Adoption of International Financial Reporting Standards
Following a Regulation issued by the Council of the European Union, the Group, along with all European Union listed groups, is required to adopt International Financial Reporting Standards (“IFRS”) in the preparation of its consolidated financial statements from 1 July 2005. The adoption of these standards will lead to significant changes in the Group’s accounting policies, results, and the presentation of its financial statements, which are currently in accordance with UK generally accepted accounting principles (“UK GAAP”).

In 2003, the Group established an IFRS transition steering committee, comprising the Chief Financial Officer, senior finance management and an independent adviser. The Committee is responsible for monitoring the progress of a dedicated transition working group, for decision-making, and for reporting to the Audit Committee in relation to the transition. The working group is undertaking an extensive analysis of the impact of IFRS across the Group, with the objective of ensuring full compliance with IFRS by 1 July 2005. Implementation plans are in progress to modify procedures, systems and controls as necessary. Training of the Group’s finance function in IFRS commenced in 2004, and the Group has been active in responding to public consultation documents issued by bodies including the International Accounting Standards Board (“IASB”), the Accounting Standards Board and the Securities and Exchange Commission on issues relating to the mandatory transition of European listed groups to IFRS.

Several uncertainties remain which affect the Group’s ability to assess the impact of IFRS, including whether the European Union will endorse the IFRS relating to financial instruments IAS 32 “Financial Instruments – Disclosure and Presentation” and IAS 39 “Financial Instruments – Recognition and Measurement” and whether the IASB and other related bodies will issue new or revised standards which will either be mandatory for the Group’s 30 June 2006 financial statements, or which the Group could adopt early voluntarily. However, based on the Group’s initial assessment, the key changes to the Group’s accounting policies as a result of the adoption of IFRS are expected to be in the following areas:

Intangible assets
IAS 38 “Intangible assets” provides more detailed guidance on intangible assets than UK GAAP, which may result in the reclassification of certain costs into intangible assets, including software development costs which are currently included within tangible fixed assets within the Group’s balance sheet.

Financial instruments and hedge accounting
The Group uses cross-currency and interest rate swaps and swaptions, and forward purchases of US dollars and Swiss francs to hedge its foreign currency and interest rate exposures. Under UK GAAP, these financial instruments are not recognised on the balance sheet, however, under IFRS, the Group will be required to recognise its derivative financial instruments on the balance sheet at fair value, with changes in fair value being recognised in the profit and loss account. Where hedge accounting is achieved under IAS 39, the profit and loss impact of the changes in fair value may be postponed and matched to the profit and loss account impact of the underlying hedged exposure. The Group does not see a requirement to change its current hedging policy as a result of the new requirements for achieving hedge accounting under IAS 39 and expects to be able to achieve hedge accounting for the majority of its financial instruments.

Share-based payments
Under current UK GAAP, the Group recognises a charge in the profit and loss account for its Long Term Incentive Plan (“LTIP”), Equity Bonus Plan (“EBP”) and Key Contributor Plan (“KCP”) based on the difference between the exercise price of the award and the price of a BSkyB share on the date of grant (the “intrinsic value”). Under IFRS 2 “Share-based payment”, the Group will be required to recognise a charge in the profit and loss account for all share options and awards based on the fair value of the awards as calculated at the grant date using an option-pricing model. This will introduce an additional cost for the Group, as Executive Scheme options, which have an intrinsic value of nil, and Sharesave scheme options, which are specifically exempt from the scope of current UK GAAP accounting, will have a fair value attached to them, and hence an associated profit and loss account charge under IFRS.

Goodwill
Under UK GAAP, the Group amortises goodwill on a straight-line basis over periods of up to 20 years. Under IFRS 3 “Business Combinations”, goodwill will no longer be amortised and will instead be subject to annual impairment testing. This will remove the cost of goodwill amortisation from the Group’s profit and loss account, although impairment losses, if identified, would be recorded in the profit and loss account.

This list should not be taken as a comprehensive or complete indication of the impacts that the adoption of IFRS may have on the Group’s financial statements, but it is indicative of the major adjustments to its financial reporting that the Group has identified to date.