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3. BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (CONTINUED)The preparation of financial statements in conformity with Financial Reporting Standards (“FRS”), requires the use ofcertain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and thedisclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of therevenue and expenses during the reported period. It also requires Directors to exercise their judgement in the processof applying the Group’s accounting policies. Although these estimates and judgement are based on the Directors’ bestknowledge of current events and actions, actual results may differ.The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates aresignificant to the Group’s and the Company’s financial statements are disclosed in Note 5 to the financial statements.Adoption of New and Revised FRS(a) Standards, amendments to published standards and Interpretation Committee (“IC”) Interpretations that areeffectiveThere is no new accounting standards, amendments to published standards and interpretations to existingstandards effective for the Group’s and Company’s financial year ended 31 December 2009 and applicable to theGroup and Company.(b)Standards, amendments to published standards, interpretations and improvements to existing standards that areapplicable to the Group and Company but not yet effectiveThe Group and Company will apply the following new standards, amendments to standards and interpretationsfrom the effective dates stated:• The revised FRS 3 “Business Combinations” (effective prospectively from 1 July 2010). The revised standardcontinues to apply the acquisition method to business combinations, with some significant changes. Forexample, all payments to purchase a business are to be recorded at fair value at the acquisition date, withcontingent payments classified as debt subsequently re-measured through the income statement. There is achoice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either atfair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets. All acquisitionrelatedcosts should be expensed. On application of the revised standards, expenses previously capitalised willbe expensed, resulting in higher charges to the income statement on acquisition transactions.• FRS 7 “Financial Instruments: Disclosures” (effective from 1 January 2010) provides information to users offinancial statements about an entity’s exposure to risks and how the entity manages those risks. Theimprovement FRS 7 clarifies that entities must not present total interest income and expense as a net amountwithin finance costs on the face of the income statement.Annual Report 2009 • 171