on the pattern of cash received compared to the terms upon which the trade receivable is contracted. The amount of the provision is the difference between the carrying amount and the value of estimated future cash flows. Any charge or credit in respect of such provisions is recognised in the Group income statement within administrative expenses. The cost of any irrecoverable trade receivables is recognised in the Group income statement immediately within administrative expenses. Subsequent recoveries of amounts previously written off are credited in the Group income statement within administrative expenses.

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 flow statement, cash and cash equivalents are as defined 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 reflect the fair value movements associated with the hedged risk.

Borrowings are classified 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 financial instruments and hedging activities

The Group uses derivative financial instruments to manage its exposures to fluctuations 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 financial 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 derivative financial instrument, fair value calculation techniques include, but are not limited to, quoted market value, present value of estimated future cash flows (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:

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 confirm 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 qualifies for hedge accounting.

Derivative assets and liabilities are classified 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 financing costs over the period of the contracts, together with the interest differentials reflected in foreign exchange contracts.

Fair value hedges
Changes in the fair value of derivatives that are designated and qualify as fair value hedging instruments are recorded in the Group income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The ineffective portion of a fair value hedge is recognised in net financing costs in the Group income statement.

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 impacts 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 undertaking 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 undertaking 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 plans, other than those of a financing nature, are charged as an employment cost; other costs and changes in fair value on such derivatives 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 and payable in the future. The proceeds are adjusted when revised estimates are made, with corresponding adjustments made to debtors and creditors as appropriate, and profit and loss on disposal, until the ultimate outcome is known.

Current and deferred tax

The tax expense for the year comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised directly in equity. In this case the tax is also recognised in equity.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Group operates and generates taxable income.

Deferred tax is provided in full on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the Group financial statements. However, if the deferred tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for. Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on the tax rates and laws that have been enacted or substantively enacted by the balance sheet date.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

Provisions

Provisions are recognised when:

If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as an interest expense.

Where the Group expects a provision to be reimbursed, the reimbursement is recognised as a separate asset when the reimbursement is virtually certain.

Leases

Finance leases
Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Such leases are capitalised at the lease’s inception at the lower of the fair value of the leased asset and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges. The rental obligations, net of finance charges, are included in other payables. The interest element of the lease payment is charged in the Group income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each year.

Operating leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases.

Payments made under operating leases are charged in the Group income statement on a straight line basis over the period of the lease. Incentives from lessors are recognised as a systematic reduction of the charge over the period of the lease.

Employee benefits

Defined benefit pension arrangements – funded plans
The retirement benefit assets and obligations recognised in the Group balance sheet in respect of funded plans comprise the fair value of plan assets of funded plans less the present value of the related defined benefit obligation at the balance sheet date, together with adjustments for past service costs. The defined benefit obligation is calculated annually by independent qualified actuaries using the projected unit credit method.

The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using market yields available at the assessment date on high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity consistent with the estimated average term of the related pension liability.

Actuarial gains and losses arising from experience adjustments, and changes in actuarial assumptions, are recognised immediately in the Group statement of recognised income and expense.

Past service costs are recognised immediately in the Group income statement, unless the changes to the pension plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past service costs are amortised on a straight line basis over the vesting period.

The pension cost recognised in the Group income statement comprises the cost of benefits accrued plus interest on the defined benefit obligation less the expected return on the plan assets over the year. The operating and financing costs are recognised separately in the Group income statement.

Defined benefit pension arrangements – unfunded plans
Unfunded pension obligations are determined and accounted for in accordance with the principles used in respect of the funded arrangements but are disclosed in the Group balance sheet within retirement benefit obligations.

Defined contribution pension arrangements
The assets of defined contribution plans are held separately from those of the Group in independently administered funds. The pension cost recognised in the Group income statement represents the contributions payable by the Group to these funds in respect of the year.

Post-retirement healthcare obligations
The Group operates plans which provide post-retirement healthcare benefits to certain retired employees and their dependent relatives. The principal plan relates to former employees in the UK and, under this plan, the Group has undertaken to meet the cost of post-retirement healthcare for all eligible former employees who retired prior to 1 April 1994 and their dependants. The obligations in respect of these plans are calculated annually by independent qualified actuaries.

The obligations are calculated using an actuarial methodology similar to that for the funded defined benefit pension arrangements but are disclosed in the Group balance sheet within retirement benefit obligations.

Actuarial gains and losses arising from experience adjustments, and changes in actuarial assumptions, are recognised in the Group statement of recognised income and expense.

