NOTES TO THE FINANCIAL STATEMENTS CONTINUED Notes to and forming part of the Consolidated Financial Statements For the period from incorporation to 26 June 2004 Under the Australian equivalent to IAS 39  Financial Instruments – Recognition and  Measurement, gains or losses on the forward  exchange contracts will be recognised directly in  equity or in inventory or will be offset against  any gain or loss on the hedged item in the  statement of financial performance, depending on  the nature of the contract. The economic entity will be required to prepare  financial statements using Australian Standards  that comply with IFRS when the economic entity  reports in 2006. The economic entity has established a project  team to monitor and plan for the adoption of  IFRS. The project team has been considering  developments in IFRS and the likely impact  that these standards will have on our financial  reports and accounting policies. The following areas are those that have been  identified as potentially having an impact on the  Group’s accounting policies: Under the Australian equivalent to IAS 12 Income  Taxes, deferred tax balances are determined  using the balance sheet method which calculates  temporary differences based on the carrying  amounts of an entity’s assets and liabilities in  the statement of financial position and their  associated tax bases. In addition, current and  deferred taxes attributable to amounts recognised  directly in equity are also recognised directly  in equity.  Under the Australian equivalent to IFRS 3  Business Combinations, amortisation of goodwill  will be prohibited, and will be replaced by  annual impairment testing focusing on the cash  flows of the related cash generating unit. This will result in a change to the current  accounting policy, under which goodwill is  amortised on a straight line basis over 20 years. This will result in a change to the current  accounting policy, under which deferred tax  balances are determined using the income  statement method, items are only tax-effected if  they are included in the determination of pre-tax  accounting profit or loss and/or taxable income  or loss and current and deferred taxes cannot be  recognised directly in equity. Under the Australian equivalent to IFRS 2 Share- based Payments, equity-based compensation to  employees will be recognised as an expense over  the period between the grant date and the vesting  date of the equity instrument. The Company enters into foreign currency forward  exchange contracts in order to minimise the  exchange rate risk associated with the purchase  of inventory. The forward exchange contract  can either be based upon anticipated purchase  transactions or firm commitments. Currently,  any unrealised gains or losses on foreign  currency forward exchange contracts, together  with the cost of the contracts, are deferred and  recognised in the measurement of the underlying  transaction. (c) Forward Exchange Contracts  (b) Share-based compensation benefits  (a) Goodwill  (d) Income Tax  INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) 02  SUPER CHEAP AUTO GROUP LIMITED ANNUAL REPORT 2004 59