MACQUARIE · macquarie financial holdings limited acn 124 071 398 directors' report and financial...

MACQUARIE FINANCIAL HOLDINGS LIMITED ACN 124 071 398DIRECTORS' REPORT AND FINANCIAL REPORTYEAR ENDED 31 MARCH 2009 o

MACQUARIE

TABLE OF CONTENTS Page

Directors' report 4

Auditor's independence declartion 6

Rnancial report

Income statements 7

Balance sheets 8

Statements of changes in equity 9

Cash flow statements 10

Notes to the financial statements

1. Macquarie Group Restructure 11

2. Summary of significant accounting policies 11

3. Profit for the financial year 22

4. Income tax benefit/(expense) 24

5. Dividends paid 25

6. Due from banks 25

7. Cash collateral on securities borrowed and reverse repurchase agreements 25

8. Trading portolio assets 25

9. Loan assets held at amortised cost 25

10. Impaired financial assets 26

11. Other financial assets at fair value through profit or loss 26

12. Other assets 26

13. Investment securities available for sale 27

14. Intangible assets 27

15. Interests in associates and joint ventures using the equity method 27

16. Propert, plant and equipment 29

17. Investments in subsidiaries 30

18. Deferred income tax assets/Qiabilties) 31

19. Non-current assets and disposal groups classified as held for sale 31

20. Due to banks 32

21. Cash collateral on securities lent and repurchase agreements 33

22. Trading portolio liabilties 33

23. Debt issued at amortised cost 33

24. Other financial liabilties at fair value through profit or loss 33

25. Other liabilties 33

26. Provisions 34

27. Loan capital 34

28. Contributed equity 35

29. Reserves, retained earnings and minority interests 36

30. Notes to the cash flow statements 37

31. Related part information 38

32. Key management personnel disclosure 40

33. Employee equity partiCipation 41

34. Contingent liabilties and commitments 43

35. Capital and other expenditure commitments 43

2 Macquane Financial Holdings Limited 2009 Annual Report

TABLE OF CONTNTS (continued)

36.

37.

38.

43

44

46

46

56

58

60

62

63

64

39.

40.

41.

42.

Lease commitments

Derivative financial instruments

Financial risk management

38.1 Credit risk

38.2 Liquidity risk

38.3 Market risk

Fair values of financial assets and liabilties

Audit and other services provided by PricewaterhouseCopers

Acquisitions and disposals of subsidiaries

Events occurring after balance sheet date

Directors' declarationIndependent auditor's report to the members

6566

3

Macquane i-inanciai Hoiaings L1mltea ana itS suosiaianes

Directors' Reportfor the financial year ended 31 March 2009

In respect of the financial year ended 31 March 2009, theDirectors of Macquarie Financial Holdings Limited ("theCompany") submit the following report made out inaccordance with a resolution of the Directors.

Directors

The following persons have held offce as Directors of theCompany during the year, until the date of this report,unless otherwise stated:Stuart John Dyson (appointed 21 February 2007; resigned13 October 2008)

- Wallace Richard Sheppard (appointed 21 February 2007;

resigned 22 October 2008)- Greg Colin Ward (appointed 21 February 2007)

Robert Neil Upfold (appointed 13 October 2008)Mark Ferrer (appointed 13 October 2008)

Principal activities

The principal activity of the Company is to act as theholding company of the Non-Banking Group within theMacquarie Group. The Non-Banking Group comprisesmost of the activities of the Macquarie Capital Group andcertain Macquarie Securities Group and Treasury &Commodities Group activities.

Result

The consolidated profit from ordinary activities afterincome tax. attributable to ordinary equity holders, underAustralian Accounting Standards, for the financial yearended 31 March 2009 was $516 milion (2008: $312millon).

Dividends and distributions

The Company paid a final dividend in relation to the 2008year of $157 millon on 4 July 2008.

There were no other dividends paid or provided for duringthe financial year.

State of Affairs

In the opinion of the Directors, there were no signifcantchanges in the state of affairs of the Company thatoccurred during the financial year under review nototherwise disclosed in this report.

Review of operations

The revenues and results of the Company and itssubsidiaries during the financial year were:

2009 2008$m $m

Net operating income

Profit attributable to ordinaryequity holders of Macquarie

.f.i!:~r:91~LIj~I9.ir:gs_Lirrlt~9.__

2,494 1,390

516 312.m.......m.................._~.... ............................_H.......

Events subsequent to balance dateAt the date of this report, the Directors are not aware ofany matter or circumstance which has arisen that hassignifcantly affected or may significantly affect theoperations of the Company, the results of thoseoperations or the state of affairs of the Company in thefinancial years subsequent to 31 March 2009 nototherwise disclosed in this report.


Ukely developments, business strategies andprospects

Disclosure of information relating to the futuredevelopments in the operations, business strategies andprospects for future financial years of the Company havenot been included in the report because the Directorsbelieve it may result in unreasonable prejudice to theCompany.

Directors' indemnification

Under the Company's Constitution, the Companyindemnifies all past and present Directors and Secretariesof the Company, including at this time the Directorsnamed in this report and the Secretary or Secretaries,against every liabilty incurred by them in, and all legalcosts incurred in defending or resisting (or otherwise inconnection with) proceedings in which they becomeinvolved because of, their respective capacities unless:

(a) The liabilty is owed to the Company or to a related bodycorporate;

(b) The liabilty did not arise out of the conduct of good faith;(c) The liabilty is for a pecuniary penalty order or a

compensation order under the Corporations Act 2001("the Act")

(d) In the case of legal costs, the costs are incurred in

defending or resisting a liabilty excluded above, criminalproceedings in which the person Is found guilty orproceedings brought by the Australian Securities &Investments Commission or a liquidator where grounds fora court order are established nbut excluding costs relatingto investigations before commencement of proceedingsfor the court order), or the costs are incurred in relation toproceedings for relief to the person under the CorporationsAct 2001 in which the court denies relief;

(e) The Company is forbidden by statute to indemnify theperson against the liabilty or legal costs; or

(~ An indemnity by the Company of the person against theliabilty or legal costs would, if given, be made void bystatute.

Each of the Directors and Secretaries having the benefit ofthe indemnity provisions under the Company'sConstitution, agreed by deed poll that those indemnitieswould not apply to the extent to which an indemnity forany liabilty or legal costs is forbidden by Australian statuteor would, if given, be made void by Australian statute.These limitations on the indemnities have subsequentlybeen adopted into the indemnity provisions of theCompany's Constitution with the effect that theselimitations now apply directly to the Directors andSecretaries.

Environmental regulations

The Company has policies and procedures in place thatare designed to ensure that, where operations are subjectto any particular and significant environmental regulationunder a law of the Commonwealth or of a State orTerritory, those obligations are identified and appropriatelyaddressed.

The Directors have determined that there has not beenany material breach of those obligations during the

financial year.

Auditor's Independence Declaration

A copy of the auditor's independence declaration, asrequired under section 307C of the Act, is set out on page6 of this report.

This report is made in accordance with a resolution of theDirectors.

Rounding

The Company is of a kind referred to in AustralianSecurities and Investments Commission Class Order98/0100 (as amended), relating to the "rounding off" ofamounts in the financial report. Amounts in the financialreport have been rounded off in accordance with thatClass Order to the nearest milion dollars unless otherwiseindicated.

G~W~~Director

Sydney27 May 2009

5

Macquane i-inanciai HOldings Limited and Its subsidiaries

Auditor's Independence Declaration

fJcEWTfRHOUSf(aJPERS fiAs lead auditor for the audit of Macquarie FinancialHoidings Limited for the year ended 31 March 200, Ideclare that to the best of my knowledge and belief, therehave been:

a) no contraventions of the auditor independencerequirements of the Corprations Act 2001 in relation tothe audit; and

b) no contraventions of any applicable code of professional

conduct in relation to the audit.

This declaration is in respect of Macquarie FinancialHoldings Limited and the entities it controlled during theperiod.

DH ArstrongPartnerPricewaterhouseCoopers

Sydney27 May 2009

l.

Uabilty is limited by a scheme approved under Professionalstandards Legislation


Income statementsfor the financial year ended 31 March 2009

Consolidated Consolidated Company Company2009 2008 2009 2008

Notes $m $m $m $m

Interest and similar income 1,222 463 774 346

Interest expense and similar charges (1 ,244) (425) (898) (370)

Net interest (expense)/income 3 (22) 38 (124) (24)

Fee and commission income 3 2,987 1,384 (2)

Net trading expense 3 (34) (137) (364) (52)

Share of net losses of associates and joint ventures usingthe equity method 3 (25) (7)

Other operating income and charges 3 (98) 112 (12,135) 3

Net operating income/(Ioss) 2,494 1,390 (12,623) (75)

Employment expenses 3 (996) (641)

Brokerage and commission expenses 3 (176) (52) (8)

Occupancy expenses 3 (210) (52)

Non-salary technology expenses 3 (1 07) (31)

Other operating expenses 3 (533) (203) 15

Total operating expenses (2,022) (979) 7

Operating profit/(Ioss) before income tax 472 411 (12,616) (75)

Income tax benefit/(expense) 4 66 (99) 141 22

Profit/(Ioss) from ordinary activities after income ta 538 312 (12,475) (53)

Profit attributable to minority interests (22)

Profit/(Ioss) attributable to ordinary equity holders ofMacquarie Financial Holdings Limited 516 312 (12,475) (53)

The above income statements should be read in conjunction with the accompaying notes.

7

Macquane Financial Holdings Limited and its subsidiaries

Balance sheetsas at 31 March 2009


Notes $m $m $m $m

AssetsDue from banks 6 2,057 2,702Cash collateral on securities borrowed and reverserepurchase agreements 7 563 1,629Trading portolio assets 8 488 601Loan assets held at amortised cost 9 823 5,559 41 223Other financial assets at fair value through profit orloss 11 2,284 441Derivative financial instruments - positive values 37 93 218Other assets 12 5,546 6,552 26 38Investment securities available for sale 13 3,602 1,701 2,495 751

Intangible assets 14 422 362Due from related body corporate entities 31 2,954 6,222 277 4,507Due from subsidiaries 31 9,954 10,080Interests in associates and joint ventures using theequity method 15 4,611 3,588Propert, plant and equipment 16 395 214Investments in subsidiaries 17 3,796 16,184Deferred income tax assets 18 556 375 40Non-current assets and assets of disposal groupsclassified as held for sale 19 1,053 932Total assets 25,447 31,096 16,629 31,783

LiabilitiesDue to banks 20 956 1 ,427

Cash collateral on securities lent and repurchaseagreements 21 72 312Trading portolio liabilties 22 181 1,109Derivative financial instruments - negative values 37 98 246Deposits 159 233Debt issued at amortised cost 23 2,352Other financial liabilties at fair value through profit orloss 24 2,364 105Other liabilties 25 5,781 6,935 12 17Current tax liabilties 72 116 2

Due to related body corporate entities 31 10,769 14,338 10,441 13,902Due to subsidiaries 31 1,905 920Provisions 26 65 60Deferred income tax liabilties 18 4 69 4Liabilities of disposal groups classified as held forsale 19 619 215Total liabilties excluding loan capital 21,140 27,517 12,358 14,845

loan capita

Macquarie Convertible Preference Securities 27 600Subordinated debt at amortised cost 27 6 13

Tota loan capital 606 13Tota liabilties 21,746 27,530 12,358 14,845Net assets 3,701 3,566 4,271 16,938

EquitContributed equity

Ordinary share capital 28 16,952 16,990 16,952 16,990Equity contribution from ultimate parent entity 28 193 94

Reserves 29 (14,195) (13,860) 4 1

Retained earnings/(accumulated losses) 29 671 312 (12,685) (53)Total capital and reserves attributable to equityholders of Macquarie Financial Holdings Umited 3,621 3,536 4,271 16,938Minority interests 29 80 30Tota equit 3,701 3,566 4,271 16,938

The above balance sheets should be read in conjunction with the accompanying notes.


Statements of changes in equityfor the financial year ended 31 March 2009


Notes $m $m $m $m

Total equit at the beginning of the financialyear 3,566 16,938Available for sale investments, net of tax (179) (4) (1)Cash flow hedges, net of tax 29 (6) (1)

Associates and joint ventures 29 (92) (3)

Exchange diferences on translation of foreignoperations (31) (4) 4Net (expense)/income recognised directly inequit (308) (12) 3

Profrt(Ioss) from ordinary activities after incometax 538 312 (12,475) (53)Total recognised income and expense for thefinancial year 230 300 (12,472) (52)

Transactions with equity holders in their capacity asequity holders:

Contributions of equity, net of transaction costs 28 9 16,990 9 16,990Reduction of capital 28 (47) (47)Dividends paid 5 (157) (157)Contributions from Macquarie Group Limited inrelation to share based payments 28 99 94Reserves arising from acquisition of subsidiariesfrom MBL 29 (19)Reserves arising from Macquarie Grouprestructure 29 (14,000)

Minority interests:

Contribution of equity, net of transaction costs 10 31

Change in retained eamings due to acquisitionsand disposals 10 (1)

Other equity movements:

Net movement of available for sale reservearising from Group restructure 29 152

Total equit at the end of the financial year 3,701 3,566 4,271 16,938

Total recognised income and expense for thefinancial year attributable to:

Ordinary equity holders of Macquarie FinancialHoldings Limited 200 300 (12,472) (52)Other minority Interest 30

Total recognised income and expense for thefinancial year 230 300 (12,472) (52)

The above statements of changes in equit should be red in conjunction wih the accompanying notes.

9


Cash flow statementsfor the financial year ended 31 March 2009


Notes $m $m $m $m

Cash flows from operating activitiesI nterest received 1,313 342 710 336

Interest and other costs of finance paid (1 ,242) (424) (897) (370)

Dividends and distributions received 286 109 220

Fees and other non-interest income received 3,740 1,037 3

Fees and commissions paid (204) (52) (12) (2)

Net (payments)/receipts from trading portolioassets and other financial assets/iabilities (425) 792 (389) (45)

Payments to suppliers (575) (806) 15

Employment expenses paid (2,013) (698)

Income tax paid (144) (92) (3)

Non-current assets disposal groups classified asheld for sale - net payments from operations (157) (317)

Net loan assets repaid/(granted) (3,007) 4,028 (875) 3,582

Recovery of loans previously written off 3

Net increase/(decrease) in amounts due to otherfinancial institutions, deposits and other borrowings 3,167 1,222 (1 )

Net cash flows from/(used in) operating activities 30 742 5,141 (1,231) 3,503

Cash flows from investing activitiesNet payments for/proceeds from financial assetsavailable for sale and at fair value through profit orloss (2,181 ) (63) (132) 7

Payments for interests in associates (1,120) (748)

Proceeds from the disposal of associates 204 450

Payments for acquisition of assets and disposalgroups classified as held for sale, net of cashacquired (55) (189)

Proceeds from the disposal of non-current assetsof disposal groups classified as held for sale, net ofcash disposed 182 247

Payments for the acquisition of subsidiaries,excluding disposal groups, net of cash acquired (82) (14,686) (16,096)Proceeds from the disposal of subsidiariesexcluding disposal groups, net of cashdeconsolidated 330 38

Payments for propert, plant and equipment (198) (66)

Proceeds from the disposal of propert, plant andequipment 33

Net cash flows used in investing activities (2,887) (15,055) (94) (16,089)

Cash flows from financing activitiesProceeds from the issue of ordinary shares 28 16,990 16,990

(Payments to)/proceeds from minority interests (181 ) 8

Issue of Macquarie Convertible PreferenceSecurities 600

Dividends and distributions paid (157) (157)

Net cash flows from/(used in) financing activities 262 16,998 (157) 16,990

Net (decrease)/increase in cash and cashequivalents (1 ,883) 7,084 (1 ,482) 4,404

Cash and cash equivalents at the beginning of the financialyear 7,084 4,404

Cash and cash equivalents at the end of thefinancial year 30 5,201 7,084 2,922 4,404

The abve cash now statements should be read in conjunction with the accompaying notes.

10 Macquarie Financial Holdings Limited 2009 Annual Report

Notes to the financial statementsfor the financial year ended 31 March 2009

Note 1. Macquarie Group Restructure

In the preceding financial year, the Macquarie Grouprestructured into a non-operating holding companystructure. This followed receipt of the requisite approvalsby Macquarie Bank Limited (MBL) shareholders andoption holders, as well as the Federal Treasurer, Australian

Prudential Regulation Authority (APRA) and the FederalCourt of Australia. This restructure resulted in MacquarieGroup Limited (MGL) being established as the ultimateparent of the Macquarie Group. The Macquarie Groupcomprises two separate sub-groups, a Banking Groupand a Non-Banking Group. The Non-Banking Groupcomprises Macquarie Financial Holdings Limited (theCompany) and its subsidiaries (together, the consolidatedentity).

On restructure, ordinary shareholders and option holdersof MBL obtained one MGL ordinary share/option for eachordinary share/option they held in MBL prior to

. implementation of the restructure.

The restructure was accounted for as a reverse acquisitionin MGL's 31 March 2008 consolidated financialstatements, with MBL identifed as the acquirer inaccordance with AASB 3 Business Combinations.

