7817 Annual Report 2009.qxd - Shire

136 Shire plc Annual Report and Accounts 2009Notes to the financial statements For the year ended December 31, 2009A PRESENTATION OF THE FINANCIAL STATEMENTSPreparation of financial statementsThese separate financial statements of the Company are drawn up in accordance with United Kingdom Generally Accepted Accounting Practice(‘UK GAAP’) as at December 31, 2009 and in accordance with the requirements of Companies (Jersey) Law 1991.They have been prepared under the historical cost convention.Consolidated accounts prepared in conformity with accounting principles generally accepted in the United States of America (‘US GAAP’), in whichthe financial results and cash flow statement of the Company and its subsidiaries are included, can be found in the Shire Annual Report.The financial statements have been prepared in accordance with the Company’s accounting policies described below, which have been appliedconsistently throughout the current year and preceding period and have been approved by the Board.B ACCOUNTING POLICIESInvestmentsInvestments held as fixed assets are stated at historic cost less any provision for impairment.Dividends paid and receivedDividend distributions to the Company’s shareholders are recognized as a liability in the Company’s financial statements in the period in which theshareholders’ right to receive payment is established. This occurs in the period in which the dividends are approved by the Company’s shareholders,or in the case of an interim dividend, when the dividend is paid.ExpenditureExpenditure is recognized in respect of goods and services received when supplied in accordance with contractual terms. Provision is made whenan obligation exists for a future liability in respect of a past event and where the amount of the obligation can be reliably estimated.Foreign currency transactionsItems included in the financial statements of the Company are measured using the currency of the primary economic environment in which theCompany operates (the functional currency). These financial statements are presented in US dollars, which is the Company’s functional andpresentational currency.Transactions in foreign currencies are recorded at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominatedin foreign currencies at the balance sheet dates are reported at the rate of exchange prevailing at that date.Share-based compensationThe Company operates equity-settled, share-based compensation plans. The fair value of the employee services received in exchange for the grantof the options has been valued using option-pricing models. Options and performance share awards granted without market conditions are valuedusing the Black-Scholes option-pricing model. Options and performance share awards granted with market conditions are valued using a binomialmodel. In accordance with FRS 20 ‘Share-based payment’, the resulting cost for the Company’s employees are recognized as an expense ona straight-line basis over the vesting period of the awards. The value of the charge is adjusted to reflect expected and actual levels of vesting.The cost for awards granted to the Company’s subsidiaries’ employees represents additional capital contributions by the Company in its subsidiaries.An additional investment in subsidiaries has been recorded in respect of those awards granted to the Company’s subsidiaries’ employees, with acorresponding increase in the Company’s shareholders’ equity. The additional capital contribution is based on the fair value at the grant date of theawards issued, allocated over the life of the underlying grant’s vesting period.Financial liabilities and equityFinancial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrumentis any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities.TaxationCurrent tax is provided at amounts expected to be paid or recovered using the tax rates and laws that have been enacted or substantively enactedby the balance sheet date.Deferred tax is recognized in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions orevents that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Timingdifferences are differences between the Company’s taxable profits and its results as stated in the financial statements that arise from the inclusionof gains and losses in tax assessments in periods different from those in which they are recognized in the financial statements.A net deferred tax asset is regarded as recoverable and therefore recognized only when, on the basis of all available evidence, it can be regardedas more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted.Deferred tax is not provided on timing differences arising on unremitted earnings of subsidiaries and associates where there is no commitmentto remit these earnings.Deferred tax is measured at the rates that are expected to apply in the periods in which the timing differences are expected to reverse, basedon tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax balances are not discounted.