(a) Basis of preparation

These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs). Any changes in accounting policies are explained where these have occurred. The IASC Foundation elected to adopt the revision to IAS 1 Presentation of Financial Statements, published in September 2007. This has resulted in the presentation of a Statement of Comprehensive Income in place of the Statement of Activities. At the same time the grouping of several line items classified within the expenses were changed to better reflect the management reporting in place. Other than the change in presentation, none of the above changes has had any impact on the previously reported results.

(b) Contributions

Contributions are recognised as revenue in the year designated by the contributor.

(c) Publications and related revenue

Subscriptions and licence fees are recognised as revenue on a straight-line basis over the period covered by the subscriptions and fees. Royalties are recognised as revenue on an accruals basis.

Publications direct cost of sales comprises printing costs and other direct costs including publications department salaries, promotion, and certain computer costs. The direct costs do not include other costs of publishing standards, including costs of Trustees or IASB meetings, associated costs of the IASC Foundation′s management team related to the publications programme, the costs of the editorial function involved in preparing published materials, various overheads including administration, computer and financial costs, cost of capital, or the costs relating to publications of the work of the IFRIC, the IASB members and technical staff.

(d) Inventory

Inventories are stated at the lower of cost and net realisable value.

(e) Depreciation

Leasehold improvements are depreciated on a straight-line basis over the period of the lease.

Furniture and equipment are depreciated on a straight-line basis over the estimated useful life of the asset. The annual rate applied is 20 per cent of cost for all assets except computer equipment, which is depreciated at 33 1/3 per cent of cost.

(f) Foreign currency transactions

Transactions denominated in currencies other than sterling are recorded at the exchange rate at the date of the transaction. Monetary assets and liabilities are translated into sterling at the exchange rate at the year-end. Exchange differences are recorded in the Statement of Comprehensive Income within expenses.

(g) Operating leases – office accommodation

Lease payments for office accommodation are recognised as an expense on a straight-line basis over the non-cancellable term of the lease.

(h) Financial assets

In the years up to and including 2005, investments in bonds were classified as available for sale and recognised at fair value, and the corresponding gains or losses were included in the Statement of Comprehensive Income.

The IASC Foundation elected to adopt the June 2005 amendments to IAS 39 Financial Instruments: Recognition and Measurement concerning the fair value option from 1 January 2006. The accounting treatment is the following: investments in bonds are recognised at fair value, and the corresponding gains or losses are included within expenses in the Statement of Comprehensive Income.

(i) Derivative financial assets

Derivative financial instruments (zero-cost collars in 2006 and 2007, and forwards in 2008 and 2009) are used to hedge the exposure to foreign exchange risks from US dollar contributions. The IASC Foundation uses the US dollar contributions to finance a portion of sterling obligations arising from activities. In accordance with its financial risk management policy, the IASC Foundation does not hold or issue derivative financial instruments for trading purposes. Derivative financial instruments are recognised at fair value. The corresponding gains or losses are included in the Statement of Comprehensive Income.

(j) Provisions and contingencies

Provisions are recognised when the following three conditions are met – the IASC Foundation has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount of the provision represents the best estimate of the expenditure required to settle the obligation at the end of the reporting period.

Contingent liabilities, including liabilities that are not probable or which cannot be measured reliably, are not recognised but are disclosed unless the possibility of settlement is considered remote. Contingent assets are not recognised, but are disclosed where an inflow of economic benefits is probable.

(k) Critical accounting estimates and judgements

The IASC Foundation makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. Estimates have been made in the areas of contributions, the reinstatement provision for property leased by the IASC Foundation, and corporation tax. These estimates are disclosed within the notes that follow.

(l) Standards issued, not yet adopted

The financial statements have been drawn up on the basis of accounting standards, interpretations and amendments effective at the beginning of the accounting period on 1 January 2007, except where early adoption of new standards has been noted.

The IASB and IFRIC have issued the following standards and interpretations which are effective for reporting periods beginning after the date of these financial statements:

Standards (Effective date in parentheses):

• IAS 23 – Revised – Borrowing Costs (1 January 2009)
• IFRS 2 – Amendment – Share-based Payment: Vesting Conditions and Cancellations (1 January 2009)
• IFRS 8 – Operating Segments (1 January 2009)
• IAS 27 – Amendment – Consolidated and Separate Financial Statements (1 July 2009)
• IFRS 3 – Revised – Business Combinations (1 July 2009)
• Amendments to IAS 32 – Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements – Puttable Financial Instruments and Obligations Arising on Liquidation (1 January 2009).