Under the restructure, following MBL becoming a legalsubsidiary of MGL, MBL sold certain subsidiaries andassets to the Company and the consolidated entity for fairvalue at the restructure date. The Company accounts forthe acquisition of the subsidiaries and assets as a'common control' transaction with assets and liabilties ofthe acquired businesses measured at the carryingamounts previously r8Cognised in MBL's financialstatements at the date of acquisition. The differencebetween the consideration given and the carrying amountis recognised directly in reserves in the consolidatedfinancial statements. The majority of MBL's profits on saleof these subsidiaries was distributed by MBL via dividendsto MGL. MBL also obtained shareholder approval toreduce its capital by $3,000 millon. The funds received byMGL from these transactions were contributed to thecapital base of the Non-Banking Group and assisted infinancing the acquisition of the subsidiaries and assetsfrom MBL by the Non-Banking Group. MBL also paid adividend to MGL of $2,250 milion and MGLsimultaneously subscribed the same amount to MBL as acapital injection. These transactions occurred on 16November 2007. On 19 November 2007, a new holdingcompany (Macquarie B.H. Pt Limited) was introducedbetween MGL and MBL.

Note 2. Summary of signifcant accounting policies

Q Basis of preparationThe principal accounting policies adopted in thepreparation of this financial report are set out below.These policies have been consistently applied unlessotherwise stated.

This financial report is a general purpse financial reportwhich has been prepared in accordance with AustralianAccounting Standards (which includes AustralianInterpretations by virtue of AASB 1048 Interpretation andApplication of StandardS¡ and the Corprations Act 2001 .

The comparative period presented for the incomestatements, statements of changes in equity and cashflow statements is the period 21 February 2007 (the dateof incorporation of the Company) to 31 March 2008. TheCompany was dormant from 21 February 2007 until 13November 2007, the date of the Macquarie Grouprestructure, when the Company acquired certainsubsidiaries and assets from MBL, a related bodycorporate entity.

Compliance with IFRS as issued by the IASB

Compliance with Australian Accounting Standards ensuresthat the financial report complies with IntemationalFinancial Reporting Standards QFRS) as issued by theInternational Accounting Standards Board (IASB).Consequently, this financial report iias also been preparedin accordance with and complies with IFRS as issued bythe IASB.

Historical co convention

This financial report has been prepared under the historicalcost convention, as modifed by the revaluation ofinvestment securities available for sale and certain otherassets and liabilties Oncluding derivative instruments) atfair value.

Criical accounting estimates and signifcant judgements

The preparation of the financial report In conformity withAustralian Accounting Standards requires the use ofcertain critical accounting estimates. It also requiresmanagement to exercise judgement in the process ofapplying the accounting policies. The notes to the financialstatements set out areas involving a higher degree ofjudgement or complexity, or areas where assumptions aresignifcant to the Company and consolidated financialreport such as:fair value of financial instruments (Note 39);

- impairment of loan assets held at amortised cost,

investment securities available for sale, associates andjoint ventures and held for sale investments (Notes 2(xi),2(xii), 10 and 38.1);

- acquisitions and disposals of subsidiaries and associates

and joint ventures, and assets and disposal groupsclassifed as held for sale (Notes 20i), 2(xi), 15, 17 and 19);andrecoverabilty of deferred tax assets (Notes 2(vI), 4 and 18).

11

Macquane FinanCial Holdings Limited and its subsidiaries

Notes to the financial statementsfor the financial year ended 31 March 2009continued

Note 2. Summar of signifcant accounting policiescontinued

i) Basis of preparation continued

Estimates and judgements are continually evaluated andare based on historical exprience and other factors,including reasonable expectations of future events.Management believes the estimates used in preparing thefinancial report are reasonable. Actual results in the futuremay difer from those reported.

Eary adoption of amendments to Accounting Standards

The Company and the consolidated entity have elected toapply AASB 2008-7 Amendments to AustraianAccounting Standards - Cost of an Investment in aSubsidiary Jointly Controlled Entity or Associate to thefinancial year beginning 1 April 2008.

Prior to the adoption of AASB 2008-7, distributionsreceived from the pre-acquisition retained earnings of asubsidiary, associate or joint venture were recognised as areduction in the cost of the investment. With the adoptionof AASB 2008-7, all dividends received are recognised inthe income statement. This change in accounting policy isapplied for prospectively from 1 April 2007.

AASB 2008-7 also amends the Company's accountingpolicy applied to group reorganisations where a newparent is established as part of the reorganisation.Consistent with the policy applied by ìhe ultimate parent

entity, MGL, this change in accounting policy is accountedfor retrospectively.

There is no impact on the Company's and consolidatedentity's financial report as at 31 March 2008 and 31 March2009 from the application of AASB 2008-7.

New Accounting Stndards, amendments to AccountingStdards and Interpretations that are not yet efftive

Certain new Accounting Standards, amendments toAccounting Standards and Interpretations have beenpublished that are mandatory for the Company and theconsolidated entity for financial years beginning on or after1 April 2009.

When a new accounting standard is first adopted, anychange in accounting policy is accounted for inaccordance with the specific transitional provisions Of any),otherwise retrospectively.

The Company's and the consolidated entity's assessmentof the impact of the key new Accounting Standards,amendments to Accounting Standards and Interpretationsis set out below:


- AASB 101: Presentation of Rnancia Statements andAASB 2007-08: Amndments to Austraian AccountingStandards arising from AASB 101 (effective from 1January 2009). A revised AASB 101 was issued inSeptember 2007 and is applicable for annual reportingperiods beginning on or after 1 January 2009. It requiresthe presentation of a statement of comprehensive incomeand makes changes to the statement of changes in equity,but wil not affect any of the amounts recognised in thefinancial statements. If an entity has made a prior periodadjustment or has reclassified items in the financialstatements, it wil need to disclose a third balance sheet(statement of financial position), this one being as at thebeginning of the comparative period.

- AASB 3 Business Combinations, AASB 127 Consolidated

and Sepate Rnancial Statements and AASB 2008-3

Amendments to Austraian Accounting Standards arisingfrom AASB 3 and AASB 127 were issued in March 2008and are applicable for annual reporting periods beginningon or after 1 July 2009. These Standards amend theaccounting for certain aspects of business combinationsand changes in ownership interests in subsidiaries.Consequential amendments have ben made to AASB128 Investments in Associates and AASB 131 Interests inJoint Ventures. The key changes arising from theseStandards are as follows:- transaction costs are recognised as an expense at the

acquisition date, unless the cost relates to issuing debtor equity securities;

- contingent obligations are measured at fair value at theacquisition date (allowing for a 12 month period post-acquisition to affrm fair values) without regard to theprobabilty of having to make a Mure payment, and allsubsequent changes in fair value are recognised inprofit;

- changes In control are considered signifcant economicevents, thereby requiring ownership interests to beremeasured to their fair value (and the gain/ossrecognised in profit) when control of a subsidiary isgained or lost;

- changes in a parent's ownership interest in a subsidiarythat do not result in a loss of control (e.g. dilutionarygains) are recognised directly in equity.

These Standards wil be initially applied in the financial yearbeginning 1 April 2010 on a prospective basis. As such,the impact that initial application of these Standards isexpected to have on the consolidated entity's financialreport is not known or reasonably estimable at this time.Interpretation 16 Hedges of a Net Investment in a ForeignOperation was issued in August 2008 and is mandatoryfrom 1 April 2009. Interpretation 16 provides guidance onnet investment hedging, and its initial application is notexpected to have any material impact.

New Acounting Stdards, amendments to Acounting

Stndards and Interpretations that are not yet effectivecontinued

- AASB 2008-5 Amendments to Australian AccountingStandards arising from the Annual Improvements Project(mandatorily applicable from 1 January 2009) and AASB2008-6 Further Amendments to Austraian AccountingStandards arising from the Annual Improvements Process(mandatorily applicable from 1 July 2009) were issued inJuly 2008. These Standards make a number ofamendments, the more relevant ones for the consolidatedentity being:- claring under AASB 5 Non-current assets held for

sale and discontinued operations that all of asubsidiary's assets and liabilties are classifed as heldfor sale if a partial disposal sale plan results in loss ofcontrol;

- clarifing under AASB 128 Investments in associates

that an investment in associate is treated as a singleasset for the purposes of impairment testing. Anyimpairment loss is not allocated to specifc assetsincluded within the investment, for example, goodwil.Reversls of impairment are recorded as an adjustment

to the investment balance to the extent that therecoverable amount of the associate increases;

- amending AASB 139 Rnancial instruments: Recognitionand Measurement to clarif that it is possible for thereto be reclassifcations into and out of the fair valuethrough profit or loss category where a derivativecommences or ceases to qualif as a hedginginstrument in cash flow or net investment hedge. Thedefinition of financial asset or financial liabilty at fairvalue through profit or loss as it relates to items that areheld for trading is also amended. This clarifies that afinancial asset or liabilty that is part of a portolio offinancial instruments managed together with evidenceof an actual recent pattern of short-term profit taking Isincluded in such a portolio on initial recognition.

Most of the amendments are consistent with theconsolidated entity's existing policies. None of theamendments are expected to have an impact uponadoption. The consolidated entity will apply theseamendments for the first time from 1 April 200 and 1April 2010 respectively.

iij Principles of consolidation

Subsidiares

The consolidated financial report comprises the financialreport of the Company and its subsidiaries. Subsidiariesare all those entities Qncluding speial purpose entities)over which the Company has the power to govem directlyor indirectly decision-making in relation to financial andoperating policies, so as to require that entity to conformwith the Company's objectives. The effects of alltransactions between entities in the consolidated entity areeliminated in fulL. Minority interests in the results and equityof subsidiaries, where the Company owns less than 100per cent of the issued capital, are shown separately in theconsolidated income statement and balance sheet,respectively.

Where control of an entity was obtained during thefinancial year, its results have been included in theconsolidated income statement from the date on whichcontrol commenced. Where control of an entity ceasedduring the financial year, its results are included for thatpart of the financial year during which control existed.

The Company and consolidated entity determine the datesof obtaining control Q.e. acquisition date) and losingcontrol Q.e. disposal date) of another entity based on anassessment of all pertinent facts and circumstances thataffect the abilty to govern the financial and operatingpolicies of that entity. Facts and circumstances that havethe most impact include the contractual arrangementsagreed with the coiJnterpart, the manner in which thosearrangements are expected to operate In practice, andwhether regulatory approval is required to complete. Theacquisition/disposal date does not necessarily occur whenthe transaction is closed or finalised at law.

Subsidiaries held by the Company are carried in itsseparate financial statements at cost in accordance withAASB 127 Consolidated and Sepate Rnancial

Statements.

Impairment of subsidiaries

Investments In subsidiaries are tested annually forimpairment or more frequently if events or changes incircumstances Indicate that the carrng amount may notbe recoverable. An impairment loss is recognised for theamount by which the investments carrng amountexceeds its recoverable amount (which is the higher of fairvalue less costs to sell and value in use). At each balancesheet date, investments in subsidiaries that have beenimpaired are reviewed for possible reversal of theimpairment.

13

Macquane i-inanciai Hoiaings L1mltea ana ItS suosiaianes


Note 2. Summary of signifcant accounting policiescontinued

ii) Principles of consolidation continued

Interests in associates and joint ventures using the equitmethod

Associates and joint ventures are entities, over which theconsolidated entity has significant influence or joint control,but not control, and are accounted for under the equitymethod except for those which are classified as held forsale (see Note 2(xi)). The equity method of accounting isapplied in the consolidated financial report and involvesthe recognition of the consolidated entity's share of itsassociates' and joint ventures' post-acquisition profits orlosses in the income statement, and its share of post-acquisition movements in reserves.

The Company and consolidated entity determine the datesof obtaining/osing significant influence or joint control ofanother entity based on an assessment of all pertinentfacts and circumstances that affect the abilty tosignificantly influence or jointly control the financial andoperating policies of that entity. Facts and circumstancesthat have the most impact include the contractualarrangements agreed with the counterpart, the manner inwhich those arrangements are expected to operate inpractice, and whether regulatory approval is required tocomplete. The acquisition/disposal date does notnecessarily occur when the transaction is closed orfinalised at law.

Associates and joint ventures held by the Company arecarried in its separate financial statements at cost inaccordance with AASB 127 Consolidated and SeparateFinancial Statements.

ii) Business combinations

The purchase method of accounting is used to accountfor all business combinations, except combinationsbetween entities or businesses under common control.Cost is measured as the aggregate of the fair values (atthe date of exchange) of assets given, equity instrumentsissued or liabilties incurred or assumed at the date ofexchange plus any costs directly attributable to thecombination. Transaction costs arising on the issue ofequity instruments are recognised directly in equity, andthose arising on borrowings are capitalised and included ininterest expense on an effective yield basis.

Identifiable assets acquired and liabilties and contingentliabilities assumed in a business combination aremeasured initially at their fair value at the acquisition date.The excess of the cost of the business combination overthe fair value of the consolidated entity's share of the netfair value of identifiable assets, liabilties and contingentliabilities r8Cognised is recorded as goodwil. If the cost ofthe business combination is less than the consolidatedentity's share of the fair value of the identifable net assetsof the business acquired, the diference is recognisedimmediately in the income statement, but only after areassessment is performed of the identification andmeasurement of the net assets acquired.


Where settlement of any part of cash consideration isdeferred, the amounts payable in the future are discountedto their present values as at the date of exchange. Thediscount rate used is the entity's incremental borrowingrate, being the rate at which a similar borrowing could beobtained from an independent financier under comparableterms and conditions.

Combinations between entities or businesses undercommon control

Combinations between entities under common control arebusiness combinations in which all of the combiningentities or businesses ultimately are controlled by thesame part or parties both before and after thecombination and that control is not transitory. In theconsolidated financial statements of the Company, assetsand liabilties of the acquired entities are measured at thecarrying amounts recognised previously in the seller'sconsolidated financial statements at the date of thecombination. In the separate financial statements of theCompany, assets and liabilties of the acquired businessesare measured at the carrying amounts recognisedpreviously in the seller's financial statements at the date ofthe combination. Any diference between the fair value ofthe consideration given over the carring amountsrecognised Is recorded directly In reserves arising from theGroup restructure.

iv) Foreign currency translations_

Functional and presentation currency

Items included in the financial statements of foreignoperations are measured using the currency of the primaryeconomic environment in which the foreign operationoperates (the functional currency). The Company andconsolidated entity's financial statements are presented inAustralian dollars (presentation currency), which is theCompany's functional currency.

Transactions and baances

Foreign currency transactions are translated into thefunctional currency using the exchange rates prevailng atthe dates of the transactions. Foreign exchange gains andlosses resulting from the settlement of such transactionsand from the translation at period-end exchange rates ofmonetary assets and liabilities denominated in foreigncurrencies are recognised in the income statement, exceptwhen deferred in equity as a result of meeting cash flowhedge or net investment hedge accounting requirements(see Note 2(x)).

Translation diferences on non-monetary items (such asequities) held at fair value through profit or loss, arereported as part of the fair value gain or loss in the incomestatement. Translation differences on non-monetary items(such as equities) classifed as available for sale financialassets are included in the available for sale reserve inequity, unless they form part of fair value hedgerelationships in which case the translation differences arerecognised in the income statement (see Note 2(x)).

Subsidiares and other entitles

The results and financial position of all foreign operationsthat have a functional currency other than Australiandollars (the presentation currency) are translated intoAustralian dollars as follows:

assets and liabilties for each balance sheet presented aretranslated at the closing exchange rate at the date of thatbalance sheet;income and expenses for each income statement aretranslated at actual exchange rates at the date of thetransactions; andall resulting exchange diferences are recognised in aseparate component of equity - the foreign currencytranslation reserve.

On consolidation, exchange diferences arising from thetranslation of any net investment in foreign operations, andof borrowings and other foreign currency instrumentsdesignated as hedges of such investments, are takendirectly to the foreign currency translation reserve. When aforeign operation is disposed of or any borrowings formingpart of the net investment are repaid, such exchangedifferences are recognised In the income statement aspart of the gain or loss on disposaL.

Goodwil and fair value adjustments arising on theacquisition of a foreign entity are treated as assets andliabilties of the foreign entities and translated at the closingrate.

v) Revenue recognition

Revenue is measured at the fair value of the considerationreceived or receivable. Revenue is recognised for eachmajor revenue stream as follows:

Interest income

Interest income is brought to account using the effectiveinterest method. The effective interest method calculatesthe amortised cost of a financial instrument and allocatesthe interest income or interest expense over the relevantperiod. The effective interest rate is the rate that discountsestimated fuure cash payments or receipts through theexpeted life of the financial instrument or, whenappropriate, a shorter period, to the net carryng amountof the financial asset or liabilty. Fee and transaction costsassociated with loans are capitalised and included in theeffective interest rate and recognised in the incomestatement over the expected life of the instrument. Interestincome on finance leases is brought to accountprogressively over the life of the lease consistent with theoutstanding investment balance.

Fee and commission income

Fees and commission income and expense that areIntegral to the effective interest rate on a financial asset orliabilty are capitalised and included in the effective Interestrate and recognised in the Income statement over theexpected life of the instrument.

Other fees and commission income, including fees fromfunds management, brokerage, accounting servicing,corporate advisory and underwriting arrangements, arerecognised as the related servces are performed.

Fees charged for performing a signifcant act in relation tofunds managed by the consolidated entity are recognisedas revenue when that act has been completed.

Net trading Income

Net trading income comprises gains and losses related totrading assets and liabilties and includes all realised andunrealised fair value changes, dividends and foreignexchange differences.

