HORIZON ENERGY DISTRIBUTION LIMITED - Lines Business

NOTES TO THE FINANCIAL STATEMENTS

23 NEW ZEALAND EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS

In December 2002 the New Zealand Accounting Standards Review Board (ASRB) announced that New Zealand entities required to comply with NZ GAAP under Financial Reporting Act 1993 would be required to apply International Financial Reporting Standards (IFRS) for financial periods commencing on or after 1 January 2007 with earlier adoption permitted from 1 January 2005. The new standards that have been approved by the ASRB for application in New Zealand are referred to as New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) as certain adaptations have been made to reflect New Zealand circumstances.

Horizon Energy Distribution Limited has commenced reviewing its accounting policies and financial reporting to comply with NZ IFRS. The Company has allocated internal resources and is carrying out impact assessments to isolate key areas that will be impacted by the transition to NZ IFRS and to facilitate adoption of NZ IFRS. The Company will transition to NZ IFRS and publish its first set of annual financial statements prepared under NZ IFRS for the year ending 31 March 2008.

The Company has yet to finalise its accounting policies under NZ IFRS and as a consequence is yet to quantify with any degree of certainty the adjustments that will be required in the statement of financial position on adoption of NZ IFRS and the impact on financial performance thereafter.

The key differences between current NZ GAAP and NZ IFRS identified to date as potentially having a significant effect on the Company’s financial Statements are summarised below.

FINANCIAL INSTRUMENTS

All interest rate swap contracts will be recorded in the statement of financial position at fair value under NZ IFRS and be adjusted against opening equity. Any movements of the fair value of these instruments from year to year will have the potential to affect the statement of financial performance and the statement of financial position, the extent to which will depend on whether hedge accounting is adopted. The financial impact of the change cannot be reliably estimated at this stage and will be dependent on the extent to which hedge accounting is adopted and is effective.

DEFERRED TAXATION

The IFRS basis of accounting for deferred tax is conceptually different to current GAAP. Under current GAAP deferred taxation is calculated using the income statement approach whereas under NZ IFRS deferred taxation will be based on a balance sheet approach. This method recognises deferred tax balances where there is a difference between the carrying value of an asset or liability and its tax base. The most significant impact for the Company is the potential recognition of a deferred tax liability in relation to the revaluation of distribution assets. Due to the uncertainty of recognition, the financial impact cannot be reliably estimated at this stage.

CAPITAL CONTRIBUTIONS

Horizon Energy Distribution Limited currently recognises capital contributions as revenue in the year earned. NZ IFRS may require the Company to capitalise capital contributions to deferred income and amortise the balance over the life of the asset to the income statement. The financial impact of this change cannot be reliably estimated at this stage.

This summary shouldn’t be taken as an exhaustive list of all the differences between NZ GAAP and NZ IFRS. Further, the Company has not yet quantified the effects of these differences. Accordingly there can be no assurances that the financial performance and financial position as disclosed in these financial statements would not be significantly different if determined in accordance with NZ IFRS.