Lead Manager

SECTION 5
FINANCIAL INFORMATION
5.4.4 Differences between AGAAP and Australian IFRS
The differences between AGAAP and Australian IFRS identified by Babcock & Brown as potentially having a
significant effect on the financial position and financial performance of Babcock & Brown are summarised below.
The summary should not be taken as an exhaustive list of all of the differences between AGAAP and Australian
IFRS. Further differences may be identified prior to the release of the Group’s first statutory accounts in respect
of 2005. No attempt has been made to identify all disclosure, presentation or classification differences that would
affect the manner in which transactions or events are presented.
(a)
Accounting for the Restructure of the Babcock & Brown Group – Under AGAAP, consolidated
accounts are prepared by the legal parent of a group.Where, as in the case of the Babcock & Brown
Restructure, a new parent entity is interposed above an existing group, that parent entity is deemed to
have acquired the existing group at fair value.This triggers the recognition of (i) adjustments to
recognise the net assets acquired at their fair values and (ii) goodwill in the legal parent’s consolidated
accounts as the difference between the fair value of the net assets acquired and the value of the deemed
consideration.
Australian IFRS requires that the acquirer in a business combination be identified as the party which
gains control of another.This means that in a reverse takeover situation or where an existing group is
acquired by a shell company, the legal acquirer may not be the parent for the purposes of the group’s
consolidated financial reporting. Specifically in the case of the Babcock & Brown Restructure,
notwithstanding that BBH is acquired by BBIPL and that Babcock & Brown is the legal parent of the
Group, because BBIPL and Babcock & Brown were effectively shell companies immediately prior to the
Restructure, the consolidated financial statements of the Group are prepared as if BBH were the parent.
As BBH was the parent of the Group immediately prior to the Restructure, under Australian IFRS it is
only required to apply the rules of acquisition accounting (and hence to recognise goodwill) to those
parts of the Group it did not control immediately prior to the Restructure. As these parts of the Group
are relatively minor, under Australian IFRS no significant new goodwill or fair value adjustments are
expected to be recognised due to the Restructure at the IPO date and no such items have been
reflected in the pro-forma statement of financial position of the Babcock & Brown Group as at
31 December 2003.
(b)
Investment properties – Under AGAAP, investment properties are typically carried at cost or market
value with fair value adjustments reflected through the asset revaluation reserve. Decreases are also
recognised through the asset revaluation reserve to the extent of previously recognised increments and
otherwise are charged as an expense through the statement of financial performance.
Under Australian IFRS, changes in the fair value of investment properties are reflected directly in profit
and loss.
(c)
Deferred taxes – Under AGAAP the tax effect of items of income and expense that are recognised in
the statement of financial performance in one period but are taxable or deductible in other years are
included in the calculation of the accounting income tax expense and reflected as deferred tax assets and
liabilities in the statement of financial position.
Australian IFRS introduces a balance sheet method of accounting for taxation. Under this approach,
deferred tax is calculated as the tax expected to be payable or recoverable on differences between the tax
bases of assets and liabilities and their carrying amounts for financial reporting purposes.Therefore, if an
asset was held at valuation with changes in fair value recognised in an asset revaluation reserve, no deferred
tax would be recognised under AGAAP but a deferred tax liability would be recognised under Australian
IFRS.
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