IFRIC Interpretations (Effective date in parentheses):

• IFRIC 11 – IFRS 2 – Group and Treasury Share Transactions (1 January 2008)
• IFRIC 12 – Service Concession Arrangements (1 January 2008)
• IFRIC 13 – Customer Loyalty Programmes (1 July 2008)
• IFRIC 14 – IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction (1 January 2008).

The adoption of these standards, interpretations and amendments will not significantly affect the Foundation′s results or financial position, either because these standards and interpretations do not cover the IASC Foundation in their scope, or the IASC Foundation does not have transactions covered by these standards or interpretations.

The Trustees finance the large majority of the organisation′s operation through contributions from private organisations. Contributions are committed on a multi-year basis.

Funding in 2006 and 2007

When the first round of funding expired in 2005, the Trustees succeeded in renewing and recruiting new sources of funding for 2006 and 2007. In 2007 the IASC Foundation received funds of £11,276,000 in contributions (2006: £10,381,000). Contributions received before 31 December 2007, amounting to £386,000 (2006: £365,000, 2005: £192,000), which were specifically designated by the contributors for use by the IASC Foundation in subsequent years, were recognised as current and non-current liabilities, depending upon the designation of the contributor. Contributions received after 31 December 2007, amounting to a total of £1,053,000 (2006: £305,000, 2005: £308,000) and specifically designated by the contributors for use by the IASC Foundation in 2007, were recognised as revenues at the end of 2007.

Funding for the longer term

In 2006 the Trustees initiated a plan aimed at creating a broad-based, sustainable financing mechanism for 2008 and beyond. The goal is to raise at least £16 million to cover the annual operating costs for the IASB and to provide a mechanism for matching increases in inflation. The Trustees established the following principles for the new financing regime.

• Broad-based: The funding system will expand the base of support to include major participants in the world′s capital markets in order to ensure diversification of resources.
• Compelling: The system will carry sufficient pressure to make free riding difficult.
• Open-ended: The financing will not be contingent on any particular action that would infringe on the independence of the organisation.
• Country-specific: The funding burden should be shared by the major economies of the world on a proportionate basis, using Gross Domestic Product as the determining factor of measurement. Each country should meet its designated target in a manner consistent with the principles above.

As at 25 February 2008, the IASC Foundation has £13 million in multi-year, annual commitments from country-specific regimes towards a target of £16 million. Using the IASC Foundation′s Website, the Trustees are informing interested parties of their progress on establishing broad-based funding regimes throughout the world. To assist in their work on the longer-term financing regime, the Trustees engaged a fundraising consulting firm to assist in the establishment of the new fundraising system in the United States. The total cost for the fundraising consultancy in 2007 was £174,000 (2006: £72,000).

(a) publications and related revenue

(b) publications and related costs

The IASC Foundation had an average of 91 employees (including IASB members and interns) during 2007 (2006: 76).

In order to account for the fact that a number of the IASB members work outside the United Kingdom, the Trustees agree upon an annual compensation budget for each of the IASB members inclusive of all employer contributions for tax and benefits. In 2007, the total cost for the 14 IASB members′ salaries, including all applicable employment taxes and benefits, recruitment expenses, and relocation cost of new IASB members, amounted to £4,735,000, (2006: £4,650,000). In March 2007 the Trustees approved the following compensation budgets: £461,152 per year for the IASB Chairman (2006: £439,192), £374,690 per year for full-time members (2006: £356,847) and £187,345 per year for part-time members (2006: £178,423).

The Trustees are remunerated by annual and meeting fees and are reimbursed for the expenses of their travel on IASC Foundation business. In 2007 the annual fee for the Chairman of the Trustees was £25,000 (2006: £75,000). The annual fee for the other Trustees was £12,500 (2006: £12,500). Trustees received a fee of £1,000 (2006: £1,000) for each formal meeting of the Trustees or of any of the Trustees′ committees. The Trustees approved a fee of £75,000 per year for Gerrit Zalm when he assumes the chairmanship on 1 January 2008.

Leases

The IASC Foundation entered into an operating lease in 2001 for office accommodation on the first floor at 30 Cannon Street, London and in December 2004 acquired an assignment of an operating lease for the east wing of the ground floor of 30 Cannon Street. Both leases expire in September 2008. In December 2006 a new lease was signed for the west wing on the ground floor through 2018 and new terms were agreed on the existing space at 30 Cannon Street for a period beginning September 2008 and ending in September 2018.

