Lead Manager

BABCOCK & BROWN PROSPECTUS
(d)
Financial Instruments and Hedging – Under AGAAP, it is permissible to hold certain financial
instruments at cost (for example, equity investments not held for trading purposes). Under Australian
IFRS, broadly all financial instruments other than debt and investments held to maturity must be held at
fair value. Fair value adjustments are made through equity when the underlying asset has been
designated as available for sale and through profit and loss for derivatives, trading assets and where the
reporting entity elects to reflect the adjustment in this manner.When a financial instrument designated
as available for sale is sold, any cumulative fair value adjustments reflected in equity in respect of that
instrument are released through profit and loss. Unless specifically identified otherwise, Babcock &
Brown intends to designate its financial instruments as available for sale.
Under AGAAP, where a derivative is held to hedge a forecast transaction, gains and losses on those
instruments are deferred and brought to account in the same period as the hedged transactions. Under
Australian IFRS, derivatives may only be classified as hedges of forecast transactions where hedge
designation, documentation and effectiveness tests can be met. If these tests are satisfied, then the
hedging derivative is measured at fair value and gains and losses are reflected directly in equity until the
hedged transaction occurs when they are released to profit and loss. For fully effective hedges, this results
in a profit and loss outcome similar to AGAAP. However, to the extent that hedges do not satisfy the
above tests then all or some of the gain or loss is immediately reflected in profit and loss.
(e)
(f)
Non-current assets held for sale – AGAAP requires that all non-current assets with limited useful lives
be depreciated over that useful life. Australian IFRS provides that where there is a clear intention to sell
a non-current asset within 12 months and that non-current asset is designated as held for sale, no further
depreciation should be provided.
Share Based Payments – Under AGAAP there is no requirement to recognise an expense in respect of
Share based payments. Public companies are required to disclose the value of equity instruments granted
to directors and some entities have recognised an expense for this amount but there is no uniformity of
practice and no requirement to recognise an expense.
Under Australian IFRS, where an equity instrument is granted to an employee, the value of that
instrument must be determined at the date of grant and that value must be expensed on a pro rata basis
between the date of grant and the date the instrument fully vests with the employee.
(g)
Comparative Period – Under AGAAP, the consolidated statutory financial statements of the Group for
2004 will only include the results of operations for the period from the IPO date to 31 December 2004.
Australian IFRS will apply for the year ending 31 December 2005 and Australian IFRS requires that a
comparative period be presented in the consolidated financial statements at that date. As noted under (a)
above, under Australian IFRS, BBH is the deemed parent of the Babcock & Brown Group following the
IPO. As BBH existed for all of 2004, the comparative period in the 2005 financial statements will be the
full year ending 31 December 2004 rather than the abridged period under AGAAP.
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