The pension cost recognised in the Group income statement comprises the cost of benefits accrued plus interest on the defined benefit obligation. The operating and financing costs are recognised separately in the Group income statement.

Minority interests in equity

The minority interests in equity in the Group balance sheet represent the share of net assets of subsidiary undertakings held outside the Group. The movement in the year comprises the profit attributable to such interests together with any dividends paid, movements in respect of corporate transactions and related exchange differences.

Where put/call option agreements are in place in respect of shares held by the minority shareholders, the put element of the liability is measured in accordance with the requirements of IAS 39 ‘Financial Instruments: Recognition and Measurement’ and is stated at the net present value of the expected future payments. In accordance with the requirements of IAS 32 ‘Financial Instruments: Disclosure and Presentation’ this liability is shown as a non-current financial liability in the Group balance sheet. The change in the net present value of such options in the year is recognised in the Group income statement within finance expense.

Critical accounting estimates and judgments

Critical accounting estimates and assumptions

In preparing the Group financial statements, management is required to make estimates and assumptions that affect the reported amount of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities. The resulting accounting estimates, which are based on management’s best judgment at the date of the Group financial statements, will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Taxes
The Group is subject to taxes in numerous jurisdictions. Significant judgment is required in determining the related provision for income taxes as there are transactions in the ordinary course of business and calculations for which the ultimate tax determination is uncertain. The Group recognises liabilities based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recognised, such differences will impact on the results for the year and the respective income tax and deferred tax provisions in the year in which such determination is made.

Pension benefits
The present value of the defined benefit assets and obligations depends on factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the defined benefit assets and obligations and net pension costs include the expected long-term rate of return on the plan assets and the discount rate. Any changes in these assumptions may impact on the amounts disclosed in the Group balance sheet and the Group income statement.

The expected return on plan assets is calculated by reference to the plan investments at the balance sheet date and is a weighted average of the expected returns on each main asset type based on market yields available on these asset types at the balance sheet date.

The Group determines the appropriate discount rate at the end of each year. This is the interest rate used to calculate the present value of estimated future cash outflows expected to be required to settle the defined benefit obligations. In determining the discount rate, the Group has considered the prevailing market yields of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity consistent with the estimated average term of the related pension liability. In determining the discount rate, management has accordingly derived an appropriate discount rate by consideration of the average annualised yield on medium and longer term AA rated corporate bonds in the UK as published by iBoxx, together with consideration of the average yields from Euro Sterling AA, Financial AA and Bank AA indices.

Other key assumptions for defined benefit obligations and pension costs are based in part on market conditions at the relevant balance sheet dates and additional information is disclosed in note 28.

Fair value of derivatives and other financial instruments
The fair value of derivatives and other financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques. The Group uses its judgment to select a variety of methods and makes assumptions that are mainly based on market conditions existing at each balance sheet date.

The assumptions in respect of the valuation of the put option associated with the remaining 30% stake of Serasa Experian (‘Serasa’) are set out in note 25(d).

Goodwill
Goodwill is allocated to CGUs and monitored for internal management purposes by geographical segment. The allocation is made to those CGUs or groups of CGUs that are expected to benefit from the business combination in which the goodwill arose.

The Group tests goodwill for impairment annually or more frequently if events or changes in circumstances indicate that the goodwill may be impaired. The recoverable amount of each CGU is generally determined on the basis of value-in-use calculations which require the use of cash flow projections based on financial budgets approved by management, looking forward up to five years. Management determines budgeted gross margin based on past performance and its expectations for the market development. Cash flows are extrapolated using estimated growth rates beyond a five year period. The growth rates used do not exceed the long-term average growth rate for the markets in which the segment operates. The discount rates used reflect the region’s weighted average cost of capital (‘WACC’). The key assumptions used for value-in-use calculations are:

Region

Pre-tax
WACC

Long term
growth rate

North America

11.6%

2.3%

Latin America

17.0%

8.0%

UK & Ireland

11.5%

2.3%

EMEA/Asia Pacific

12.5%

4.5%

The recoverable amount of the Latin America CGU exceeds the carrying value by approximately US$200m and an increase in the pre-tax WACC of 1.3% or a reduction of 1.5% in the long term growth rate would reduce the value-in-use of its goodwill to an amount equal to its carrying value.

