【正文】 rage exchange rates. The average rate of exchange is puted by taking the arithmetic mean for each period weighted by the operating profit in that period. Exchange differences arising on the retranslation of net assets of overseas subsidiary undertakings are presented as a separate ponent of equity.Cash flows are translated at appropriate average exchange rates.Where foreign currency borrowings have been used to finance, or provide a hedge against (as defined by IAS 39), equity investments in overseas subsidiary undertakings, exchange differences on the retranslation of the borrowings are taken to the cumulative translation adjustments reserve to the extent that they are an effective hedge. Where they relate to an ineffective hedge, the excess is included in operating profit.Where an overseas subsidiary undertaking is acquired or disposed of, the fair value of the net assets of that subsidiary undertaking are translated into sterling at the rate of exchange ruling on the transaction date for the purposes of determining the initial goodwill or the profit/loss on disposal. Consolidation adjustmentsA. Definition Consolidation adjustments are those adjustments which are necessary in preparing consolidated group accounts and are not reflected in the accounts of the individual entities being consolidated. There are essentially four types of consolidation adjustment:(i) Elimination of intergroup transactions (. turnover, profit on stock, etc.)(ii) Elimination of the cost of control (. the elimination of the cost of investment of an entity), recorded in a parent undertaking39。s accounts, against the net assets at the date of acquisition of the subsidiary undertaking. (iii) Processing bank setoff adjustments (eliminating cash balances against overdrafts with the same bank where the Group has a setoff arrangement). (iv) Processing centrally required adjustments which cannot be allocated to a specific entity.B. Group policy Adjustments in respect of specific entities are pushed down and reflected in the individual entity accounts and not held as central consolidation adjustments. Only those adjustments defined above are made in the preparation of consolidated Group accounts and held outside the scope of an individual entity39。s accounts. Such adjustments can only be made by Group Finance following the governance procedures adopted by that Group. Foreign currencies ()A. DefinitionsA foreign currency transaction is a transaction that is denominated or requires settlement in a foreign currency, including transactions arising when an entity buys or sells goods or services whose price is denominated in a foreign currency. Presentation currencyThe currency in which the financial statements are presentedFunctional currencyThe currency of the primary economic environment in which the entity operates.Foreign currencyA currency other than the functional currency of the entity.Monetary itemsCurrency and assets and liabilities that will be received or paid in a fixed amount of currency (balances to be settled by cash).RecognitionInitial recognitionForeign currency transactions shall be translated into the functional currency using the month end rate. Subsequent balance sheet datesMonetary itemsTranslated using the month end rate.Nonmonetary itemsItems measured at historical cost (. tangible assets) should be translated using the historical exchange rate.B. Group policyExchange differences on monetary assets and liabilities that are settled or retranslated at the end of the period shall be recognized as a ponent of operating profit in the profit or loss account.Financial statements of foreign operations are translated for purpose of consolidation as follows: assets and liabilities are translated at the closing rate, revenues and expenses are translated at average rate and equity ponents are not translated.Use of Month End RateIAS 21 paragraph 21 and 22 state that the spot rate or an approximation . weekly or monthly average rate should be used to translate foreign currency transactions. The Group has adopted a policy of using the previous month end balance sheet rate as the approximation for actual rate. The difference between the previous month ending rate and average rate would not fluctuate significantly. Prior period adjustmentsA. DefinitionPrior period adjustments are required to either:a) account for changes in accounting policies。 orb) correct material errors.An accounting policy can be changed only if the change is required by a new accounting standard or it results in the financial statements providing more reliable and relevant information.B. Group policy Prior period adjustments are accounted for by changing prior period paratives so that the financial statements are presented as if the new accounting policy had always been in place or as if the error had never occurred.Any accounting policy changes, together with the relevant accounting entries, will be advised by the Controller Group.Accounting errors should be brought to the attention of the Controller Group. The Controller Group will then advise on the appropriate accounting treatment. Post balance sheet eventsA. DefinitionPost balance sheet events are those events, both favourable and unfavourable, which occur between the balance sheet date and the date on which the financial statements are approved by the Board of Directors. Adjusting events are post balance sheet events which provide additional evidence of conditions existing at the balance sheet date. They include events which because of statutory or conventional requirements are reflected in financial statements. Examples include evidence of impairment in value of an asset, insolvency of a debtor or the discovery of an error or fraud.Nonadjusting events are post balance sheet events which concern conditions which did not exist at the balanc