DMdends and distributions

Dividends and distributions are recognised as incomeupon declaration. Dividends from subsidiaries, associatesand joint ventures are recognised in profit or loss when theCompany's right to receive the dividend is established.

vi) Income tax

The income tax expense for the year is the tax payable onthe current year's taxable Income based on the nationalincome tax rate for each jurisdiction, adjusted for changesin deferred tax assets and liabilties and unused tax losses.

Deferred tax assets are recognised when temporarydiferences arise between the tax base of assets andliabilties and their respective carrying amounts which giverise to a fuure tax benefit, or where a benefit arises due tounused tax losses. In both cases, deferred tax assets arerecognised only to the extent that it is probable that futuretaxable amounts will be available to utilse those temporarydifferences or tax losses. Deferred tax liabilties arerecognised when such temporary differences wil give riseto taxble amounts being payable in fuure periods.Deferred tax assets and liabilties are recognised at the taxrates expected to apply when the assets are recovered orthe liabilties are settled.

Deferred tax assets and liabilties are offet when there Is alegally enforceable right to offet current tax assets andliabilities and when the deferred tax balances relate to thesame taxation authority. Current tax assets and liabiltiesare offet when the consolidated entity has a legallyenforceable right to offet and intends either settle on anet basis, or to realise the asset and settle the liabilitsimultaneously. Current and deferred tax balancesattributable to amounts recognised directly in equity arealso recognised directly in equity.

15



Note 2. Summar of significant accounting policiescontinued

vi) Income tax continued

The Company and consolidated entity exercise judgementin determining whether deferred tax assets, particularly inrelation to tax losses, are probable of recovery. Factorsconsidered include the abilty to offset tax losses within thegroup in the relevant jurisdiction, the nature of the tax loss,the length of time that tax losses are eligible for carryforward to offset against future taxable profits and whetherfuture taxable profits are expected to be suffcient to allowrecovery of deferred tax assets.

Tax consolidation

All eligible Australian resident wholly-owned subsidiaries ofthe Macquarie Group represent a tax consolidated group,with MGL as the head entity. As a consequence, theCompany and the relevant subsidiaries are not liable tomake income tax payments and do not recognise anycurrent tax balances or deferred tax assets arising fromunused tax losses in its own financial statements. Underthe terms and conditions of a tax funding agreement, MGLcharges each subsidiary for all current tax liabilitiesincurred in respect of their activities and reimburses eachsubsidiary for any tax assets arising from unused talosses.

vii) Cash collateral on securities borrowed/lent and

reverse repurchase/ repurchase agreements

As part of its trading activities, thaconsolidated entityborrows and lends securities on a collateralised basis. Thesecurities subject to the borrowing/lending are notderecognised from the balance sheets of the relevantparties, as the risks and rewards of ownership remain withthe Initial holder. Where cash is provided as collateral, thecash paid to third parties on securities borrowed isrecorded as a receivable, while cash received from thirdparties on seurities lent is recorded as a borrowing.

Reverse repurchase transactions, where the consolidatedentity purchases securities under an agreement to resell,and repurchase transactions, where the consolidatedentity sells securities under an agreement to repurchase,are also conducted on a collateralised basis. Thesecurities subject to the reverse repurchase/repurchaseagreements are not derecognised from the balance sheetsof the relevant parties, as the risks and rewards ofownership remain with the initial holder. Where cash Isprovided as collateral, the cash paid to third parties on thereverse repurchase agreement is recorded as a receivable,while cash received from third parties on the repurchaseagreement is recorded as a borrowing.

Fees and interest relating to seurities borrowing/endingand reverse repurchase/repurchase agreements arerecognised in the income statement using the effectiveinterest method, over the expeted life of the agreements.

The consolidated entity continually reviews the fair valuesof the securities on which the above transactions arebased and, where appropriate, requests or providesadditional collateral to support the transactions, inaccordance with the underlying agreements.


vii) Trading portolio assets and IialiltiesTrading portolio assets Qong positions) comprise debt andequity securities, bank bils, treasury notes, bullon andcommodities purchased with the intent of being activelytraded. Trading portolio liabilties (short positions)comprise obligations to deliver assets across the sametrading categories, which the consolidated entity hasshort-sold and are actively traded.

Assets and liabilties included in the trading portolio arecarried at fair value. Realised gains and losses, andunrealised gains and losses arising from changes in thefair value of the trading portolio are recognised as nettrading income in the income statement in the period inwhich they arise. Dividend income or expense on thetrading portolio is also recorded as net trading income.

The consolidated entity uses trade date accounting whenrecording regular way purchases and sales of financialassets. At the date the transaction is entered into (tradedate), the consolidated entity recognises the resultingfinancial asset or liabilty and any subsequent unrealisedprofits or losses arising from revaluing that contract to fairvalue in the income statement. When the consolidatedentity becomes part to a sale contract of a financial asset,it derecognises the asset and recognises a tradereceivable until settlement date.

¡x) Derivative instruments

Derivative instruments entered into by the Company andconsolidated entity include futures, forwards and forwardrate agreements, swaps and options in the interest rate,foreign exchange, commodity and equity markets. Thesederivative instruments are principally used for the riskmanagement of existing financial assets and financialliabilties.

All derivatives, including those used for balance sheethedging purposes, are recognised on the balance sheetand are disclosed as an asset where they have a positivefair value at balance date or as a liability where the fairvalue at balance date Is negative.

Derivatives are initially recognised at fair value on the datea derivative contract is entered into and subsequentlyremeasured to their fair value. Fair values are obtainedfrom quoted market prices in active markets includingrecent market transactions, and valuation techniquesincluding discounted cash flow models and option pricingmodels, as appropriate. Movements in the carryingamounts of derivatives are recognised in the incomestatement in net trading income, unless the derivativemeets the requirements for hedge accounting.

The best evidence of a derivative's fair value at initialrecognition is its transaction price, unless its fair value isevidenced by comparison with other observable currentmarket transactions in the same instrument, or based on avaluation technique for which variables include only datafrom observable markets. Where such evidence exists, theCompany and consolidated entity recognise profitsimmediately when the derivative is recognised.

x) Hedge accounting

The consolidated entity designates certain deriatives offinancial instruments as hedging instruments in qualifinghedge relationships. On initial designation of the hedge,the consolidated entity documents the hedgingrelationship between hedging instruments and hedgeditems, as well as its risk management objectives andstrategies. The consolidated entity also documents itsassessment, both at hedge inception and on an ongoingbasis, of whether the hedging relationships have been andwil continue to be highly effective. Derivatives or financialinstruments can be designated in one of three types ofhedge relationships:

Cash flow hedges

For a derivative or financial Instrument designated ashedging the availabilty in cash flows attributable to aparticular risk associated with expoure arising from arecognised asset or liabilty (or a highly probable forecasttransaction), the gain or loss on the derivative or financialinstrument associated with the effective portion of thehedge is initially recognised in equity in the cash flowhedging reserve and subsequently released to the incomestatement when the hedged item affects the incomestatement. The gain or loss relating to the ineffectiveportion of the hedge is recognised immediately in theincome statement.

Fair value hedges

For a deriative or financial instrument designated ashedging the change in fair value of a recognised asset orliabilty (or an unrecognised firm commitment), the gain orloss on the derivative or financial instrument is recognisedin the income statement immediately together with theloss or gain on the hedged asset or liabilty that isattributable to the hedged risk.

Net investment hedges

For a derivative or borrowing designated as hedging a netinvestment in a foreign operation, the gain or loss onrevaluing the derivative or borrowing associated with theeffective portion of the hedge is recognised in the foreigncurrency translation reserve and subsequently released tothe income statement when the foreign operation isdisposed of. The ineffective portion is recognised in theincome statement immediately.

The fair values of various financial instruments used forhedging purposes are disclosed in Note 37. Movements inthe cash flow hedging reserve in equity are shown in Note29.

xij Investments and other financial assets

With the exception of trading portolio assets, derivativesand investments in associates and joint ventures which areclassifed separately in the balance sheet, the remaininginvestments in financial assets are classifed into thefollowing categories: loans and receivables Ooan assetsheld at amortised cost, amounts due from related bodycorporate entities and amounts due from subsidiaries),other financial assets at fair value through profit or loss,investment seurities available for sale, and non-currentassets and assets of disposal groups classifed as held forsale. The classifcation depends on the purpose for whichthe financial asset was acquired, which is determined atinitial recognition and, except for other financial assets atfair value through profit or loss, is re-evaluated at eachreporting date.

Loans and receivbles

Loan assets held at amortised cost, amounts due fromrelated body corporate entities and amounts due fromsubsidiaries are non-derivative financial assets with fixed ordeterminable payments that are not quoted in an activemarket.

Other financial assets at fair value through profit or los

This category includes only those assets which have beendesignated by management as held at fair value throughprofit or loss on initial recognition. The policy ofmanagement is to designate a financial asset as such ifthe asset contains embedded derivatives which mustotherwise be separated and carried at fair value; if it is partof a group of financial assets managed and evaluated on afair value basis; or if by doing so eliminates or signifcantlyreduces, a measurement or recognition inconsistency thatwould otherwise arise. Interest income on debt securitiesdesignated as at fair value through profit or loss isrecognised in the income statement in interest incomeusing the effective interest method as discussed inNote 2(v).

Investment seuriies available for sae

Investment securities available for sale comprise securitiesthat are not actively traded and are intended to be held foran indefinite period. Such securities are available for saleand may be sold should the need arise, includingpurposes of liquidity, or due to the impacts of changes ininterest rates. foreign exchange rates or equity prices.

Investment securities available for sale are initially carriedat fair value plus transaction costs. Gains and lossesarising from subsequent changes in fair value arerecognised directly in the available for sale reserve inequity until the asset is derecognised or impaired, at whichtime the cumulative gain or loss is recognised in theincome statement. Fair values of quoted investments inactive markets are based on current bid prices. If therelevant market is not considered active (or the securitiesare unlisted), fair value is established by using valuationtechniques, including recent arm's length transactions,discounted cash flow analysis and other valuationtechniques commonly used by market participants.

Interest income on debt securities available for sale isrecognised in the income statement in interest incomeusing the effective interest method as disclosed inNote 2(v).

17



Note 2. Summary of significant accounting policiescontinued

xi) Investments and other financial assets continued

Non-current assets and disposal groups classified as heldfor sale

This category includes interests in associates and jointventures for which their carrying amount wil be recoveredprincipally through a sale transaction rather thancontinuing use, and subsidiaries acquired exclusively witha view to resale. These assets are classifed as held forsale when it is highly probable that the asset wil be soldwithin the twelve months subsequent to being classifed assuch.

Non-current assets and disposal groups classified as heldfor sale are presented separately on the face of the .

balance sheet. Revenue and expenses from disposalgroups are presented as a single amount on the face ofthe income statement. Financial instruments that are partof disposal groups within the scope of AASB 5 Non-current Assets Held for Sale and Discontinued Operations,are not subject to the disclosure requirements of AASB 7Rnanciallnstruments: Disclosures.

Non-current assets and disposal groups classified as heldfor sale are measured at the lower of their carrying amountand fair value less costs to sell. These assets are notdepreciated.

An impairment loss is recognised for any initial orsubsequent write down of the asset to fair value less coststo sell. A gain is recognised for any subsequent increase infair value less costs to sell, limited by the cumulativeimpairment loss previously recognised. A gain or loss notpreviously recognised by the date of sale is recognised atthe date of sale.

xii) Impairment

Loa assets held at amortised cost

Loan assets are subject to regular review and assessmentfor possible impairment. Provisions for Impairment on loanassets are based on an incurred loss model and re-assessed at each balance sheet date. A provision forimpairment is recognised when there is objective evidenceof impairment and Is calculated based on the presentvalue of expected fuure cash flows, discounted using theoriginal effective interest rate.

Specific provisions for impairment are recognised whereimpairment of individual loans is identified. Whereindividual loans are found not to be impaired, they areplaced into pols of assets with similar risk profiles andcollectively assessed for losses that have ben incurredbut are not yet specifically identifable.

The Company and consolidated entity make judgementsas to whether there is any observable data indicating thatthere is a signifcant decrease in the estimated future cashflows from a portolio of loans before the decrease can beidentifed with an individual loan in that portolio. Thisevidence may include observable data indicating that therehas ben an adverse change in the payment status of theborrowers in a group, or national or local economicconditions that correlate with defaults on assets in thegroup. Management uses estimates based on historicalloss experience for assets with credit nsk characteristicsand objective evidence of impairment similar to those inthe portolio when scheduling its future cash flows. The


methodology and assumptions used for estimating boththe amount and timing of future cash flows are reviewedregularly to reduce any differences between loss estimatesand actual loss experience. Changes in assumptions usedfor estimating future cash flows could result in a change inthe estimated provisions for impairment on loan assets atbalance sheet date.

If, in a subsequent period, the amount of impairmentlosses decrease and the decrease can be relatedobjectively to an event occurring after the impairmentlosses were recognised, the previously recognisedimpairment losses are reversed through the incomestatement to the extent of what the amortised cost wouldhave been had the impairment not been recognised.

Bad debts are written off in the period in which they areidentified.

Investment seurities available for sae

The Company and consolidated entity perform anassessment at each balance sheet date to determinewhether there is any objective evidence that available forsale financial assets have been impaired. Impairmentexists if there is objective evidence of impairment as aresult of one or more events Qoss event) which have animpact on the estimated fuure cash flows of the financialasset that can be reliably estimated.

For equity securities classifed as available for sale, themain indicators of impairment are: significant changes inthe market, economic or legal environment; and asignificant or prolonged decline in fair value below cost.

In making this judgement, the consolidated entityevaluates among other factors, the normal volatilty inshare price and the period of time for which fair value hasbeen below cost.

In the case of debt securities classified as available for sale,observable data that relates to loss events are consideredincluding adverse changes in the payment status of the '

Issuer and national or local economic conditions thatcorrelate with defaults on those assets.

In addition, impairment may be appropriate when there isevidence of deterioration in the financial condition of theinvestee, industry and sector performance, operationaland financing cash flows or changes in technology.

When the fair value of an available for sale financial asset isless than its initial carryng amount and there is objectiveevidence that the asset is impaired, the cumulative lossrecognised directly in equity is removed from equity andrecognised in the income statement.

Impairment losses recognised in the income statement forequity securities classified as available for sale are notsubsequently reversd through the income statement.

However impairment losses recognised for debt securitiesclassifed as available for sale are subsequently reversedthrough the income statement if the fair value increasesand the increase can be objectively related to an eventafter the impairment loss was recognised In the incomestatement.

Interess in assiates and joint ventures

The consolidated entity performs an assessment at eachbalance sheet date to determine whether there is anyobjective evidence that its interests in associates and jointventures are impaired. The entire carrying amount of eachinvestment in associate and joint venture is considered inthe assessment. The main indicators of impairment are asfor equity securities classifed as available for sale,disclosed above.

If there is an indication that an investment in an associateor joint venture may be impaired, then the entire carryingamount of the investment in associate or joint venture istested for impairment by comparing the recoverableamount Ohigher of value in use and fair value less costs tosell) with its carrying amount. Impairment lossesrecognised in the income statement for investments inassociates and joint ventures are subsequently reversedthrough the income statement if the recoverable amountincreases and the increase can be objectively related to anevent after the impairment loss was recognised in theincome statement.

When reviewing for impairment equity securities classifedas available for sale and investments in associates andjoint ventures, the determination of what is significant orprolonged requires judgement.

xii) Propert, plant and equipment

Propert, plant and equipment are stated at historical costless accumulated depreciation and accumulatedimpairment losses, if any. Propert, plant and equipmentare reviewed for impairment annually. Historical costincludes expenditure directly attributable to the acquisitionof the asset.

Depreciation on assets is calculated on a straight-linebasis to allocate the diference between cost and residualvalues over their estimated useful lives, at the followingrates:Fumiture and fittings 10 to 20 per cent

Leasehold improvements(l) 20 per centComputer equipment 33 to 50 per centPlant and equipment 20 to 33 per centI nfrastructure assets 5 to 20 per cent

(1) Where remaining lease terms are les than five years,

leasehold improvements are depreciated over the leaseterm

Useful lives and residual values are reviewed annually andreassessed in light of commercial and technologicaldevelopments. If an asset's carring value is greater thanits recoverable amount due to an adjustment to its usefullife or residual value or an impairment, the carring amountis written down immediately to its recoverable amount.Adjustments arising from such items and on disposal ofpropert, plant and equipment are recognised in the

income statement.

Gains and losses on disposal are determined bycomparing proceeds with the asset's carrying amount andare included in the income statement.

xiv) Goodwil and other identifable intangible assets

Goowill

Goodwil represents the excess of the cost of anacquisition over the fair value of the consolidated entity'sshare of the net identifable assets of the acquired entity atthe date of acquisition. Goodwil arising from businesscombinations is Included in intangible assets on the face ofthe balance sheet. Goodwil arising from acquisitions ofassociates is included in the carrying amount ofinvestments in associates.

Other identifable intangible assets

Licences and trading rights are carried at cost lessaccumulated impairment losses. These assets are notamortised because they are considered to have anindefinite useful life.

Management rights have a finite useful life and are carriedat cost less accumulated amortisation and impairmentlosses. Amortisation Is calculated using the straight-linemethod to allocate the cost of management rights over theestimated useful life not exceeding twenty years.

