This excerpt taken from the ICI 6-K filed Mar 16, 2005.
IAS 21 The effects of changes in foreign exchange rates
The Group has a range of intercompany funding arrangements in place in order to optimise the sourcing of finance for the Group and optimise the funding of its subsidiaries. Under both UK GAAP and IFRS, foreign exchange gains/losses on intra-group loans are recognised in the income
statement, unless the loans can be designated as part of the Groups investment in its foreign operations, when the exchange gains/losses can then be recognised in reserves. However, IFRS is stricter in determining which loans can be designated as part of the Groups investment in its foreign operations, including exclusion of intra-group loans that are not in the functional currency of either the lender or the borrower. Group Treasury has taken action to reduce the potential volatility arising from this change in accounting treatment. In particular, significant nonfunctional currency loans have been re-designated into sterling.
In addition to the above, the Group partially hedges its net investment in foreign subsidiaries by denominating external debt in a mix of foreign currencies. Under UK GAAP, the goodwill, which was offset against reserves is included as an asset in this hedge calculation. Under IFRS, goodwill in reserves is not designated as an asset and therefore cannot be used in the hedging calculation. The exclusion of goodwill in reserves from the assets in the hedge calculation will introduce volatility into the income statement as a result of the impact of foreign exchange differences arising from movements on that part of the debt that cannot be considered a part of the net investment hedge.