Notes to Consolidated Financial Statements cash flows or other valuation methods. When the fair value of the reporting unit is less than its carrying value, we allocate the fair value to all of its assets and liabilities, based on their fair values. The amount that the fair value of the reporting unit exceeds the total of the amounts assigned to its assets and liabilities is the fair value of goodwill. • we determine if there is an impairment by compar- ing the carrying value of goodwill to its fair value. Any excess is deducted from earnings. The way we account for a foreign operation depends on whether it is self-sustaining or integrated. A self-sustain- ing foreign operation is largely independent of the parent company. An inte- grated foreign operation depends on the parent  company to finance or run  its operations. For self-sustaining foreign operations, we use: Translation exchange gains and losses are reflected as a currency translation adjustment in shareholders’ equity. When we reduce our net investment in a self-sustaining foreign operation, we recognize a portion of the currency translation adjustment in earnings. For integrated foreign operations, we use: Translation exchange gains and losses are included in Other income in the statement of operations. Translation exchange gains and losses are included in Other income in the statement of operations. 88 Bell Canada Enterprises  2004 Annual Report • the exchange rates on the date of the balance sheet for assets and liabilities • the average exchange rates during the year for revenues and expenses. • the exchange rates on the date of the balance sheet for monetary assets and liabilities, such as cash, accounts receivable and payable, and long-term debt • the historical exchange rates for non-monetary assets and liabilities, such as capital assets • the average exchange rates during the year for  revenues and expenses. • the exchange rates on the date of the balance sheet for monetary assets and liabilities • the historical exchange rates for non-monetary assets and liabilities • the average exchange rates during the year for revenues and expenses. For domestic transactions made in foreign currencies, we use: We assess how effective derivatives are in managing risk when the hedge is put in place, and on an on- going basis. If a hedge becomes ineffective, we stop using hedge accounting. We follow these policies when accounting for  derivatives: • foreign exchange translation gains or losses on the net investment in foreign subsidiaries are recorded  as a currency translation adjustment. Any realized or unrealized gains or losses on instruments covering the net investment are also recognized as a currency trans- lation adjustment. • deferred gains or losses relating to derivatives that qualify for hedge accounting are recognized in earn- ings when the hedged item is sold or when the antici- pated transaction is ended early • gains and losses related to hedges of anticipated transactions are recognized in earnings or are recorded as adjustments of carrying values when the transaction takes place • derivatives that are economic hedges, but do not qualify for hedge accounting, are recognized at fair value. We record the change in fair value in earnings. • any premiums paid for financial instruments are deferred and expensed to earnings over the term of  the contract We do not use derivative financial instruments for speculative or trading purposes.  We document all relationships between derivatives and the items they hedge, and our risk management objective and strategy for using various hedges. This process includes linking every derivative to: • a specific asset or liability on the balance sheet, or • a specific net investment in self-sustaining foreign operations, or • a specific firm commitment, or • an anticipated transaction. We use various derivative financial instruments to hedge against: • interest rate risk • foreign exchange rate risk • changes in the price of BCE Inc. common shares relating to special compensation payments (SCPs). Derivative Financial Instruments Translation of Foreign Currencies Integrated Foreign Operations Domestic Transactions and Balances in Foreign Currencies Self-Sustaining Foreign Operations Translation of Foreign Currencies