Customer relationships acquired as part of a businesscombination are initially measured at fair value at the dateof acquisition and subsequently measured at cost lessaccumulated amortisation and any impairment losses.Amortisation is calculated based on the timing of projectedcash flows of the relationships over their estimated usefullives.

SoftreCertain internal and extemal costs directly incurred inacquiring and developing certain softare are capitalisedand amortised over their estimated useful life, usually a

period of three years. Costs incurred on softaremaintenance are expensed as incurred.

19



2. Summar of signifcant accounting policiescontinued

xiv) Goodwil and other identifiable intangible assetscontinued

Imparment

Goodwil and intangible assets that have an indefiniteusefui life are not subject to amortisation and are testedannually for impairment, or more frequently if events orchanges in circumstances Indicate that the carryingamount may not be recoverable. An impairment loss isrecognised for the amount by which the asset's carryingamount exceeds its recoverable amount. The recoverableamount is the higher of the asset's fair value less costs tosell and value in use. For the purposes of assessingimpairment, assets are grouped at the lowest levels forwhich there are separately identifiable cash inflows whichare largely Independent of the cash inflows from otherassets or groups of assets (cash-generating units).Intangible assets (other than goodwil) that sufered animpairment are reviewed for possible reversal of theimpairment at each reporting date.

xv) Financial liabilities

The consolidated entity has on issue debt securities andinstruments which are initially recognised at fair value netof transaction costs incurred and subsequently measuredat amortised cost. Any difference between the proceeds(net of transaction costs) and the redemption amount isrecognised in the income statement over the period of theborrowings using the effective interest method.

Other financial liabilties at fair value through profit or loss

This category includes only those financial liabilties whichhave been designated by management as held at fairvalue through profit or loss on Initial recognition. The policyof management is to designate a financial liabilty as such Ifeither: the liabilty contains embedded derivatives whichmust otherwise be separated and carred at fair value; or ifby doing so eliminates (or significantly reduces) ameasurement or recognition Inconsistency that wouldotherwise arise. Interest expense on such items Isrecognlsed in the income statement in interest expense.


xvi) Provisions

Employee benefis

A liabilty for employee benefits Is recognised by the entitythat has the obligation to the employee. Generally, this isconsistent with the legal position of the parties to theemployment contract.

Liabilties for unpaid salaries, salary related costs andprovisions for annual leave are recorded in the balancesheet at the salary rates which are expected to be paidwhen the liabilty is settled. Provisions for long serviceleave and other long-term benefits are recognlsed at thepresent value of expected future payments to be made. Indetermining this amount, consideration is given toexpected future salary levels and employee servicehistories. Expected future payments are discounted totheir net present value using discount rates on high qualitycorporate bonds, except where there is no deep marketin which case rates on Commonwealth Government 'securities are used. Such discount rates have terms thatmatch as closely as possible the expected fuure cashflows.

Provisions for unpaid employee benefits are derecognisedwhen the benefit is settled, or is transferred to anotherentity and the Company and consolidated entity are legallyreleased from the obligation and does not retain aconstructive obligation.

DIvidends

Provisions for dividends to be paid by the Company arerecognised on the balance sheet as a liabilty and areduction in retained earnings when the dividend has beendeclared.

!

xvii) Performance based remuneration

Share baed payments

In November 1995, MBL introduced an Employee OptionPlan, as a replacement for its now closed partly paid sharescheme. On 13 November 2007, the date of therestructure of the Macquarie Group, all MBL options werecancelled and replacement options over shares in the newultimate parent entity, MGL, were issued on the sameterms on a one-far-one basis under the Macquarie GroupEmployee Share Option Plan (MGESOP). The share-basedcompensation plans include options granted to employeesand shares granted to employees under share acquisitionplans. The shares and options are measured at the grantda.tes based on their fair value and in the case of options,using the number expcted to vest. This amount isrecognlsed as an expense evenly over the respectivevesting periods.

Performance hurdles attached to the options issued to theExecutive Ofcers are not taken into account whendetermining the fair value of the options at grant date.Instead, these vesting conditions are taken into accountby adjusting the number of equity instruments expected tovest.

The fair value of each option is estimated on the date ofgrant using standard option pricing technology based onthe Black-Scholes theory. The following key assumptionshave been adopted for grants made in the current financiaiyear:risk free interest rate: 6.77 per cent (weighted average)(2008: 7.04 per cent);expected life of options: four years (2008: four years);

- volatilty of share price: 24 per cent (2008: 20 per cent);

anddividend yield: 3.47 per cent per annum (2008: 3.43 percent per annum)

Options that are issued by the ultimate parent entity, MGL,to employees of the Company and consolidated entity, forwhich MGL is not subsequently reimbursed, arerecognised as an expense and an equity contribution fromMGL.

The consolidated entity annually revises its estimates ofthe number of options that are expected to becomeexercisable. Where appropriate, the impact of revisedestimates is reflected in the income statement over theremaining vesting period, with a corresponding adjustmentto the equity contribution balance in equity.

Profit share remuneration

The consolidated entity recognises a liabilty and anexpense for profit share remuneration based on a formulathat takes Into consideration the consolidated entity'sprofit from ordinary activities after income tax and itseamings over and above the estimated cost of capitaL.

xvii) Cash and cash equivalents

Cash and cash equivalents include cash balances heldwith a related body corprate entity, MBL, cash andbalances with central banks and short-term amountsincluded in due from baks and investment securitiesavailable for sale with an original maturity of less than threemonths.

xix) Leases

Where finance leases are granted to third parties, thepresent value of the lease payments is recognised as areceivable and included in loan assets held at amortisedcost. The diference between the gross receivable and thepresent value of the receivable is recognised as uneamedinterest income. Lease income is recognised over the termof the lease using the effective interest method, whichreflects a constant rate of retum.

Leases entered into by the Company and consolidatedentity as lessee, are primarily operating leases. The totalfixed payments made under operating leases are chargedto the income statement on a straight-line basis over theperiod of the lease.

Purchased assets, where the consolidated entity is thelessor under operating leases, are carried at cost anddepreciated over their useful lives which vary dependingon each class of asset and range from 3 to 40 years(2008: 3 to 40 years). Assets under operating leases areincluded in other assets.

xx) Offsetting financial instruments

Financial assets and liabilties are offet and the netamount reported on the balance sheet when there is alegally enforceable right to offset the recognised amountsand there is an intention to settle on a net basis, or realisethe financial asset and settle the financial liabiltysimultaneously.

xxi) Loan capital

Loan capital is debt issued by the consolidated entity withterms and conditions that quality for inclusion as capitalunder APRA Prudential Standards. Loan capital debtissues are initially recorded at fair value plus directlyattributable transaction costs and thereafter at amortisedcost using the effective interest method.

I

xxii) Contributed equity

Ordinary shares are classifed as equit. Incremental costs

directly attributable to the issue of new shares or optionsare shown in equity as a deduction, net of tax, from theproceeds.

xxii) Transactions with minorities

Transactions with minorities are recognised in theconsolidated entity's financial statements using the parent-entit approach. For securities held by minority intereststhat are purchased by the consolidated entity at a priceless than the securities' carrying amount, then thediference is recognised as a gain in the income statement.

xxiv) Comparatives

Comparative amounts have been reclassified wherenecessary to conform with changes in presentation ofcertain items in the financial report.

xxv) Rounding of amounts

The Company is of a kind referred to in AustralianSecurities and Investments Commission Class Order98/0100 (as amended), relating to the "rounding off ofamounts in the financial report. Amounts in the financialreport have been rounded off in accordance with thatClass Order to the nearest millon dollars unless otherwiseindicated.

I

21




$m $m $m $m

Note 3. Profit for the financial year

Net interest incomeInterest and similar income received/receivable:

Other entities 766 269 79 12

Subsidiaries (note 31 ) 34 177

Related body corporate entities (note 31) 456 194 349 157

Interest expense and similar charges paid/payable:

Other entities (375) (65) (5) (1)

Subsidiaries (note 31) (60) (19)

Related body corporate entities (note 31) (869) (360) (833) (350)Total net interest (expense)/ncome (22) 38 (124) (24)

Fee and commission income 2,987 1,384 (2)

Net trading expense(1)

Equities (243) (92) 2

Commodities 2 (28)

Foreign exchange products (41) (6) (338) (52)

Interest rate products (66) (11) (28)Total net trading expense (34) (137) (364) (52)

Share of net losses of associates and joint venturesaccounted for using the equity method (25) (7)

Other operating income and chargesNet gains on sale of investment securities available for sale

Impairment charge on investment securities available for saleNet gains on sale of associates Oncluding associates held forsale) and joint venturesImpairment charge on investments in associates and jointventuresNet income/(expense) from disposal groups held for sale

Gain on acquiring, disposing and change in ownership interestin subsidiaries and businesses held for sale

Impairment charge on subsidiaries

Impairment charge on non-financial assetsDividends/distributions received/receivable:

Equity investments and investment securities available forsaleSubsidiaries (note 31)

Management fees, group service charges and cost recoveriesCollective allowance for credit losses during the financial year

(note 9)

Specific provisions:

Loan assets provided for during the financial year (note 9) (17)

Other receivables provided for during the financial year (19)Recovery of loans previously provided for (note 9) 1

Loan losses written-off (13)Recovery of loans previously written off 3Other income(2 182 86 1

Total other operating income and charges (98) 112 (12,135)Net operating income 2,494 1 ,390 (12,623)

(1) Included in net trading expense are fair value changes of $113 millon expense for the year ended 31 March 200 (2008: $9

milion income) relating to financial assets and financial liabilties designated as held at fair value through profit or loss. Fair valuechanges relating to derivatives are also reported in net trading income/(expense) which partially offets the fair value changesrelating to the financial assets and financial liabilties designated at fair value. This also includes fair value changes on derivativesused to hedge the Company and consolidated entity's interest rate risk where hedge accounting requirements are not met-refer to note 2(x).

(2 Included within other income is rental Income of $204 millon (2008: $144 milion) less depreciation of $120 millon (2008: $97milion) in relation to operating leases where the consolidated entity is the lessor.


147

(67)

16

(20)

65 26

(576)44 (14)

133 72

(12,350)(1)

19 18

(56)

220

(4)

(5) (2)

(7

(4)

3

3

(75)


$m $m $m $m

Note 3. Profr for the financial year continued

Employment expenses

Salary and salary related costs including commissions,superannuation and performance-related profit share (903) (600)

Share based payments (79) (35)

Provision for annual leave (13) (5)

Provision for long service leave (1) (1 )

Total employment expenses (996) (641)

Brokerage and commission expenses

Brokerage expenses (86) (30) (3)

Other fee and commission expenses (90) (22) (5)

Total brokerage and commission expenses (176) (52) (8)

Occupancy expenses

Operating lease rentals (118) (27)

Depreciation: furniture, fittings and leasehold improvements(note 16) (59) (14)

Other occupancy expenses (33) (11 )

Total occupancy expenses (210) (52)

Non-salary technology expenses

Infórmation services (67) (20)

Depreciation: computer equipment (note 16) (16) (4)

Other non-salary technology expenses (24) (7)

Total non-salary technology expenses (107) (31)

Other operating expenses

Professional fees (137) (54)Auditor's remuneration (note 40) (13) (3)Travel and entertainment expenses (121) (53)Advertising and promotional expenses (7) (5)Communication expenses (23) (8)Depreciation: communication equipment (note 16) (2) (1)Other expenses(') (230) (79) 15Total other operating expenses (533) (203) 15Total operating expenses (2,022) (979) 7

(11 Other expenses include recharges from Macquarie Group Services Pt Limited (MGSA) which provide administration and

central support functions.

23




$m $m $m $m

Note 4. Income ta benefit/(expense)

(a) Income ta benefi(expense)

Current tax (expense)/enefit (108) 3 98 25

Deferred tax benefit/(expense) 174 (102) 43 (3)

Total income tax benefit/(expense) 66 (99) 141 22

Deferred income tax revenue/(expense) included in incometax (expense)/nefit comprises:

Increase/(decrease) in deferred tax assets 109 (61) 39

Decrease/Oncrease) in deferred tax liabilities 65 (41) 4 (3)

Total deferred income tax benefit/(expense) 174 (102) 43 (3)

(b) Reconcilation of income tax expense to prima facie taxpayable

Prima facie income tax (expense)/benefit on operating profitl1) (141) (123) 3,785 22

Tax effect of amounts which are (non deductible)/non assessable incalculating taxble income:

Rate differential on offshore income 183 42 (3)

Non-deductible options expense (23) (10)

Impairment charge on controlled entity (3,705)

Intra-group dividends 66

Other items 47 (8) (2)

Total income tax benefit/(expense) 66 (99) 141 22

(c) Amounts reco9nised directly in equityAggregate deferred tax arising in the financial year and not recognised

in the income statement but recognised directly in equity:

Net deferred tax - credited directly to equity (72) (18)Total (72) (18)(1) Prima facie income tax on operating profit is calculated at the rate of 30 per cent (2008: 30 per cent). The Australian tax

consolidated group has a tax year ending on 30 September.

In preparing this financial report the Company has considered the information currently available and where considerednecessary has taken legal advice as to the consolidated entity's tax liabilty and In accordance with this, believes that provisionsmade are adequate.


Consolidated2009

$m

Consolidated2008

$m

Company2009

$m

Company2008

$m

Note 5. Dividends paid

Dividends paid

Ordinary share capit

Dividends paid (note 29)

Total dividends paid

157

157

157

157

Note 6. Due from banks

Cash at bank(1) 1,325 1,641Overnight cash at bank 90 80Other loans to banks 469 673Due from clearing houses 173 308Total due from banks 2,057 2,702

(1) Included within this balance is $43 millon (2008: $nil) provided as security over payables to other financial institutions.

Note 7. Cash collateral on securities borrowed and reverse repurchase agreements

Financial institutions

Other

Total cash collateral on securities borrowed and reverserepurchase agreements

50855

1,150

479

563 1,629

Note 8. Trading portolio assets

Trading secunties

EquitiesListed 304 580Unlisted 21Certificates of deposit(1) 108Bank bils 69Treasury notes 7Total trading portolio assets 488 601

(1) Included within this balance are assets provided as security over issued notes and payables to other external investors and

financial institutions. The value of assets provided as security is $108 milion (2008: $nil).

Note 9. Loan assets held at amortised cost

Due from clearing houses

Due from governments(l)

Due from other entities

Other loans and advances

Less specifc provisions for impairment

139

33

56

117

611 3,049(15) (10)596 3,039

Lease receivables 62 2,364Less speifc provisions for impairment (2) (1)

Total due from other entities 656 5,402Total gross loan assets 828 5,575Less collective allowance for credit losses (5) (16)Total loan assets held at amortise COSt2X3) 823 5,559

(1) Governments include federal, state and local govemments and related enterprises in Australia.

(2 Included within this balance are other loans of $1 millon (2008: $522 millon) provided as security over issued notes andpayables to other extemal investors and financial instituions.

f. Included within this balance are loans of $nil (2008: $2,368 millon) held by consolidated SPEs, which are available as security to

note holders and debt providers.

43 223

43 223

43

43

(2)

41

223

223

223

25



Consolidated2009

$m

Consolidated2008

$m

Company2009

$m

Company2008

$m

Note 9. Loan assets held at amortised cost continued

Specific provisions for impairmentBalance at the beginning of the financial year

Provided for during the financial year (note 3)

Recovery of loans previously provided for (note 3)

Transfer (to)/om related body corporate entitiesAttributable to foreign currency translation

Balance at the end of the financial year

Specific provisions as a percentage of total gross loanassets

11

17 7

(1)

(11) 4

1

17 11

2.05% 0.20%

Collective allowance for credit losses

Balance at the beginning of the financial year

Transfer (to)/fom related body corporate entities

(Written backyprovided for during the financial year (note 3)Balance at the end of the financial year

16

(10)

(1)

5

11

5

16

2

2

Note 10. Impaired financial assets

Impaired loan assets and other financial assets with specifcprovisions for impairment

Less specific provisions for impairment

58

(45)

41

(15)

Total net impaired assets 13 26

Impaired assets have been reported in accordance with AASB 139 RnanciaJ Instruments: Recognition and Measurement andinclude loan assets, and other financial assets and receivables.

Note 11. Other financial assets at fair value through profit or loss

Investment securities

Loan assets

Total other financial assets at fair value through profr orloss

97

2,187

129

312

2,284 441

Note 12. Other assets

Security settlements(1) 3,538 4,249Debtors and prepayments(2 1 ,406 1 ,144 26 38Assets under operating leases(3 588 1,151Othert 14 8Total other assets 5,546 6,552 26 38

(1) Seurity settlements are receivable within three workng days of the relevant trade date.

(2) Included within this balance is $116 milion (2008: $6 millon) of debtors and prepayments and $8 milion (2008: $nil) of other

assets which are provided as security over payables to other financial institutions.(3) Assets under operating leases are stated net of accumulated depreciation of $65 milion (2008: $351 milion). Included within

this balance is $586 milion (2008: $688 milion) provided as security over payables to other financial institutions.


