3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3.1 Statement of Compliance

The consolidated financial statements of Borusan Holding A.Ş. and its subsidiaries have been prepared in accordance with IFRS.

3.2 Basis of Preparation

Borusan Holding A.Ş. and its Subsidiaries based in Turkey maintain their books of account and prepare their statutory financial statements ("statutory financial statements") in Turkish Liras (TL) in accordance with the Turkish Commercial Code ("TCC"), tax legislation and, starting from 1 January 1994, the Uniform Chart of Accounts issued by the Ministry of Finance and for Borusan Yatırım ve Pazarlama A.Ş. and Borusan Mannesmann Boru Sanayi ve Ticaret A.Ş., companies listed in the ISE, accounting principles issued by the Turkish Capital Market Board ("CMB Principles").

The foreign subsidiaries; Machinery Intertrade Limited, Vobarno, MIT Machine, MIT Machine Holding Machinery International and Borusan International Netherland Coop., maintain their books of account in Euro, Borusan Makina Kazakhstan LLP in Kazakh Tenges, Arya, BBM and Borusan International Pars Joint Stock Co. in Iran Rial, Borusan International Algeria SPA in Dinar, Borusan International Gulf FZE in Dirham, in accordance with the accounting principles and regulations accepted in the United Kingdom, Italy, Malta, Netherlands, Kazakhstan, Iran, Algeria and United Arab Emirates respectively.

The consolidated US dollar (USD) financial statements are based on the statutory records which are maintained under the historical cost convention with adjustments and reclassifications for the purpose of fair presentation in accordance with International Financial Reporting Standards (IFRS). The consolidated financial statements have been prepared under the historical cost convention except for land, buildings and machinery and equipment carried at revalued amounts (Note 12) and derivative financial instruments which are carried at fair values.

Certain reclassification to prior year consolidated financial statements:

Certain reclassification to prior year consolidated financial statements has been done to properly present with the current year consolidated financial statements. In this content, USD 29,952,051 has been reclassified from property, plant and equipment to "Advances given" under "Other Non-current assets" and USD 433,711 has been reclassified from trade receivables to long term trade receivables.

3.3 Basis of Consolidation

The consolidated financial statements include the financial statements of Borusan Holding A.Ş. and its Subsidiaries on the basis set out below:

Subsidiaries in which the Holding, directly or indirectly, has power to exercise control over their operations, have been consolidated. Control is evidenced by when the Holding owns, directly or indirectly through subsidiaries, more than half of the voting power of an entity.

Control also exists when the Holding owns half or less of the voting power of an entity when there is:

• Power to govern the financial and operating policies of the entity under an agreement; or,
• Power to appoint or remove the majority of the members of the board of the directors or equivalent governing body; or,
• Power to cast the majority of votes at meetings of the board of directors or equivalent governing body.

The principles of consolidation followed in the preparation of the consolidated financial statements are as follows:

• The balance sheets and statements of income of the Subsidiaries are consolidated on a line-by-line basis and the carrying value of the investment held by the Group is eliminated against the related equity accounts. Intercompany transactions and balances between the Group companies and unrealised gains or losses on transactions between the Group companies are eliminated. The investment cost and the dividends obtained from subsidiaries are eliminated from equity and income for the year, respectively.
• Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. Where necessary, accounting policies for Subsidiaries have been changed to ensure consistency with the policies adopted by the Group.
• Minority shareholders’ share in the net assets of the consolidated subsidiaries is separately classified in the consolidated equity and statements of income as minority interest. Kocabıyık Family members having interests in the share capital of the subsidiaries are treated as minority interest and excluded from the Group’s interests.

The consolidated financial statements comprise the financial statements of Borusan Holding and its Subsidiaries as at 31 December, each year. The financial statements of subsidiaries are prepared for the same reporting year as the Borusan Holding, using consistent accounting policies.

The following is a list of the operating subsidiaries at 31 December 2008 and 2007 detailing the Group’s controlling interest by direct voting power and the Group’s ultimate effective shareholding in such Subsidiaries’ equity at those dates:

3.4 Foreign Currency Translation

The consolidated financial statements are presented in USD, which is the Holding’s presentation currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. The USD is used to a significant extent, or has a significant impact on the operations of the Group and reflects the economic substance of the underlying events and circumstances relevant to the Group. Therefore, the Group companies mainly use the USD as functional currency. All currencies other than the functional currency selected for measuring items in the financial statements are treated as foreign currencies.

Based on the economic substance of the underlying events and circumstances relevant to the Group, the functional currency of certain subsidiaries of the Group has been determined to be USD as defined by IAS 21, due to the following reasons:

• The purchase and sales prices of the Group companies and the main services and products are mainly quoted in USD,
• A significant part of the financing and related finance costs of the Group is denominated in USD.

Transactions in foreign currencies are initially recorded in the functional currency rate ruling at the date of transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to translation gain / (loss) in the consolidated income statement. Non monetary items and equity balances (excluding profit or loss) that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions.

The functional currency of the Subsidiaries, Borusan Oto, Borusan Otomotiv, Borusan Makina, Borusan Güç, Supsan, Vobarno, Borusan International Netherlands Coop, Paslanmaz Boru and Borusan Ticari Sınai is Euro. The functional currency of Borusan Makina Kazakhstan is Kazakh Tenges, Arya Iran and Borusan International Pars Joint Stock Co. is Iran Rial. The functional currency of Borusan International Gulf is Dirham. The functional currency of Borusan International Algeria SPA is Dinar. As at the reporting date, the assets and liabilities of these subsidiaries are translated into the presentation currency of Borusan Holding A.Ş. (USD) at the rate of exchange ruling at the balance sheet date and, their income statements are translated at the weighted average exchange rates for the year.

The exchange differences arising on the translation are taken directly to a separate component of equity as currency translation reserve. On disposal of such subsidiaries, the deferred cumulative amount recognised in equity relating to that particular subsidiary is recognised in the income statement.

The Turkish countrywide wholesale price index (WPI) published by State Institute of Statistics and TL exchange rates for the purchases of USD announced by the Central Bank of the Republic of Turkey for the last three years were as follows:

3.5 Investment in Associates

An associate is an entity in which the Group has significant influence and which is neither a subsidiary nor a joint venture. Under the equity method, the investment in the associate is carried in the balance sheet at cost plus post-acquisition charges in the Group’s share of net assets of the associate. After application of the equity method, the Group determines whether it is necessary to recognise any additional impairment loss with respect to the Group’s net investment in the associate. The income statement reflects the share of the results of operations of the associate.

The reporting dates of the associate and the Group were identical and the associates’ accounting policies conformed to those used by the Group for like transactions and events in similar circumstances.

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