Share-based payments
The Group has a number of equity settled share-based employee incentive plans. The assumptions used in determining the amounts charged in the Group income statement include judgments in respect of performance conditions and length of service together with future share prices, dividend and interest yields and exercise patterns.

Critical judgments

Management has made certain judgments in the process of applying the Group’s accounting policies set out above that have a significant effect on the amounts recognised in the Group financial statements. The accounting policy descriptions indicate where judgment needs exercising and these judgments include the classification of transactions between the Group income statement and the Group balance sheet.

The most significant of these judgments is in respect of intangible assets where certain costs incurred in the developmental phase of an internal project are capitalised if a number of criteria are met. Management has made certain judgments and assumptions when assessing whether a project meets these criteria, and on measuring the costs and the economic life attributed to such projects. On acquisition, specific intangible assets are identified and recognised separately from goodwill and then amortised over their estimated useful lives. These include such items as brand names and customer lists, to which value is first attributed at the time of acquisition. The capitalisation of these assets and the related amortisation charges are based on judgments about the value and economic life of such items. The economic lives for intangible assets are estimated at between three and seven years for internal projects, which include databases, internal use software and internally generated software, and between two and twenty years for acquisition intangibles.

Recent accounting developments

The following accounting standards, amendments and interpretations issued by the IASB and the International Financial Reporting Interpretations Committee are effective for the Group’s accounting periods beginning on or after 1 April 2008 but have had no material effect on the results or financial position of the Group:

Once adopted by the EU, the following accounting standards, amendments and interpretations issued by the IASB and the International Financial Reporting Interpretations Committee will be effective for the Group’s accounting periods beginning on or after 1 April 2009:

* These standards are still subject to adoption by the EU.

Of these there is only one which is expected to have a material effect on the results and net assets of the Group although a number of the developments will lead to additional or revised disclosures. As previously indicated, IFRS 3 (Revised) requires amendments to accounting for business combinations and the treatment of associated transaction costs and accordingly will impact the accounting treatment of future acquisitions in the financial statements.

The most significant of those that will lead to additional or revised disclosures is IFRS 8. The Group has reviewed the requirements of this IFRS during the year and is adopting it with effect from 1 April 2009. Whilst compliance with IFRS 8 will require some revisions to the nature of segmental information disclosed, the structure of the Group’s segmental information will be largely unchanged from that currently provided.

Use of non-GAAP measures

The Group has identified certain measures that it believes will assist understanding of the performance of the business. The measures are not defined under IFRS and they may not be directly comparable with other companies’ adjusted measures. The non-GAAP measures are not intended to be a substitute for, or superior to, any IFRS measures of performance but management has included them as they consider them to be important comparables and key measures used within the business for assessing performance.

The following are the key non-GAAP measures identified by the Group:

Benchmark profit before tax (‘Benchmark PBT’)

Benchmark PBT is defined as profit before amortisation of acquisition intangibles, goodwill impairments, charges in respect of the demerger-related equity incentive plans, exceptional items, financing fair value remeasurements and tax. It includes the Group’s share of associates’ pre-tax profit.

Earnings before interest and tax (‘EBIT’)

EBIT is defined as profit before amortisation of acquisition intangibles, goodwill impairments, charges in respect of the demerger-related equity incentive plans, exceptional items, net financing costs and tax. It includes the Group’s share of associates’ pre-tax profit.

Benchmark earnings per share (‘Benchmark EPS’)

Benchmark EPS represents Benchmark PBT less attributable tax and minority interests divided by the weighted average number of shares in issue, and is disclosed to indicate the underlying profitability of the Group.

Exceptional items

The separate reporting of non-recurring exceptional items gives an indication of the Group’s underlying performance. Exceptional items are those arising from the profit or loss on disposal of businesses, closure costs of major business units or costs of significant restructuring programmes. All other restructuring costs are charged against EBIT in the segments in which they are incurred.

Operating cash flow

Operating cash flow is calculated as cash generated from operations adjusted for outflows in respect of the purchase of property, plant and equipment and other intangible assets and adding dividends from associates but excluding any cash inflows and outflows in respect of exceptional items. It is defined as EBIT less changes in working capital, plus depreciation/amortisation, less capital expenditure, less profit retained in associates.

Net debt

Net debt is calculated as total debt less cash and cash equivalents and other highly liquid bank deposits with original maturities greater than three months. Total debt includes loans and borrowings (and the fair value of derivatives hedging loans and borrowings), overdrafts and obligations under finance leases. Accrued interest is excluded from net debt.

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