Consolidated2009

$m

Consolidated2008

$m

Company2009

$m

Company2008

$m

Note 13. Investment securiies available for sale

Equity securitiesListed 145 392Unlisted 282 136Debt securities(1)( 3,175 1,173 2,495 751Total investment securities available for sale 3,602 1,701 2,495 751

(1) Included within this balance are debt securities of $292 millon (2008: $412 millon) which are recognised as a result of total

retum swaps which meet the pass through test of AASB 139. The consolidated entity does not have legal title to these assetsbut has full economic exposure to them.

(2) Includes $2,495 millon (2008: $751 millon) of Negotiable Certifcates of Deposit (NCDs) due from financial institutions.

Note 14. Intangible assets

Goodwil

Other identifable intangible assets

Total intangible assets

306116

422

307

55

362

Reconcilation of the consolidated entity's movement in intangible assets:


Acquisitions during the financial year

Reclassifications during the year')

Transferred from held for sale(2

Transfer as part of restructure(3

Disposals during the financial year

Amortisation expense for the financial year

Currency translation diference arising during the financialyear 42Balance at the end of the financial year 306

(1) These balances relate to adjustments to purchase considerations and allocations.

(2 During March 200 Taurus Aerospace Group Inc. transferred out of assets classifed as held for sale. This resulted in goodwil of

$25 milion and other identifable intangible assets of $49 millon transferring out of assets of disposal groups classifed as heldfor sale.

(3 This represents the balance of goowil transferred from the Non-Banking Group to the Banking Group during the year ended

31 March 2009 as part of the restructure of the Macquarie Corporate and Asset Finance division.

Goodwil$m

.. ...........H.........

307

14

(29)25

(53)

Consolidated2009

$m

Otheridentifable

intangibleassets

$m

55

12

28

49

(23)

(1)

(11)

Consolidated2008

$m

Softare$m

Total$m362

26

(1)

74

(76)

(1)

(12)

7

116

49

422

iii

I

Company2009

$m

Company2008

$m

Note 15. Interests in associates and joint ventures using the equit method

Loans and investments without provisions for impairment

Loans and investments with provisions for impairment

Less provision for impairment

Loans and investments at recoverable amount

Total interests in associates and joint ventures usingthe equit method

3,111

2,111

(611)1,500

4,611

3,588

3,588

Investments in associates and joint ventures are accounted for in the consolidated financial statements using the equity methodof accounting and are carried at cost by the parent entity (refer to Note 2Qi)- Summary of signifcant accounting policies).

The fair values of certain interests in material associates and joint ventures, for which there are public quotations, are below theircarryng value by $665 millon (2008: exceeded their carrying value by $4 millon).

27



Consolidated2009

$m

Consolidated2008

$m

Note 15. Interests in associates and joint ventures using the equit method continued

Company2009

$m

(a) Reconcilation of movement in the consolidated entity's interestsin associates and joint ventures using the equity method:

Balance at the beginning of the financial year 3,588Transfer as part of restructure(1) (2)Associates acquired/equity contributed 1 ,172Share of pre-tax losses of associates and joint ventures (36)Share of tax benefit of associates and joint ventures 11Dividends received/receivable from associates (262)Associates disposed of (179)Investments in associates provided for/written-off (576)

Foreign exchange and other adjustments 291 87Transferred from other asset categories 604 89Balance at the end of the financial year 4,611 3,588

(11 During the year a number of entities were transferred between the Banking Group and Non-Banking Group.

3,105850

(10)

3

(112)

(424)

Company2008

$m

(b) Summarised information of interests in material associates and joint ventures is as follows:Ownership interest

2009 2008Country ofName of entity incorporation Reporting dateEuropean Directories sAle)(1) Luxembourg 31 DecemberMacquarie AirFinance Limited(a) Bermuda 31 DecemberMacquarie Airports(a) (2) Australia 31 DecemberMacquarie Capital Alliance Group(b)(3 Australia 30 JuneMacquarie Communications Infrastructure Group(a) (2) Australia 30 June

Macquarie Energy Holdings LLc(a) USA 31 DecemberMacquarie European Infrastructure Fund LP(al(2) UK 31 MarchMacquarie Infrastructure Group(a) (2) Australia 30 June

Macquarie Media Group(d) (1) Australia 30 June

MAIP International Holdings Ltd(a) (3 Bermuda 31 December

MEa Holdings Limited(l (4H5) Bermuda 30 JuneRedford Australian Investment Trust(a) Australia 31 December

(1) Significant influence arises due to the consolidated entity's voting power and board representation.

(2 The consolidated entity has significant influence due to its fiduciary relationship as manager of these entities.

(3) Macquarie Capital Alliance Group was delisted from the ASX and was incorporated into a new unlisted fund, MAlP International

Holdings Ltd during the financial year ended 31 March 2009.(4) The consolidated entity has joint control because neither the consolidated entity nor its joint investor has control in their own

right.(5) The investment was reclassified from associates held for sale during the financial year ended 31 March 2009.

(e) Infrastructure

(b) Funds management and investing

(e) Directories business

(d) Media, television, gaming and intemet investments

(a) Oil and gas services

(I Metals, mining and energy


%

14

3821

19

49

5

14

22

25

59

27

%

13

34

20

17

17

5

8

22

59

27

Consolidated2009

$m

Consolidated2008

$m

Company2008

$m

Company2009

$m

Note 15. Interests in associates and joint ventures using the equit method continued

(c) Contingent liabilities of associates and joint ventures are as follows:Share incurred jointly with other investors 6For which the consolidated entity is severally liable 95

14,327

9,9842,431

(7)

(d) Financial information of interests in associates and joint ventures are as follows:

Consolidated entity's share of:

AssetsLiabilities

Revenues

Loss after tax

13,243

9,508

1,300

(7)

Note 16. Propert, plant and equipment

Furniture, fittings and leasehold improvements

Cost

Less accumulated depreciation

Total furniture, fittings and leasehold improvements

469

(131)338

Communication equipment

Cost


Total communication equipment

10

(7)

3

Computer equipment

Cost


Total computer equipment

85

(53)

32

254

(80)

174

8

(5)

3

52

(31)

21

Infrastructure assetsCost 24 17Less a~cum.~late5!3.~!?r~ï.~:i-r______________________________--_~_______ (1)Total infrstructure assets 22 16Total propert, plant and equipment 395 214Reconcilation of the movement In the consolidated entits propert, plant and equipment at their wrien-down value:

Furniture,fittings and

leasehold Communication Computer Infrastructureimprovements equipment equipment assets Total$m $m $m $m $m---------_.----------------------_._-_.._----_.._---_.--

Balance at the beinning of the financialyear 174 3 21 16 214Acquisitions 141 1 30 28 200Disposals (2) (31) (33)Reclassifcations!l) 59 59Foreign exchange movements 52 7 9 69Transfer as part of restructure(2) (27) (10) (37)Depreciation expense (59) (2) (16) (77)Balance at the end of the financial year 338 3 32 22 395

(1) In March 2009, Taurus Aerospace Group Inc, a wholly owned subsidiary of the consolidated entity, was transferred out of

disposal groups classifed as held for sale, resulting in $59 milion transferrng into propert, plant and equipment.(2 During the year a number of entities transferred from the Banking Group to the Non-Banking Group. As par of these entity

restructures $37 millon of propert, plant and equipment was transferred into the Banking Group.

Included in the balance of propert, plant and equipment are assets pledged as security over payables to other financialinstitutions. The terms preclude these assets from being sold or being used as security for further liabilties without thepermission of the financial institution. The carrying value of assets pledged is $178 millon (2008: $nil).

29



Consolidated2009

$m

Consolidated2008

$m

Company2009

$m

Company2008

$m

Note 17. Investments in subsidiares

Investments at cost without provisions for impairment

Investments at cost with provisions for impairment

Less provisions for impairment

Investments at recoverable amount

Total investments in subsidiares

305

15,841

(12,350)3,491

3,796

16,184

16,184

The material subsidiaries of the Company, based on contribution to the consolidated entity's profit from ordinary activities, thesize of the investment made by the Company or the nature of the activities conducted by the subsidiary, are:

- Infrastructure Investment No.2 Limited (Cayman Islands)

Macquarie Acceptances LimitedMacquarie Africa (Proprietary) Limited (South Africa)Macquarie Airports Management LimitedMacquarie Asset Leasing TrustMacquarie Assets Management Pt LimitedMacquarie Capital (Europe) Limited (United Kingdom)Macquarie Capital (Hong Kong) Inc (Hong Kong)

Macquarie Capital (USA) Inc (United States)Macquarie Capital Acquisitions (Canada) Limited (Canada)Macquarie Capital Advisers LimitedMacquarie Capital Alliance Management LimitedMacquarie Capital Funds (Europe) Limited (United Kingdom)Macquarie Capital Funds Inc (United States)

Macquarie Capital Funds LimitedMacquarie Capital Group LimitedMacquarie Capital International Holdings Pt LimitedMacquarie Capital Loans Management LimitedMacquarie Capital Securities Limited (Hong Kong)Macquarie Communications Infrastructure Management LimitedMacquarie Corporate Finance Limited

Macquarie CPS Management LimitedMacquarie Direct Propert Management LimitedMacquarie Equities (US) Holdings Pt LimitedMacquarie Equity Capital Markets Limited

Macquarie Global Finance Services (Mauritius) Limited (Mauritius)Macquarie Holdings (USA) Inc (United States)Macquarie Infrastructure Investment Management LimitedMacquarie Infrastructure Management (Asia) Pt LimitedMacquarie Infrastructure Management (USA) Inc (United States)

Macquarie Infrastructure Partners Inc (United States)Macquarie International Holdings Limited (United Kingdom)

Macquarie Investment Holdings No.2 Pt Limited

Macquarie Investments Australia Pt LimitedMacquarie Leisure Management Limited

Macquarie Managed Investments LimitedMacquarie Principal Pt LimitedMacquarie Propert Investment Management 5 LimitedMacquarie Propert Investment Management 6 LimitedMacquarie Seurities (Australia) Limited (formerly Macquarie Capital Seurities (Australia) Limited)Macquarie Securities South Afrca (proprietary) Limited (South Afrca)Macquarie Seuritisation (Hong Kong) Umited (Hong Kong)Macquarie Speialised Asset Management (Bermuda) Limited (Bermuda)Macquarie Speialised Asset Management 2 LimitedMacquarie Specialised Asset Management Limited

Note: All entities are incorporated in Australia unless otherwise stated.

Overseas subsidiaries carry on business predominantly in their place of incorporation.

Beneficial interest in the above entities is 100 per cent. All entities have a 31 March reporting date.

30 Macquane Financial HOldings Limited 2009 Annual Report


$m $m $m $m

Note 18. Deferred income ta assets/(liabilities)

The balance comprises temporary diferences attributable to:

Provisions and accrued expenses 685 551 4

Tax losses 94 38

Tax effect of reserves 44 (28)

Set -off of deferred tax liabilties (267) (186) 36

Total deferred income tax assets 556 375 40

Financial instruments (31) (107) 36 (4)

Investments in subsidiaries, associates and joint ventures (198) (148)

Available for saie financial assets (42)

Set-off of deferred tax assets 267 186 (36)

Total deferred income ta liabilties (4) (69) (4)

Net deferred income tax assets/(liabilities) 552 306 40 (4)Potential tax assets of approximately $23 milion (2008: $55 millon) attributable to tax losses carried forward by subsidiarieshave not been brought to account in the subsidiaries and in the consolidated entity as the Directors do not believe therealisation of the tax assets is probable.

The principles of the balance sheet method of tax effect accounting have been adopted whereby the income tax expense forthe financial year is the tax payable on the current year's taxble income adjusted for changes in deferred tax assets andliabilties attributable to temporary diferences between the tax bases of assets and liabilties and their carryng amounts in thefinancial statements and to unused tax losses. Deductible temporary diferences and tax losses give rise to deferred tax assets.Deferred tax assets are not recognised unless the benefit is probable of realisation.

The deferred tax assets have been applied against deferred tax liabilties to the extent that they are expected to be realised inthe same year, within the same tax paying entity.

Note 19. Non-current assets and disposal groups classified as held for sale

Consolidated2009

$m

Consolidated2008

$m

Company2009

$m

Company2008

$m

Non-current assets and assets of disposal groupsclassifed as held for sale

Associates

Other non-current assets

Assets of disposal groups classifed as held for sale (1) (2

Total non-current assets and assets of disposal groupsclassifed as held for sale

35 582

39

3111,018

1,053 932

Liabilties of disposal groups classifed as held for sale 619 215Total liabilities of disposal groups classifed as held forsale(2) 619 215

(1) Included within this balance are assts with a carrying value of $nil (2008: $243 milion) provided as security over payables to

other financial instituions.(2 The balance at 31 March 200 represents the assets and liabilties of the Corporate and Aset Finance division and Macquarie

International Investments Holdings L.L.C Cies S.E.N.C.

The balance at 31 March 2008 represents the assets and liabilties of Taurus Aerospace Group Inc. and Longview Oil and Gas.

All of the above non-current assets and assets/iabilties of disposal groups classifed as held for sale are expected to bedisposed of by way of trade sale, sale to a Macquarie managed fund or sale to other investors within twelve months of beingclassifed as held for sale, unless events or circumstances occur that are beyond the consolidated entity's control and theconsolidated entity remains committed to its plan to sell the assets.

31



Note 19. Non-current assets and disposal groups classifed as held for sale continued

(a) Summarised information of matenal associates and joint ventures classified as held for sale isas follows:

Name of entity

US Senior Living Trust(a)

International Infrastructure Holdings Limited(b) (1)

MEO Holdings Limited1e)(1)(2

New World Gaming Partners Holdings British ColumbiaLimited((l)d

Country ofincorporation

USA

Austraiia

Bermuda

Canada

Ownership interest

2009 2008

%Reporting date

31 December

31 December

30 June

%

50 50

25

59

31 December 50

All associates and joint ventures classifed as held for sale are unlisted companies.

Voting power is equivalent to ownership interest unless otherwise stated.

(1) The consolidated entity's interest in this entity was reclassified from held for sale to interest in associates and joint venturesduring the financial year

(2) The consolidated entity has joint control because neither the consolidated entity nor its fellow investors has control in their own

right

lal Retirement homes(bl Infrastructurelei Ofshore marine support operations(ei Gambling infrastructure

(b) For associates and joint ventures classified as held for sale the consolidated entity's share ofcontingent Iialilties is as follows:

Consolidated2009

$m

Consolidated2008

$m

Company2008

$m

Company2009

$m

Share incurred jointly with other investors

for which the consolidated entity is severally liable

(c) For associates and joint ventures classified as held for sale, financial information is as follows:

Consolidated2009

$m

Consolidated entity's share of:

AssetsLiabilties

Revenues

Profit/Qoss) after tax

Consolidated2008

$m

Company2009

$m

Company2008

$m

61

37

12

1

1,263

870

79

(53)

Note 20. Due to banks

OECD banks

Clearing houses (1)

Other

Total due to banks(1) Amounts due to clearing houses are settled on the next business day.


772

64

120

956

1,007

82

338

1 ,427

Consolidated2009

$m

Note 21. Cash collateral on securiies lent and repurchase agreements

Consolidated2008

$m

Company2009

$m

Company2008

$m


Other

Total cash collateral on securiies lent and repurchaseagreements

23

49

312

72 312

Note 22. Trading portolio liabilities

Equity securities

Listed

Unlisted

Total trading portolio liabilities

181 363

746

1,109181

Note 23. Debt issued at amortised cost

Debt issued at amortised cost (1) 2,352Total debt issued at amortised cost 2,352

(1) Included within this balance are amounts payable to SPE note holders of $nil (2008: $2,352 milion)

The consolidated entity has not had any defaults of principal, interest or other breaches with respect to its debt during theperiods reported.

Note 24. Other financial liabilties at fair value through profrt or loss

Debt issued at fair value

Equity linked notes

Exchangeable shares(l)

Total other financial liabilties at fair value through profitor loss 2,364 105(1) Exchangeable shares were issued in November 2007 as cash consideration for the acquisition of Orion Financial Inc. They are

eligible to be exchanged 1 : 1 for shares in Macquarie Group Limited (subject to staff trading restrictions) and will pay dividendsequal to the MGL dividends during their legal life. The exchangeable shares wil expire in November 2017 and carr no MGLvoting rights.

2,089236

39

17

88

Reconcilation of debt issued at amortised cost and other financial liabilities at fair vaue through profi or los by major currency:

Australian dollars 1,967 2,352South Afrcan rand 170 17United States dollars 96~ro ~Canadian dollars 39 88Korean won 18Total by currency 2,364 2,457Note 25. Other liabilities

Due to brokers and customers(1) 3,671 4,112Accrued charges and sundry provisions 1,030 2,115 10Creditors 1 ,016 602 2Other 64 106Total other liabilties 5,781 6,935 12

(1) Amounts due to brokers and customers are payable within three working days of the relevant trade date.

10

7

17

33

Macquane Financial Holdings Limited and its subsidianes


Consolidated2009

$m

Consolidated2008

$m

Company2008

$m

Company2009

$m

Note 26. Provisions

Provision for annual leave

Provision for long servce leave

Provision for other employee entitlements

Total provisions

41

16

8

65

36

17

7

60

Note 27. Loan capital

Macquarie Convertible Preference Securities

In July 2008, Macquarie CPS Trust, a subsidiary of the Company issued six miiion Macquarie Convertible Preference Seurities(Macquarie CPS) at face value of $100 each. These instruments are non-cumulative and unsecured and may be resold,mandatorily converted into Macquare ordinary shares (subject to certain conditions being satisfied) or redeemed on 30 June2013. The CPS bear fixed-rate coupons at 11.095 per cent per annum, paid semi-annually until 30 June 2013, whereby afloating rate wil apply.