On assigning the lease for the east wing of the ground floor at 30 Cannon Street the outgoing tenant paid the IASC Foundation £172,000 covering a nine-month rent-free period and, for the remaining term of the lease thereafter, a £9 per square foot differential between the rent payable under the lease and the lower current rent agreed with the IASC Foundation. The £172,000 is recognised as a reduction in accommodation expense over the remaining term of the original lease to September 2008. In leasing the west wing of the ground floor of 30 Cannon Street, the IASC Foundation negotiated a two-year rent-free period. At the balance sheet date the balance outstanding with regard to all the leases was £194,000 (2006: £119,000, 2005: £189,000), of which £144,000 (2006: £50,000, 2005: £119,000) is a non-current liability and £50,000 (2006: £69,000, 2005: £70,000) is a current liability.

Since 2001 the IASC Foundation has rented office space at 610 Fifth Avenue, New York, NY, US. The only obligation incurred in this regard relates to payment of ongoing expenditures and a provision of 90 days′ notice of termination.

Future payments on the leases, excluding service charges and property rates (currently about 39 per cent of the lease payments), are due as follows:

Reinstatement provision

The IASC Foundation has also made the following provision for reinstatement, which had previously been shown as part of accrued expenses in the Statement of Financial Position. This now appear as a separate line item in the Statement of Financial Position. This provision covers the cost of reinstating the building at the end of the leases in September 2018.

Leasehold property, leasehold improvements, furniture and equipment

Capital commitments

At the balance sheet date the IASC Foundation had no capital commitments (2006: £200,000, 2005: nil).

Due to its financing model largely based on contributions in a number of currencies, the IASC Foundation is exposed to a number of financial risks. The IASC Foundation also faces risks associated with its use of financial instruments. This note describes the organisation′s objectives, policies and processes for managing those risks and the methods used to measure them.

There have been no substantive changes in the organisation′s exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note.

Principal financial instruments

The principal financial instruments used by the IASC Foundation, from which financial instrument risk arises, are as follows:

• Other financial assets and liabilities (classified at ‘fair value through profit and loss’)
• Trade receivables (classified as ‘loans and receivables’)
• Cash and cash equivalents (classified as ‘available for sale’)
• Trade creditors (classified at ‘amortised cost’)
• Derivative financial assets/liabilities (classified at ‘fair value through profit and loss’).

General objectives, policies and procedures related to financial risks

The Trustees are responsible for determining the organisation′s risk management objectives and policies. Whilst retaining ultimate responsibility for them, the Trustees delegate the authority for implementation of the objectives and policies to the Director of Operations, overseen by the Audit Committee.

The overall objective of the Trustees is to set policies that seek to reduce risk as far as possible without unduly affecting the IASC Foundation′s operating effectiveness and flexibility.

As explained earlier in the notes, the IASC Foundation′s major revenue source arises from its contributions program. There are two major risks associated with this reliance on contributions:

• currency risk, because pledges are committed in US dollars and euro, as well as sterling
• liquidity risk, because pledges may not be honoured in a timely fashion.

Currency risk

The expenditures in the IASC Foundation′s operating budget are largely in sterling, whereas the organisation has received contribution pledges in US dollars and euro to cover the cost of operating the IASB and other overhead costs, on an ongoing basis. Whilst the Trustees have reduced the US dollar exposure through their ongoing efforts and hedging strategy below, some exchange rate risk remains. As a result the Trustees have implemented a strategy to mitigate the foreign exchange fluctuations and timing risks connected with the voluntary contributions.

To address the exchange rate risk, the Trustees adopted a collar strategy for 2006 and 2007 to provide a fixed sterling equivalent from the US dollar contributions (2006: £5,304,000, 2007: £5,254,000). For 2008 and 2009, the Trustees have purchased a series of forward contracts to fix a sterling equivalent (2008: £5,850,000; 2009: £3,293,000).

Below are the fair values of these contracts:

Liquidity and credit risk associated with cash and bond holdings

The IASC Foundation manages its working capital to ensure sufficient cash resources are maintained to meet short-term liabilities. All financial liabilities at the year-end are due within one year. The IASC Foundation has no bank borrowings.

