BABCOCK & BROWN

5. summary financial information
5.7.7 Operating expenses
The operating expenses for the period ended 30 June 2005 of
$99.6 million are 55% of the full year 2005 prospectus forecast.
The increase in the level of total operating expenses for the
period was consistent with the growth of the business during
the period.
5.8 Australian equivalents to International
Financial Reporting Standards
Following the introduction of AIFRS with effect from
1 January 2005, the significant qualitative differences from
AGAAP arising out of application of AIFRS to the Group
were as follows:
• Goodwill — goodwill previously recognised under AGAAP
for the restructure of the Babcock & Brown Group ceased
to be recognised under AIFRS. Amortisation of goodwill
ceased and was replaced by annual impairment testing.
• Share based payments — under AGAAP there is
no requirement to recognise an expense in respect of
share based payments. Under AIFRS, where an equity
instrument is granted to an employee, the value of that
instrument must be determined at the date of the 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.
• Investment properties — under AGAAP, investment
properties are typically carried at cost or market value
with fair value adjustments reflected through the asset
revaluation reserve. Under AIFRS, changes in the fair
value of investment properties are reflected directly in
the income statement.
• Development properties — under AGAAP, revenue
from the sale of development properties, both residential
and non-residential, was recognised upon exchange of sales
contracts when all conditions precedent have been or are
likely to be met, in accordance with the proportion of the
development completed, provided construction work
in progress was, in accordance with Group policy, more
than 70% complete. Under AIFRS the requirements for
revenue recognition are stricter and hence all conditions
are required to have been met prior to any revenue being
recognised.
• Non-current assets held for sale — AGAAP requires
that all non-current assets with limited useful lives be
depreciated over that useful life. AIFRS 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.
• Impairment testing — under AGAAP, the recoverable
amount for all non-current assets carried at cost at each
reporting date is assessed. When the carrying amount of
a non-current asset is greater than its recoverable amount,
the asset is written down to its recoverable amount. Under
AIFRS, assets for which changes in fair value are not
reflected in the income statement will need to be assessed
for indications of impairment on at least an annual basis,
and tested for impairment only when indications of
impairment arise.
• Financial instruments — under AGAAP, it is
permissible to hold certain financial instruments at cost.
Under AIFRS, 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 the income statement for derivatives,
trading assets and where the reporting entity elects to
reflect the adjustment in this manner.
• Hedging — 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 hedge transactions. Under AIFRS,
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 the
income statement.
48 BABCOCK & BROWN SUBORDINATED NOTES