Subordinated debt

Agreements between the consolidated entity and the lenders provide that, in the event of liquidation, entitlement of such lendersto repayment of the principal sum and interest thereon is and shall at all times be and remain subordinated to the rights of allother present and Mure creditors of the consolidated entity.

The dates upon which the consolidated entity has committed to repay the principal sum to the lenders are as follows:

At call

30 March 2009

30 June 2013

Total subordinated debt and Macquarie ConvertiblePreference Securities(1)

Consolidated2009

$m

6

Consolidated2008

$m

6

7

Company2009

$m

Company2008

$m

600

606 13

Reconcilation of subordinated debt by major currency:

Australian dollars

Canadian dollars

Total subordinated debt and Macquarie ConvertiblePreference Securities by currency(1)

600

6 13

606 13

(1) The consolidated entity has not had any defaults of principal, interest or other breaches with respect to its loan capital during

the period reported.


Consolidated and Company2009 2008

Number of Number ofshares shares

Consolidated and Company

2009 2008$m $mNote 28. Contributed equit

Ordinary share capit

Opening balance of fuy paid ordinary shares

Issue of 2 ordinary shares on 21 February 2007, date ofincorporation, at $1.00 per share

Issue of shares to Macquarie Group Limited on 16November 2007

Issue of 196,573 shares to Macquarie Group Limited onretraction of exchangeable shares in the range of $16.98 to$55.99 per shareCapital reduction of 46,536,949 shares on 31 October 2008at $1.00 per share in exchange for the distribution in specieby the Company of all of the Macquarie Capital InvestmentManagement Inc. Common Stock to Macquarie GroupLimited

Closing balance of fully paid ordinary shares

16,958,266,043 16,990

2

- 16,958,266,041 16,990

196,573 9

(46,536,949)16,911,925,667 16,958,266,043

(47)

16,952 16,990

Consolidated2009

$m

Consolidated2008

$m

Company2009

$m

Company2008

$m

Equity contribution from ultimate parent entit


Additional paid up capital..M...__.M....... .....................H.........,................................_......... ...................................

Balance at the end of the financial

9499

193

94

94

The Company's ultimate parent entit, MGL, operates a share-based compensation plan, the Macquarie Group EmployeeShare Option Plan (MGESOP), which grants options to employees of the consolidated entity. Staff eligible to participate arethose of Associate Director level and above and certain consultants to the consolidated entity. The options are measured attheir grant dates based on their fair value and the number expected to vest. This amount is recognised as an expense evenlyover the respective vesting periods and the equity provided is treated as a capital contribution from MGL. For the year ended 31March 200, compensation expense relating to the MGESOP totalled $78,522,426 (2008: $93,558,691). In addition, pursuantto an amendment to the terms of the Macquarie Group Staff Share Acquisition Plan (MGSSAP) and Employee Share Plan (ESP)to allow the issue of new shares as an alternative to acquiring existing shares on-market, compensation expense relating tothese plans was recognised as additional paid up capital during the financial year, totallng $20,813,150. Disclosures on theEmployee Option Plan, MGSSAP and ESP are disclosed in Note 33 - Employee equity participation.

35




$m $m $m $m

Note 29. Reserves, retained earnings and minority interests

ReservesForeign currency translation reserveBalance at the beginning of the financial year (4)

Currency translation differences arising during the financialyear net of hedge (39) (4) 4

Balance at the end of the financial year (43) (4) 4

Available for sale reserve

Balance at the beginning of the financial year 148 1

Revaluation movement for the financial year, net of tax (170) (4) (1)

Transfer to income statement for impairment 26

Transfer to profit on realisation (35)

Arsing from Macquarie Group restructure 152

Balance at the end of the financial year (31) 148

Cash flow hedging reserveBalance at the beginning of the financial year (1)

Revaluation movement for the financial year net of tax (6) (1 )

Balance at the end of the financial year (7) (1)

Share of reserves of interest in associates and jointventures using the equity method

Balance at the beginning of the financial year (3)

Share of reserves during the year (92) (3)

Balance at the end of the financial year (95) (3)

Reserves arsing from group restructure of combiningentities under common controlBalance at the beginning of the financial year (14,000)Arising from acquisition of subsidiaries from MBL (note 41) (19)

Arising from the Macquarie Group restructure (14,00)Balance at the end of the financial year (14,019) (14,000)

Total reserves at the end of the financial year (14,195) (13,860) 4

Retained earnings/(accumulated losses)Balance at the beginning of the financial year 312 (53)

Profit/oss) attributable to equity holders of MacquarieFinancial Holdings Limited 516 312 (12,475) (53)

Dividends paid on ordinary share capital (note 5) (157) (157)

Balance at the end of the financial year 671 312 (12,685) (53)

Minori interestsOther minority interests

Ordinary share capital 36 23

Preference share capital 5 8

Foreign currency translation reserve 8

Accumulated profits/Qosses) 31 (1 )

Total other minority interests 80 30

Tota minorit interests 80 30

36 Macquarie Financial Holdings Limited 2009 Annual Report

Consolidated Consolidated

2009 2008$m $mCompany

2009$m

Company2008

$m

Note 30. Notes to the cash flow statements

Reconcilation of cash and cash equivalentsCash and cash equivalents at the end of the financial year as shown in the cash flow statements is reconciled to related items in thebalance sheets as follows:

Due from related body corprate entitY')

Due from other financial institutions

Due from banks(2

Trading securities(3

Cash and cash equivalents at the end of the financial year

624 3,654 624 3,654

2,037

2,540

5,201

2,680

750

7,084

2,298

2,922

750

4,404

Reconcilation of profi(loss) from ordinary activities after income tax to net cash flows from operating activitiesProfit/Qoss) from ordinary activities after income tax 538 312 (12,475) (53)

Adjustments to profit from ordinary activities

Accretion of interest on available for sale financial assets 23 (9) (65) (6)

Amortisation of other identifable intangible assets 12

Depreciation on assets under operating leases 120 97

Depreciation on propert, plant and equipment 77 19

Dividends received from associates 262 112

Fair value changes on available for sale financial assets transferred toincome statement on realisation (35)

Fair value changes on financial assets and liabilties at fair valuethrough profit or loss 170 (22)

Gain on acquiring, disposing, and change in ownership interest insubsidiaries and businesses held for sale (133) (72)

Impairment charge on associates and joint ventures 576

Impairment charge on investment securities available for sale 67 20

Impairment charge on subsidiaries 12,350

Loss on disposal of propert, plant and equipment 5

Net gains on sale of associates nncluding associates held for sale) andjoint ventures (65) (26)

Net gains on sale of investment securities available for sale (147) (16)

Provisions for impairment on loan assets and other receivables 47 16 2

Share based payment expense 99 94

Share of net loss of associates and joint ventures using the equitymethod 25 7

Changes in assets and liabilties

Decrease/nncrease) in dividends receivable 5 (21)

Decrease/nncrease) in fees and commissions receivable 541 (519)

Decrease in fees and commissions payable (28)

(Decrease)/ncrease in current tax liabilties (108) 19 (100)

Increase in deferred tax assets (87) (35) (40)

Increase/(decrease) in deferred tax liabilties (14) 23 (4) 4

DecreaseYnncrease) in interest recivable 68 (112) 2 (4)

Increase in interest payable 2 1

Increase in provisions for employee entitlements 6 36

(IncreaseYdecrease in loan assets granted (3,007) 4,028 (875) 3,582

Increase In debtors, prepayments, accrued charges and creditors (1,891) (886) (2) (28)

Decrease in financial instruments, foreign exchange and commodities 452 848 (24) 8

Increase/(decrease) in amounts due to other financial institutions,deposits and other borrowings 3,167 1,222 (1)

Net cash flows from/(used in) operating activities 742 5,141 (1,231) 3,503

(1) This comprises cash balances held with a related body corporate entity, MBL.(2 Includes cash at bank, ovemight cash at bank, other loans to banks and amounts due from clearing houses as per Note 2 (xvii).(3 Includes short-term debt securities as per Note 2 (xvii).

37



Consolidated2009

$m

Consolidated2008

$m

Company2009

$m

Company2008

$m

Note 30. Notes to the cash flow statements continued

Non cash investing activities

Capitalisation of amount receivable from a subsidiary

Total non cash investing activities

88

88

During the previous financial year, the Company capitalised amounts owing from subsidiaries, Macquarie Capital Group Limitedand Macquarie Group Holdings NO.3 Pl Limited, with the issue of new shares by the subsidiaries. This increased theCompany's cost of investment in the subsidiaries without any corresponding outfow of cash and cash equivalents.

Note 31. Related part information

Ultimate parent entity

During the previous financial year, the Macquarie Group was restructured which resulted in Macquarie Group Umited beingestablished as the ultimate parent entity of the Macquarie Group.

MGL Is incorporated in Australia and produces financial statements that are available for public use.

The following balances with the ultimate parent entity were outstanding as at financial year end:

Amounts payable

Consolidated2009

$m

(10,326)

Consolidated2008

$m

(13,702)

Company2009

$m

(10,347)

Company2008

$m

(13,696)

Subsidiaries

Transactions between the Company and its subsidiaries principally arise from the granting of loans, derivative transactions, theprovision of management and administration services and the provision of guarantees.

All transactions with subsidiaries are in accordance with regulatory requirements, the majority of which are on commercial terms.All transactions undertaken during the financial year with subsidiaries are eliminated in the consolidated financial statements.Amounts due from and due to subsidiaries are presented separately in the balance sheet of the Company except whenoffetting reflects the substance of the transaction or event.

Balances arising from lending and borrowing activities between the Company and subsidiaries are typically repayable ondemand, but may be extended on a term basis and where appropriate may be either subordinated or collateralised.

Subsequent to the Macquarie Group restructure, MGL as the ultimate parent entity of the Macquarie Group became the headentity of the tax consolidated group. The terms and conditions of the tax funding agreement are set out in Note 2 (vi) -Summary of significant accounting policies. As at 31 March 2009, the amount payable by the consolidated entity and Companyto MGL as the head entity under the tax funding agreement Is $54 millon and $124 milion respectively (2008: $88 milionreceivable and $26 milion receivable). This balance is included in 'Due to related body corporate entities' in the balance sheet.

The Company has entered into deriative transactions with its subsidiaries to hedge their operations. The fair value of derivativefinancial instruments relating to transactions between the Company and its subsidiaries at 31 March 200 are $nil positive valueand $110 millon negative value (2008: $9 milion positive value and $7 millon negative value).

During the financial year, the following transactions occurred with subsidiaries:

Consolidated2009

$m

Consolidated2008

$m

Interest income received/receivable (note 3)

Interest expnse paid/payable (note 3)

Dividends and distributions receivedreceivable (note 3)

Management fees, group service charges and costrecoveries

Brokerage and commission expense

Company2009

$m

34(60)220

Company2008

$m

177

(19)

(4)

(2)

The following balances with subsidiaries were outstanding as at financial year end:

Amounts receivable

Amounts payable

9,954

(1 ,905)

10,080

(920)


Note 31. Related par information continued

Related body corprate entities

Transactions between the consolidated entity and related body corporate entities principally arise from the granting of loans, theprovision of management and administration services and the provision of guarantees in respect of debt of related bodycorporate entities.

As part of the restructure described above, the Company acquired certain Non-Banking Group subsidiaries from a related bodycorprate entity for fair value at the restructure date.

During the financial year, the following transactions occurred with related body corporate entitles:


$m $m $m $m

Interest income received/receivable (note 3) 456 194 349 157

Interest expense paid/payable (note 3) (869) (360) (833) (350)

Fee and commission income 134 135

Other operating expense (35)

Dividends and distributions receivedreceivable 12 18

Management fees, group servce charges and costrecoveries 17 (56)

The following balances with MGL and related body corporate entities were outstanding as at financial year end:

Amounts receivable

Amounts payable

2,954

(443)

6,222

(636)

277

(94)

4,507

(206)

Associates and joint ventures

Transactions between the consolidated entity and its associates and joint ventures principally arise from the provision ofcorporate advisory services, the granting of loans, derivative transactions and the provision of management services. Alltransactions undertaken with associates and joint ventures are eliminated where they are unrealised, to the extent of ownershipinterests held by the consolidated entity, in the consolidated income statement.

During the financial year, the following transactions occurred with associates and joint ventures:

1 3

(1 )

484

Interest income received/receivable

Interest expense paid/payable

Fee and commission income!l)

Other income

Gains on sale of securities(2

Dividends and distributions(3 (note 15)

Brokerage and commission expense(1) Fee and commission income includes all fees charged to associates.

(2 Gains on sale of securities are shown after elimination of unrealised profits/osses calculated by reference to the consolidated

entity's ownership interest in the associate.(3 Dividends and distributions are shown as gross amounts. Under the equity method, these amounts are not taken up as profit

but are recorded as a reduction of the carring amount of the investment.

The following balances with associates and joint ventures were outstanding at the end of the financial year (these excludeamounts which in substance form part of the consolidated entity's net investment in associates, disclosed in Note 15):

Consolidated Consolidated Company Company2009 2008 2009 2008$m $m $m $m75 327

(37)

865

1

57

262

(8)

48

112

(8)

Amounts receivable

Amounts payable

Balances arising from lending and borrowing activities between the consolidated entity and its associates and joint ventures aretypically repayable on demand, but may be extended on a term basis and where appropriate may be either subordinated orcollateralised.

39



Note 32. Key Management Personnel disclosure

Key Management Personnel

The following persons were Voting Directors of MFHL during the past two financial periods ended 31 March 2008 and 31March 2009, unless otherwise indicated:

Voting Directors

M. Ferrier (appointed 13 October 2008)RN. Upfold (appointed 13 October 2008)G.C. Ward (appointed 21 February 2007)S.J. Dyson (appointed 21 February 2007, resigned 13 October 2008)

W.R Sheppard (appointed 21 February 2007, resigned 22 October 2008)

In addition to the Voting Directors listed above the following persons, who were members of MGL's Executive Committee, alsohad authority and responsibilty for planning, directing and controllng the activities of the Company and its subsidiaries duringthe financial periods ended 31 March 2008 and 31 March 2009.

Executives

J.K. Burke (resigned 26 February 2009)M. CarapietAJ. DowneR Laidlaw (appointed 10 June 2008)P.J. MaherN.R Minogue

NW. MooreAE. Moss AO (retired 24 May 2008)W.R.SheppardS. Wikramanayake (appointed 10 June 2008)

For the year ended31 March 2009

$

For the period21 February 2007 to

31 March 2008$

Key Management Personnel RemunerationAmounts paid to Key Management Personnel in relation to their roleas KMP of the Company and its subsidiaries 4,073,237 19,515,248The Key Management Personnel (KMP) did not receive any other benefits or consideration in connection with the managementof the Company and its subsidiaries. All other benefits that were received by the KMP were solely related to other servcesperformed with respect to their employment by MGL and its subsidiaries.


Note 33. Employee equit paricipation

Option Plan

In November 1995, Macquarie Bank Limited (MBL) introduced an Employee Option Plan, as a replacement for its now closedpartly paid share scheme. On 13 November 2007, the date of the Macquarie Group Restructure, all MBL options werecancelled and replacement options over shares in the new ultimate parent entity, MGL, were issued on the same terms on aone-far-one basis under the Macquarie Group Employee Share Option Pian (MGESOP).

Staff eligible to participate in the MGESOP are those of Asociate Director level and above and consultants to the Group. At 31March 2009 there were 1,455 (2008: 1,215) participants in the MGESOP.

The fair value of each option is estimated on the date of grant using standard option pricing technology based on the Black-Scholes theory. The following key assumptions have ben adopted for grants made in the current financial year:risk free interest rate: 6.77per cent (weighted average) (2008: 7.04 per cent);expected life of options: four years (2008: four years);volatility of share price: 24 per cent (2008: 20 per cent); anddividend yield: 3.47 per cent per annum (2008: 3.43 per cent per annum).

Options, currently for five years, over fully paid unissued ordinary shares in MGL are granted to individuals or the individual'scontrolled company or an entity approved under the MGESOP to hold options.

The options are issued for no consideration and are granted at prevailng market prices. Prior to 21 November 2003, theexercise price of new options granted was generally based on the weighted average market price during the month prior toacceptance of employment for new employees or during the calendar month of June in respect of options granted as a result ofannual promotions and compensation reviews. From 21 November 2003 until 25 November 2004, the exercise price of new

options granted was generally based on the weighted average market price during the one week period prior to the date ofgrant of the options. From 26 November 2004, the exercise price of new options granted is generally based on the weightedaverage market price during the one week up to and including the date of grant of the options.

The following is a summary of options which have been granted pursuant to the MGESOP:

Weighted average

Number of exercise priceoptions 20092009 $

Outstanding at the beginning of the financial year 21,569,132 61.73Granted during the financial year 11 ,892,300 53.13Forfeited during the financial year (2,218,435) 63.84Exercised during the financial year (1,306,336) 30.64Transfers from related entities (730,162) 54.13Lapses during the year (92,156) 49.93Outstanding at the end of the financial year 29,114,343 59.77 21,569,132Exercisable at the end of the financial year 7,154,062 55.52 3,113,941For options exercised during the financial year the weighted average share price at the date of exercise was $50.46 (2008:$77.73).

