Notes to the Consolidated Financial Statements  Deferred tax is recognised using the balance sheet liability method, providing for temporary differences between the  carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of assets or liabilities in a  transaction that is not a business combination and that affects neither accounting or taxable profit, and differences  relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not  reverse in the foreseeable future. In addition, deferred tax is not recognised for taxable temporary differences arising on  the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to the  temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the  reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax  liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on  different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and  liabilities will be realised simultaneously.  A deferred tax asset is recognised to the extent that it is probably that future taxable profits will be available against  which the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are  reduced to the extent that it is no longer probable that the related tax benefit will be realised.  Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay  the related dividend is recognised.  The Company and its wholly-owned Australian resident entities are part of a tax-consolidated group. As a consequence,  all members of the tax-consolidated group are taxed as a single entity from the date of forming the tax consolidated  Group. The head entity within the tax-consolidated Group is Cardno Limited.  The head entity, in conjunction with other members of the tax-consolidated Group, has entered into a tax funding  arrangement which sets out the funding obligations of members of the tax-consolidated Group in respect of tax amounts. The tax funding arrangements require payments to/from the head entity equal to the current tax liability/(asset) assumed  by the head entity and any tax-loss deferred tax asset assumed by the head entity.  As of 1 July 2009 the Group determines and presents operating segments based on the information that internally is  provided to the Managing Director and Chief Financial Officer, who have been identified as the Group’s chief operating  decision makers. This change in accounting policy is due to the adoption of AASB 8  Operating Segments . Previously  operating segments were determined and presented in accordance with AASB 114  Segment Reporting . The new  accounting policy in respect of segment operating disclosures is presented as follows:  Nature of tax funding arrangements and tax sharing arrangements  Tax consolidation  (j) Segment Reporting  (i) Income Tax continued  1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED  Cardno Limited and its Controlled Entities for the year ended 30 June 2010 Comparative segment information has been re-presented in conformity with the transitional requirements of AASB 8. Since the change in accounting policy only impacts presentation and disclosure aspects, there is no impact on  earnings per share.  An operating segment is a component of the Group that engages in business activities from which it may earn  revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s  other components. All operating segments’ operating results are regularly reviewed by the chief operating decision  makers to make decisions about resources to be allocated to the segment and assess its performance, and for  which discrete financial information is available.  Segment results that are reported to the chief operating decision-makers include items directly attributed to the  segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise of mainly head  office expenses, financing costs, and income tax expense.  Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment,  and intangible assets other than goodwill.  Page 34 of 80 