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Accounting policies

Choices permitted under IFRS

Since 1 April 2005 we have presented our consolidated financial statements in accordance with IFRS. We were required to make a number of choices on the adoption of IFRS and in addition we continue to choose from certain options that are available within accounting standards.

The principal choices made on the adoption of IFRS, which cannot be changed, were as follows:


Option	Choice adopted
Transition date	Our opening IFRS balance sheet was established as at 1 April 2004. As a consequence goodwill amortisation ceased on this date and we used certain balances in our previous UK GAAP financial statements as the basis for our opening IFRS balance sheet.
Business combinations	Business combinations prior to 1 April 2004 were not changed retrospectively. In particular, we retained the use of merger accounting for the business combination with Lattice Group.
Financial instruments	We adopted IAS 39 on 1 April 2005. As a consequence, the results for 2004/05 are presented using different accounting policies for financial instruments from those used for 2005/06 and 2006/07.
Carrying value of assets at transition	In most cases, we used brought forward depreciated cost, as adjusted for changes in accounting policiesto conform with IFRS, to be the opening carrying value under IFRS.
Share-based payments	We recognised all active grants retrospectively.
Cumulative translation differences	We chose to measure and present cumulative translation differences arising since 1 April 2004 only.

Significant choices that we continue to make on an ongoing basis include the following:


Option	Choice adopted
Presentation formats	We use the nature of expense method for our income statement and total our balance sheet to net assets and total equity. In the income statement, we present subtotals of total operating profit, profit before tax and profit from continuing operations, together with additional subtotals excluding exceptional items and remeasurements. Exceptional items and remeasurements are presented on the face of the income statement.
Pensions	We recognise actuarial gains and losses each year in the statement of recognised income and expense.
Joint ventures	We use equity accounting for jointly controlled entities instead of the alternative proportional consolidation method.
Capitalised interest	We capitalise interest into the cost of assets that we construct.
Capital contributions	Contributions received towards capital expenditure are recorded as deferred income and amortised in line with the depreciation on the associated asset.
Timing of goodwill impairment reviews	Goodwill impairment reviews are carried out annually in the final quarter of the financial year.
Financial instruments	We normally opt to apply hedge accounting in most circumstances where this is permitted. For net investment hedges, we have chosen to use the spot rate method, rather than the alternative forward rate method.
Use of UK GAAP or IFRS in individual accounts	We have not adopted IFRS, and so continue to use UK GAAP, in the individual financial statements of National Grid plc and of UK subsidiary companies.