Cash holdings: As a general rule, management seeks to keep an amount in cash equal to the upcoming quarter′s expenditure. Cash at bank to pay for general operations in London is held by Barclays Bank PLC, London. One US dollar account used to pay most US dollar expenses is held by Barclays Bank PLC in New York. Cash is held either on current or on short-term deposits at floating rates of interest determined by the relevant bank′s prevailing base rate. Part of the cash at bank is held in euro and US dollar accounts.

Other deposits and balances required from time to time covering forward contract obligations and for investment purposes are held in accounts with Barclays Bank (Suisse) SA in Geneva. All decisions regarding Geneva accounts are managed by the Trustees of the IASC Foundation. Deposits made through Barclays Bank (Suisse) are in the form of fiduciary deposits, where the IASC Foundation is exposed to the credit risk of the counterparty bank. The IASC Foundation relies upon the credit analysis of its financial advisers at Barclays Bank (Suisse) to determine the creditworthiness of counterparties.

Bond holdings: The Trustees are also conscious of the need to protect against the risks associated with voluntary contributions in future years. The Trustees have invested the IASC Foundation′s surplus funds in 10 sterling-denominated, fixed rate notes of the UK government and international organisations with an AAA rating. Funds are divided in relatively equal sums with maturities in each of the next four years in order to provide a steady cash flow upon their maturity to replace donor commitments if these are not renewed on a timely basis.

Using a monthly report from Barclays Bank (Suisse) on its investments in bonds, the IASC Foundation manages its investment portfolio on a fair value basis. Information is provided on that basis to the Trustees and key management personnel. The Foundation′s accounting policy, described in note 2(h), reflects this practice.

The maturity of the bonds, all of which are exposed to fair value interest rate risk, is as follows:

Credit risk associated with trade receivables

In addition to its contributions programme, the IASC Foundation supplements its funding through publications and related activities. While the IASC Foundation recognises revenue on sales of its publications and subscriptions from non-institutional customers when cash is received, the IASC Foundation does have a number of licensing and royalty arrangements with major publishers and accounting bodies. In those licensing and royalty arrangements, some credit risk arises.

Because the organisation works largely with major publishers and accounting bodies, which have longstanding relationships, the IASC Foundation does not credit check customers before it enters into business with them. There is no history of insolvencies of the IASC Foundation′s publications partners, and the IASC Foundation has never suffered bad debt from one of these types of customers.

The IASC Foundation has no significant exposure to large or key customers with the largest customer exceeding 3 per cent of the IASC Foundation′s revenues. At the year-end the maximum exposure to credit risk is the trade receivable balance.

The Director of Operations receives a monthly report detailing all customer accounts where the debt is more than 90 days old. This is analysed into accounts on contractually agreed terms beyond 90 days and overdue accounts. Where the customer has commercial issues with the product or service invoiced the overdue accounts are allocated to the appropriate member of the senior management team on the face of the report for resolution. The circumstances of the individual customer and issues relating to the products supplied and the work being undertaken for them are discussed at board meetings.

Where overdue accounts are still unpaid six months or more after invoice date the amount is provided for as a bad debt provision in the accounts. At 31 December 2007 the amount provided for was £nil (2006: £nil). These provisions are released if the amounts due are subsequently collected or a credit note is issued to the customer.

The movements on the bad debt provision during the year are summarised below:

For US tax purposes, the IASC Foundation is classified as a not-for-profit, tax-exempt organisation.

In 2006 the IASC Foundation reached an agreement with the UK authorities regarding the status of its publications and related revenues. Under the agreement, corporation tax is calculated on the basis of a notional trade, whereby the IASC Foundation is required to extrapolate the earnings of its publication and related activities and interest and investment income associated with those activities. Under the calculations to determine the UK corporation tax liability, the IASC Foundation offsets publications revenue with both direct and indirect costs of developing the published materials.

The taxation charge of the notional trade, 2007, related primarily to interest earned and hedging activities attributed to the notional trade, and is estimated to be £1,140 (2006: £36,686 relates to the year 2001, 2005 nil). As a result of the agreement with the UK authorities no tax is payable for the years 2002-2006 as the notional trade calculation produced a loss. At the end of 2007 the IASC Foundation is carrying forward a loss for UK tax purposes of £768,000 (2006: £659,000, 2005: £573,000), which is not able to be offset against the interest income. Consistent with IAS 12, the IASC Foundation does not recognise this loss as a deferred tax asset, because of the uncertainty connected to utilising this in the future.

Inventory of publications amounted to £78,000 (2006: £64,000, 2005: £67,000).