The range of exercise prices for options outstanding at the end of the financial year was $17.10 to $94.48 (2008: $21.66 to$94.48).

Weighted averageNumber of exercise priceoptions 20082008 $

706,00(46,747)

(509,728)21,419,607

69.00

66.6337.96

60.94

61.73

44.26

The weighted average remaining contractual life for the share options outstanding as at 31 March 2009 was 3.04 years (2008:3.17 years). The weighted average remaining contractual life when analysed by exercise price range is:

Number of Remaining life Number of Remaining life

options (year) options (years)

Exercise price range ($) 2009 2009 2008 2008

10 - 20 3,000 4.94

20-30 62,500 4.69 788,238 0.42

30-40 2,015,904 0.97 2,367,365 1.38

40-50 641,952 2.56 420,095 2.37

50-60 9,988,004 4.36 109,001 3.68

60 - 70 9,581,160 1.93 10,234,341 2.96

70 - 80 6,204,380 3.31 6,820,514 4.34

80-90 537,990 3.15 713,578 4.14

90-100 79,453 3.19 116,000 4.21

29,114,34 3.04 21,569,132 3.17

41



Note 33. Employee equity paricipation continued

Option Plan continued

The weighted average fair value of options granted during the financial year was $10.56 (2008: $12.98).

The market value of shares issued during the year as a result of the exercise of these options was $66 millon (2008: $40 millon).

The market value of shares which would be issued from the exercise of the outstanding options at 31 March 2009 was $793millon (2008: $1,139 milion). No unissued shares, other than those referred to above, are under option as at the date of thisreport.

The options are measured at their grant dates based on their fair value and the number expected to vest. This amount isrecognised as an expense evenly over the respective vesting periods and the equity provided is treated as a capital contribution.For the year ended 31 March 2009, compensation expense relating to the MGESOP totalled $78 milion (2008: $35 millon).

Options granted vest as to one third of each tranche after the second, third and fourth anniversaries of the date ofcommencement of employment for new starters and, for existing employees, on 1 July, two three and four years after theallocation of the options. Subject to the Option Plan Rules and Macquare's personal dealing policy, options can be exercisedafter the vesting period at any time up to expiry. In individual cases, such as where an employee leaves with the consolidatedentity's agreement towards the end of a vesting period, the MGL's Executive Committee has the power to waive the remainderof any vesting period and allow exercise of some or all of the relevant options.

The MGESOP Rules provide that the total number of options which can be on issue at anyone time is limited such that thenumber of shares resulting from exercise of all unexercised options does not exceed 20% of the number of MGL's then issuedordinary shares plus the number of shares which MGL would have to issue if all rights to require MGL to issue shares, whichMGL has then granted üncluding options) were then enforced or exercised to the greatest extent permitted. The Board has asecond limitation on the number of options, being effectively the same calculation as in the MGESOP Rules except that anyexercised options granted less than five years ago, where the Executive is stil with MGL, will be treated as still beingunexercised.

Employee Share Plan

Following shareholder approval at the 1997 Annual General Meeting, MBL introduced the Macquarie Bank Employee SharePlan whereby each financial year, eligible employees are offered up to $1 ,000 worth of fully paid ordinary Company shares forno cash payment. MGL has since introduced the Macquarie Group Employee Share Plan (ESP) on the same terms. No furtherissues wil be made under the Macquarie Bank Employee Share Plan.

The consolidated entity's staff profit sharing pools and for certain staff, future commissions, are adjusted downwards by theaggregate market value of the shares issued under the ESP.

Shares issued under the ESP cannot be sold until the earlier of three years after issue or the time when the participant is nolonger employed by the consolidated entity. In all other respects, shares issued rank equally with all other fuy paid ordinaryshares then on issue.

Staff Share Acquisition Plan

Following shareholder approval at the 1999 Annual General Meeting, MBL introduced the Macquarie Bank Staff ShareAcquisition Plan (MBSSAP) whereby each financial year, Australian based eligible employees are given the opportunity tonominate an amount of their pre-tax available profit share or fuure commission to purchase fully paid ordinary MBL shares.MGL has since introduced the Macquarie Group Staff Share Acquisition Plan (MGSSAP) on the same terms. No furtheracquisitions wil be made under the MBSSAP.

MGL shares are acquired at prevailng market prices. Any applicable brokerage expenses, workers' compensation premiumsand payroll tax charges are applied to the employee's account. In all other respects, shares rank equally with all other fully paidordinary shares than on issue.

The Macquarie Bank Executive Director Share Acquisition Plan (MBEDSAP) was a sub plan of the MBSSAP which was createdin 2003 and was open to eligible Executive Directors. The disposal and forfeiture restrictions in the MBEDSAP difer to those inthe MBSSAP. No further offers under the MBEDSAP are currently proposed. MGL has since introduced a Macquarie GroupExecutive Director Share Acquisition Plan (MGEDSAP) on the same terms.


Consolidated2009

$m

Consolidated2008

$m

Company2009

$m

Company2008

$m

Note 34. Contingent liabilities and commitents

The following details of contingent liabilties and assets exclude derivatives.

Contingent liabilities exist in respect of:

GuaranteesIndemnities

Letters of Credit

Perfonmance related contingents

Total contingent liabilties(1)

147

147 720

17

2,099 3,752

Commitments exist in respect of:

Undrawn credit facilties

Undrawn credit facilties - revocable at any time

Forward Asset Purchase

Total commitments(2

12

695

707

935

1,268

720 2,060

22

3,127

625

333

Total contingent liabilities and commitments 854 1,988 2,099 3,752(1) Contingent liabilities exist in respect of claims and potential claims against the consolidated entity. Where necessary,

appropriate provisions have been made in the financial statements. The Directors do not consider that the outcome of any suchclaims known to exist at the date of this report, either individually or in aggregate, are likely to have a material effect on theresults of its operations or its financial position.

(2 Total commitments also represent contingent assets. Such commitments to provide credit may convert to loans and otherassets in the ordinary course of business.

Note 35. Capital and other expenditure commitments

Not later than one year

Later than one year and not later than five years

Total capital and other expenditure commitments

1

2

3

8

8

16

Note 36. Lease commitments

Non-cancellable operating leases, expiring:Not later than one year

Later than one year and not later than five years

Later than five years

Total operating lease commitments

60

308

366

734

43

110

47

200

Operating leases relate to commercial buildings. The fuure lease commitments disclosed are net of any rental lease incentives

received.

43



Note 37. Derivative financial instruments

Objectives of holding and issuing derivative financial instruments

The consolidated entity is an active price maker in derivatives on equities. Its objective is to eam profits from the price makingspread and from managing the residual expsures on positions. Proprietary position taking is an immatenal part of theconsolidated entity's trading activities. Risks on derivatives are managed together with all other trading positions as part of anoverall trading position. All trading positions are marked to fair value daily.

The consolidated entity also uses derivatives for asset/iabilty management. Certain derivative transactions may qualify as cashflow, fair value or net investment in foreign operations hedges, if they meet the appropriate strict hedge criteria outlined in Note2(x) - Summary of significant accounting policies:

Cash flow hedges The consolidated entity is exposed to volatilty in fuure interest cash flows arising fromfloating rate issued debt used to fund fixed rate asset positions. The aggregate principalbalances and interest cash flows across these portolios form the basis for identifyingthe non-trading interest rate risk of the consolidated entity, which is hedged with interestrate swaps and cross currency swaps.

At 31 March 2009, the fair value of outstanding derivatives held by the consolidatedentity and designated as cash flow hedges was $5 millon negative value (2008: $34milion positive value).

In 2009, the consolidated entity recognised $nil (2008: $nil) in the income statement dueto hedge ineffectiveness on cash flow hedges.

. .-The consolidated entity's fair value hedges consist of foreign exchange forwardcontracts used to hedge against changes in the fair value of foreign denominated equityinstruments as a result of movements In market foreign exchange rates.

As at 31 March 2009, the fair value of outstanding derivatives held by the consolidatedentity and designated as fair value hedges was $1 millon negative value (2008: $1milion negative value).

During the period fair value losses on the hedging instruments of $17 milion (2008: $nil)have been recognised. offet by $17 milion (2008: $nil) of gains on the hedged item.

The consolidated entity has applied net investment hedging for foreign exchange riskarising from foreign operations.

At 31 March 2009, the fair value of outstanding derivatives held by the consolidatedentity and designated as net investment in foreign operations hedges was $252 milionnegative value (2008: $30 millon negative value). In 2009, the consolidated entityrecognised $nil (2008: $nll) in the income statement due to hedge ineffectiveness on netinvestment hedges.

Fair value hedges

Net investment in foreignoperations hedges


Note 37. Derivative financial instruments continued

The types of contracts which the consolidated entity trades and uses for hedging purposes are detailed below:

Futures: Futures contracts provide the holder with the obligation to buy a speifed financial instrument or commodity at a fiedprice and fixed date in the future. Contracts may be closed early via cash settlement. Futures contracts are exchange traded.

Forwards and forwrd rate agreements. Forward contracts, which resemble futures contracts, are an agreement between twoparties that a financial instrument or commodity wil be traded at a fixed price and fixed date in the fuure. A forward rateagreement provides for two parties to exchange interest rate diferentials based on an underling principal amount at a fixeddate in the fuure.

Swap: Swap transactions provide for two parties to swap a series of cash flows in relation to an underlying principal amount,usually to exchange a fixed interest rate for a floating interest rate. Cross-currency swaps provide a tool for two parties tomanage risk arising from movements in exchange rates.

Options: Option contracts provide the holder the right to buy or sell financial instruments or commodities at a fixed price over anagreed period or on a fixed date. The contract does not oblige the holder to buy or sell, however the writer must perform if theholder exercises the rights pertaining to the option.

The following table provides details of the consolidated entity's outstanding derivatives used for trading and hedging purposesas at 31 March.

Consolidated 31 March 2009 Consolidated 31 March 2008

Notional Asset Liabilty Net fair Notional Asset Liabilty Net fair

amount revaluations revaluations value amount revaluations revaluations value

$m $m $m $m $m $m $m $m

Interest rate contracts

Swaps 133 8 (8) 930 34 8 26

Total interest rate contracts 133 8 (8) 930 34 8 26

Foreign exchange contracts

Forwards 303 40 13 27 502 4 4

Swaps 7 3 3

Total foreign exchangecontracts 310 43 13 30 502 4 4

Equity contracts

Exchange traded 304 6 6 156,142 85 97 (12)

Swaps 70 26 1 25 178 95 53 42

Options 108 18 76 (58) 1,410 88 (88)

Total equity contracts 482 50 77 (27) 157,730 180 238 (58)

Total derivatives contractsoutstanding 925 93 98 (5) 159,162 218 246 (28)

Note 38. Financial risk management

Risk Management Group

Risk is an integral part of the consolidated entity's businesses. The main risks faced by the consolidated entity are market risk,equity risk, credit risk, liquidity risk, operation risk, legal compliance risk and documentation risk. Responsibilty for managementof these risks lies with the indivdual businesses giving rise to them. It is the responsibility of the Risk Management Group (RMG)to ensure appropriate assessment and management of these risks.

RMG is independent of all other areas of Macquarie Group Limited (MGL), reporting directly to the Managing Director. The Headof RMG is a member of the Executive Committee of Macquarie Group Limited. RMG authority is required for all material riskacceptance decisions. RMG identifes, quantifes and assesses all material risks and sets prudential

limits. Where appropriate,

these limits are approved by MGL's Executive Committee and Board.

The risks which the consolidated entity is exposed to are managed on a globally consolidated basis for MGL as a whole,including all subsidiaries, in all locations. Macquarie's intemal approach to risk ensures that risks in subsidiaries are subject tothe same rlgour and risk acceptance decisions Q.e. not diferentiating where the risk is taken within Macquarie).

45



Note 38.1. Credit risk continued

Credit risk is the risk of a counterpar failng to complete its contractual obligations when they fall due.

The credit risk expsures within the consolidated entity are managed on a Group basis by RMG.

Maximum exposure to credit risk

The table below detaiis the concentration of credit exposure of the consolidated entity's assets to signifcant geographicallocations and counterpart types. The amounts shown represent the maximum credit risk of the consolidated entity's assets.

Cash collateral onsecurities

borrowed andreverse

repurchaseagreements(l)

$m

Duefrom banks

$m

Loan assets heldTrading assets at amortised cost$m $m

Other financialassets at fair

value throughprofit or loss

$mConsolidated 2009AustraliaGovernments


Other

Total Australia

217 56

339

395

2,186

2,186217

New Zealand


Other

Total New Zealand

14

14

EuropeGovernments


Other

Total Europe

203

203

11

11

7 32

499 177 33 31

56 71

555 184 136 31

North America

Governments


Other

Tota North America

730

730

AsiaGovernments


Other

Tota Asia

732 121

153

274732

OtherGovernments


Other

Tota otherTotal

Total gross credit risk

184

3

47

823

43161 8

161

2,057

8

563

43

2,260

(1) Classifed based on the expsure to the underlying security borrowed.


DebtDerivative investment Due from Credit

financial securities related body commitmentsinstruments - available for corporate and contingent

positive values Other assets sale entities liabilties Total

$m $m $m $m $m $m

21 21

53 1,044 2,034 3,404

4 383 26 807 126 3,871

57 404 1,070 2,841 126 7,296

14

15 16

15 30

18 18

32 1,135 1,370

573 5 22 70 681

32 591 1,140 22 70 2,069

58 9 106

3 865 6 2,341 877 98 59 462 1,624

4 935 963 59 477 4,074

56 56

853

2,374 2 31 181 2,741

2,430 2 31 181 3,650

1

215

381 385

382 601

93 4,757 3,175 2,954 854 17,720

17,720

47

Macquane Financial Holdings Limited and its subsidianes


Note 38.1 Credit risk continued

Maximum exposure to credit risk continued

Cash collateral onsecurities borrowed Other financial

and reverse assets at fair valueDue repurchase Loan assets held at through profit or

from banks agreements(1) amortised cost lossConsolidated 2008 $m $m $m $m

AustraliaGovernments 69

Financial institutions 259 3 259

Other 3,481 311

Total Australia 259 3 3,809 311

New Zealand

Governments 3

Financial institutions 30 5

Other 2

Total New Zealand 30 10

EuropeGovernments


Other 182

Total Europe 135 657

North America

Governments 26

Financial institutions 586 798 24 26

Other 486 691

Total North America 586 1,284 741 26

AsiaGovernments

Financial Institutions 828 14 50

Other 292

Total Asia 828 14 342

OtherGovernments


Other 22

Tota other 864 328 42

Total 2,702 1,629 5,559 379

Total gross credit risk(1) Classified based on the expsure to the underlying security borrowed.


Derivative Debt investment Due from Credit

financial securities related body commitments

instruments - available corprate and contingent

positive values Other assets for sale entities liabilties Total

$m $m $m $m $m $m

22 25 116

111 804 4,766 6,202

107 1,192 65 256 762 6,174

218 1,214 869 5,022 787 12,492

2 5

35

43 46

45 86

46 46

291 1,095 38 2,034

212 4 50 140 588

258 295 1,145 178 2,668

41 29 96

1 ,434

274 40 849 2,340

315 40 878 3,870

55 55

4 896

3,208 9 8 61 3,578

3,263 9 8 65 4,529

2 2

1,212

105 6 80 213

107 6 80 1 ,427

218 5,202 1,173 6,222 1,988 25,072

25,072

49




Maximum exposure to credit risk continued

DebtLoan assets investment Due from Credit

held at securities related body commitmentsamortised available for corprate Due from and contingent

cost Other assets sale entities subsidiares liabilties TotalCompany 2009 $m $m $m $m $m $m $m

AustraliaGovernments 3 3


Other 8 113 9,342 1,715 11,178

Total Australia 8 3 826 258 9,342 1,715 12,152

New Zealand

Other 7 7


EuropeFinancial institutions 1,071 1,071

Other 6 13 170 49 238

Total Europe 6 1,071 13 170 49 1,309

North America


Other 10 2 149 22 183

Total NorthAmerica 27 598 2 149 22 798

Asia

Other 4 164 80 248

Total Asia 4 164 80 248

OtherOther 122 233 355

Tota other 122 233 355

Total 41 3 2,495 277 9,954 2,099 14,869

Tota gross creditrisk 14,869


Note 38.1 Credit nsk continued

Maximum exposure to credit nsk continued

DebtLoan assets investment Due from Credit

held at securiies related body commitmentsamortised available corprate Due from and contingent

cost Other assets for sale entities subsidianes liabilities Total

Company 2008 $m $m $m $m $m $m $m

AustraliaGovernments 1

Financial institutions 203 553 4,503 5,259

Other 3 9,255 2,956 12,214

Total Australia 203 553 4,506 9,255 2,956 17,474

New Zealand

Other 15 15


EuropeFinancial institutions 198 199

Other 398 40 438

Total Europe 198 398 40 637

North AmencaOther 20 39 626 685

Total NorthAmerica 20 39 626 685

AsiaOther 275 130 405

Total Asia 275 130 405

OtherOther 98 98

Total other 98 98

Total 223 751 4,507 10,080 3,752 19,314

Tota gross creditnsk 19,314

Credit quality of financial assets

The credit quality of financial assets is managed by the consolidated entity using internal credit ratings. These intemal ratings aremapped to external ratings as follows:

Credit GradingInvestment Grade

Below Investment Grade

Default

Exernal Equivalent (long-term)Stadard & Poors

AM to BBB-

BB+ to C

Default

51

Macquarie Financial Holdings Limited and its subsidiaries



Credit qualit of financial assets continued

The table below shows the credit quality by class of financial asset nbased upon ultimate risk counterprt) for credit exposures,based on the consolidated entity's credit rating system.

