Critical accounting policies

Note 3(B) to note 3(N) to the Group’s consolidated financial statements include a summary of the significant accounting principles and policies used in the preparation of our financial statements.

The preparation of financial statements, in conformity with generally accepted IFRS accounting principles, requires management to make estimates and assumptions that affect the amounts reported in the financial statements and notes to the financial statements. Actual results may differ from these estimates.

Certain accounting policies have been identified as the most critical accounting policies by considering which policies involve particularly complex or subjective decisions or assessments and these are discussed below.

Fixed assets and depreciation

Estimated useful lives and residual values are reviewed annually, taking into account prices prevailing at each balance sheet date. The carrying values of fixed assets are also reviewed for impairment where there has been a trigger event (that is, an event which may have resulted in an impairment) by assessing the present value of estimated future cash flows and net realisable value compared to net book value. The calculation of estimated future cash flows and residual values is based on our reasonable estimates of future prices, output and costs, and is, therefore, subjective.

Pensions

The Group operates an approved defined benefit scheme. We account for this scheme in accordance with IAS 19 “Employee benefits’’ with the cost of providing benefits determined using the projected unit credit method, and actuarial valuations being carried out at each balance sheet date. Inherent in these valuations are key assumptions, including discount rates, expected returns on plan assets, salary and pension increases and mortality rates. These actuarial assumptions are reviewed annually and modified as appropriate. We believe that the assumptions utilised in recording obligations under the scheme are reasonable based on prior experience, market conditions and the advice of scheme actuaries. However, actual results may differ from such assumptions.

Taxation

In accounting for taxation we make assumptions regarding the treatment of items of income and expenditure for tax purposes. We believe that these assumptions are reasonable based on prior experience and consultation with our advisers.

Full provision is made for deferred taxation, as required under IAS 12 “Income taxes”, at the rates of tax prevailing at the period end dates unless future rates have been substantively enacted. Deferred tax assets are recognised where it is considered more likely than not that they will be recovered.

Derivatives

The Group applies IFRS 7 “Financial instruments: disclosure”, IAS 32 “Financial instruments: disclosure and presentation” and IAS 39 ‘’Financial instruments: recognition and measurement’’. IAS 39 requires derivative financial instruments to be recorded in the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in earnings unless specific hedge accounting criteria are met.

The fair values of derivative instruments for commodities are determined using forward price curves. Forward price curves represent our estimates of the prices at which a buyer or seller could contract today for delivery or settlement of a commodity at future dates. We generally base forward price curves upon readily obtainable market price quotations, as our commodity contracts do not generally extend beyond the actively traded portion of these curves. However, the forward price curves used are only an estimate of how future prices will move and are, therefore, subjective.