Credit quality - Consolidated 2009 mN_~!t.ttir:_e~s!_cjlJti...i:9_r:irrl?l:i.r:.tcjm__..__.....

BelowInvestment Investment

Grade Grade$m $m

Past dueor

individuallyUnrated impaired$m $m

Total$m

Default$m

Due from banks

Cash collateral on securities borrowed andreverse repurchase agreements


Other

Trading portolio assets

Governments


Loan assets held at amortised cost

Governments


Other

Other financial assets at fair value throughprofit or loss


Other

Derivative financial instruments - positivevalues


Other

Other assets

Governments

Other

Debt investment securities available for sale


Other

Due from related body corporate entities


Other

Tota

2,046 2,05711

507

56

563

507

56

184

7

177

823

32

213

578

7

177

12

184

146

20

13

17

16

415

74

2,186

88

5

154

2,622 1,800

2,914 130

25 106

2,034

642

2,260

74

2,186

85 96

93

88

5

4,757

154

4,603

3,175

3,044

131

2,954

2,034

920

16,866

278

Included in the past due category are balances in which an amount was overdue by one day or more.




The table below shows the credit qualit by class of financial asset nbsed upon ultimate risk counterpart) for credit exposures,based on the consolidated entity's credit rating system.

Credit quality - Consolidated 2008 Neither past due nor impaired

Below Past due orInvestment Investment individually

Grade Grade Default Unrated impaired Total

$m $m $m $m $m $m

Due from banks 2,680 22 2,702

Cash collateral on securities borrowed andreverse repurchase agreements 1,629

Financial instituions 1,113 30 1,143

Other 486 486

Loan assets held at amortised cost 5,559

Governments 96 2 98


Other 338 4,105 3 202 4,648

Other financial assets at fair value throughprofit or loss 379


Other 333 333

Derivative financial instruments - positivevalues 218


Other 95 12 107

Other assets5,202

Governments 168 168

Other 3,254 1,575 78 127 5,034

Debt investment securities available for sale 1,173

Financial instituions 1,095 1,095

Other 77 78

Due from related body corprate entities 6,222

Financial institutions 5,861 5,861

Other 153 208 361

Total 23,084


53





The table below shows the credit quality by class of financial asset nbased upon ultimate risk counterpart) for credit expsures,based on the Company's credit rating system.



Other

Other assets

Governments





Other

Due from subsidiaries

Other

Total



Other

Other assets

Governments





Other


Other

Total

Neither past due nor impaired

BelowInvestment Investment

Grade Grade$m $m

Past due orindividually

Unrated impaired Total$m $m $mCredit Quality - Company 2009

41

17

24

3

3

2,495

2,495

277

145128 1329,954

9,954 9,95412,770

Default$m

17

8 163

2,495

145

4

203

20

Credit Quality - Company 2008

223

203

20

1

1

751

751

4,507

4,5043

10,080

10,080 10,08015,562

751

4,5043



Note 38.1 Credit nsk continued

Financial assets whose terms have ben renegotiated

The table below includes the carring value, as at the reporting date, of financial assts that would otherwise be past due orimpaired whose terms have ben renegotiated.


$m $m $m $m

Loans assets held at amortised costOther 15 24

Ageing analysis of assets past due but not Impaired and impaired assets

Past due but not impaired

Fair value

Less More of

than 30 31 to 60 61 to 90 than 91 collateraldays days days days Impaired Total held

Class of financial asset $m $m $m $m $m $m $m

Consolidated 2009

Loan assets held at amortised cost 50 15

Governments 6 14 20 5

Financial Institutions 7 3 3 13 2

Other 5 1 4 7 17 8

Other assets 96

Other 49 12 7 25 3 96

Total 67 16 7 43 13 146 15

Consolidated 2008

Loan assets held at amortised costOther 148 23 6 3 22 202 230

Other assets

Other 69 13 16 25 4 127 45

Total 217 36 22 28 26 329 275

A facility is considered to be past due when a contractual payment falls overdue by one or more days. When a facilty isclassifed as past due, the entire facilty balance is disclosed In the past due analysis.

The factors taken Into consideration by the consolidated entity when determining whether an asset is impaired are set out inNote 2 (xii).

Of the collateral held against past due and impaired balances for loan assets held at amortised cost, $7 milion (2008: $178milion) relates to collateral held against past due balances on leased assets.

The collateral held against past due and impaired balances for other assets represents equity securities held as security againstfailed trade settlements.

Repossessed collateral

During the year the consolidated entity took possession of propert assets with a carryng value of $nil milion (2008: $10 millon).

55



Note 38.2. Uquidit risk

Liquidity risk is the risk of an entity encountering difculty in meeting obligations associated with financial liabilties.

The liquidity risk within the consolidated entity is managed on a group basis by Group Treasury under the oversight of the RiskManagement Group and the Macquarie Group Limited Asset and Liabilty Committee.

Contractual undiscounted cash flows

The table below summarises the maturity profile of the consolidated entity's financial liabilties as at 31 March based oncontractual undiscounted repayment obligations. Repayments which are subject to notice are treated as if notice were givenimmediately.

Derivatives (other than those designated in a hedging relationship) and trading portolio liabilities are included in the less than 3months column at their fair value. Liquidity risk on these items is not managed on the basis of contractual maturity, since theyare not held for settlement according to such maturity and wii frequently be settled in the short term at fair value. Derivativesdesignated in a hedging relationship are included according to their contractual maturity.

On Less than 3 to 12 1 to 5 Over 5

demand 3 months months years years TotalConsolidated 2009 $m $m $m $m $m $m

Due to banks 64 20 51 667 396 1,198

Cash collateral on securities lent and repurchaseagreements 72 72

Trading portolio liabilties 181 181

Derivative financial instruments (trading) 17 17

Derivative financial instruments (hedgingrelationship)

Contractual amounts payable 71 2 6 2 81

Deposits 45 115 160

Other financial liabilties at fair value through profitand loss 221 238 1 ,426 1,588 3,473

Other liabilties(l) 4,654 4,654

Due to related body corporate entities 418 1,047 2,941 7,031 11 ,437

Macquarie Convertible Preference Securities 33 33 833 899

Subordinated debt 6 6

Total undiscounted cash flows 599 6,365 3,265 9,963 1,986 22,178

(1) Excludes items that are not financial instruments and non-contractual accruals and provisions.

IThe maturity profile of commitments are set out in notes 35 to 36.


Note 38.2 Uquidit risk continuedOn Less than 3 3 to 12 1 to 5 Over 5

demand months months years years Total

Consolidated 2008 $m $m $m $m $m $m

Due to banks 766 24 209 353 191 1,543

Cash collateral on securities lent and repurchaseagreements 312 312

Trading portolio liabilties 1,109 1,109

Deriative financial instruments (trading) 243 243

Derivative financial instruments nhedgingrelationship)

Contractual amounts payable 997 457 1 ,454

Contractual amounts receivable (968) (468) (1,436)

Deposits 2 7 175 85 269

Debt issued at amortised cost 48 144 2,973 3,165

Other financial liabilties at fair value through profitand loss 17 88 105

Other liabilties 4,678 4,678

Due to related body corporate entities 2,009 4,149 2,857 6,351 15,366

Subordinated debt 5 8 13

Total undiscounted cash flows 3,109 10,282 3,214 9,940 276 26,821

The maturity profiles of commitments are set out in Notes 35 and 36.

On less than 3to 12 1 to 5 Over 5demand 3 months months years years Total

$m $m $m $m $m $m

Company 2009

Other liabilties 2 2

Due to related body corporate entities 237 1,045 2,875 6,941 11 ,098

Due to subsidiaries 1,841 65 1,906

Total undiscounted cash flows 2,078 1,112 2,875 6,941 13,006

Company 2008

Other liabilties 7 7

Due to related body corporate entities 3,368 3,675 1,897 5,646 14,586

Due to subsidiaries 878 16 117 116 61 1,188

Total undiscounted cash flows 4,246 3,698 2,014 5,762 61 15,781

57



Note 38.3. Maret risk

Market risk is the exposure to adverse changes in the value of the consolidated entity's trading portolios as a result of changesin market prices or volatilty. The consolidated entity is exposed to the following risks in each of the major markets in which ittrades:

- foreign exchange: changes in spot and forward exchange rates and the volatilty of exchange rates;interest rates: changes in the level, shape and volatilty of yield curves, the basis between diferent interest rate securities andderivatives and credit margins;

_ equities: changes in the price and volatilty of individual equities, equity baskets and equity indices, including the risks arisingfrom equity underwriting activity;

_ commodities: changes in the price and volatilty of gold, silver and base metals, agricultural commodities and energy products;and

- to the correlation of market prices and rates within and across markets.

The Company is not exposed to any material market risk.

Value at Risk (\aR) figures for year ended 31 March

The table below shows the average, maximum and minimum VaR over the year for the major markets in which the consolidatedentity operates. The VaR shown in the table is based on a one-day holding period. The aggregated VaR is on a correlated basis.

2009 2009 2009 2008 2008 2008Average Maximum Minimum Average Maximum Minimum

Consolidated $m $m $m $m $m $m

Equities 3.33 19.09 0.20 1.74 9.22 0.65

Interest rates 1.38 3.20 0.08 0.20 1.21 0.06

Foreign exchange and bullon 0.57 3.81 0.19 0.21 1.10 0.00

Commodities 0.00 0.00 0.00 0.00 0.00 0.00

Aggregate 3.77 19.08 0.78 1.79 9.18 0.88

Value-at-Risk

The VaR model uses a Monte Carlo simulation to generate normally distributed price and volatility paths, based on three to tenyears of historical data. VaR focuses on unexceptional price moves, it does not account for losses that could occur beyond the99% level of confidence. These factors can limit the effectiveness of VaR in predicting fuure price moves when changes tofuture risk factors deviate from the movements expected by the above assumptions.

The risks which the consolidated entity is exposed to are managed on a globaliy consolidated basis for Macquarie Group as awhole, including ali subsidiaries, in all locations. The KMP of the entity do not use the VaR limits to manage exposure to marketrisk for the consolidated entity, however, the trading exposures of the entity are included within the MGL VaR limits tablewhich is reviewed by the KMP of MGL. The aggregated VaR is on a correlated basis. Macquarie's internal approach to risk n.e.not diferentiating where the risk is taken within Macquarie) ensures that risks in subsidiaries are subject to the same rigour andrisk acceptance decisions.

Interest rate risk

The consolidated entity also has exposure to non-traded interest rate risk generated by banking products such as loans anddeposits. Banking businesses have smali limits to accumulate marketable parcels of interest rate risk. Wherever possible, theseinterest rate risks are transferred to Macquarie's Treasury and Commodities business within the Banking Group and managedwithin traded market risk limits and are included within the VaR figures presented above. Some residual interest rate risksremain in the banking book as an unavoidable consequence of doing business. Residual risks have independent limits that aremonitored by RMG.

These residual interestrate risks are not material to the consolidated entity.

58 MacQuane Financial Holdings Limited 2009 Annual Report

Note 38.3 Maret nsk continued

Foreign currency nsk

The consolidated entity is exposed to foreign currency risk arising from transactions entered into in its normal course ofbusiness and as a result of the consolidated entity's investments in foreign operations. Movements in foreign currencyexchange rates wil result in gains or losses in the Income Statement due to the revaluation of certain balances or in movementsin the foreign currency translation reserve due to the revaluation of foreign operations.

In order to appropriately manage this risk it is the consolidated entity's policy that non-trading foreign currency exposures areappropriately hedged unless speifically approved by RMG or trading foreign currency exposures remain within trading limits setby the RMG.

Responsibilty for monitoring and managing foreign currency exposures arising from transactions rests with individual businessunits which wil enter into internal transactions as necessary to transfer the underlying foreign exchange risk to our tradingbusinesses. Any residual foreign exchange risk residing in non-trading business units is included in the internal model capitalcalculation by RMG.

Foreign currency exposures arise on the consolidated entity's net investment in foreign operations with functional currenciesother than the Australian dollar for both the Company and consolidated entity. Forward foreign exchange contracts orborrowings in the same currency as the exposure are designated as hedges under Australian accounting standards and offet

movements on the net assets within foreign operations and transferred to the foreign currency translation reserve.

As a result of the operation of its foreign exchange policy the consolidated entity is not exposed to any material residual foreigncurrency risk.

Equit pnce nsk

The table below indicates the equity markets to which the consolidated entity had signifcant exposure at 31 March on its non-trading investment portolio excluding investments in associates and joint ventures. The effect on equity (as a result of a changein the fair value of equity instruments held as available for sale at 31 March) and the income statement due to a reasonablypossible change in equity prices, with all other variables held constant, is as follows:

Consolidated 31 March 2009

Sensitivity ofprofi before

Movement in tax and profitequit price share% $m

Movement inequity price

%

Sensitivit of

equit afterta$mGeographic region

Listed

Australia

America

Europe

Asia

Other

Unlisted

Listed

Australia

America

Europe

Asia

Other

Unlisted

+10 5.4 +10

+10 0.6 +10

+10 +10

+10 4.3 +10

+10 +10

+10 18.3 +10

-10 (5.4) -10

-10 (0.6) -10

-10 -10

-10 (4.3) -10

-10 -10

-10 (18.3) -10

31 March 2008

Sensitivity ofprofit before

tax and profit Sensitivity ofshare equity after tax$m $m1.8 12.54.4 4.1

10.5

9.5

(1.8) (12.5)(4.4) (4.1 )

(10.5)

(9.5)

59



Note 39. Fair values of financial assets and liabilties

Fair value reflects the amount for which an asset could be exchanged or a liabilty settled, between knowledgeable, willngparties in an arm's length transaction. Quoted prices or rates are used to determine fair value where an active market exists. Ifthe market for a financial instrument is not active, fair values are estimated using present value or other valuation techniques,using inputs based on market conditions prevailng on the measurement date.

The values derived from applying these techniques are affected by the choice of valuation model used and the underlyingassumptions made regarding inputs such as timing and amounts of fuure cash flows, discount rates, credit risk, volatilty andcorrelation.

The following methods and signifcant assumptions have been applied in determining the fair values of financial instruments:Trading portolio assets and liabilties, financial assets and liabilties at fair value through profit or loss, derivative financialinstruments, and other transactions undertaken for trading purposes are measured at fair value by reference to quoted marketprices when available (e.g. listed securities). If quoted market prices are not available, then fair values are estimated on the basisof pricing models or other recognised valuation techniques;Investment securities classified as available for sale are measured at fair value by reference to quoted market prices whenavailable (e.g. listed securities). If quoted market prices are not available, then fair values are estimated on the basis of pricingmodels or other recognised valuation techniques. Unreali;:ed gains and losses, excluding impairment write-downs, are recordedin the Available For Sale Reserve in equity until the asset is sold, collected or otherwise disposed of;

Fair values of fixed rate loans and issued debt classified as at fair value through profit or loss is estimated by reference tocurrent market rates offered on similar loans.

For financial instruments carried at fair value the determination of fair value includes credit risk O.e. the premium over the basicinterest rate). Counterpart credit risk inherent in these instruments is factored into their valuations via credit valuationadjustments ("CVA"). This amount represents the estimated market value of protection required to hedge credit risk fromcounterparties, taking into account expected future exposures, collateral, and netting arrangements. CVA Is determined whenthe market price (or parameter) is not indicative of the credit quality of the specific counterpart. Where financial instruments arevalued using an internal model that utilse observable market parameters, market practice is to quote parameters equivalent toan interbank credit rating (that is, all counterparties are assumed to have the same credit quality). Consequently, a CVAcalculation is necessary to reflect the credit quality of each derivative counterpart to arrive at fair value.

Where valuation techniques are used to determine fair values, they are validated and periodically reviewed by qualifiedpersonnel independent of the area that created them. All models are certified before they are used, and models are calibratedperiodically to test that outputs reflect prices from observable current market transactions in the same instrument or otheravailable observable market data. To the extent possible, models use only observable market data (e.g. for OTC derivatives),however management is required to make assumptions for certain inputs that are not supported by prices from observblecurrent market transactions in the same instrument, such as credit risk, volatilty and correlation. Changing these assumptionsto reasonably possible alternative assumptions, for those financial instruments for which fair values were determined in whole orin part using valuation techniques based on such assumptions (e.g. for certain exotic or structured financial instruments), wouldnot significantly change the fair values recognised in the financial statements.

The following methods and significant assumptions have been applied in determining the fair values of financial instrumentswhich are carried at amortised cost:

- The fair values of liquid assets and other instruments maturing within 3 months approximate their carrng amounts. Thisassumption is applied to liquid assets and the short-term elements of all other financial assets and financial liabilties;

- The fair value of demand deposits with no fixed maturity is approximately their carrying amount as they are short term in natureor are payable on demand;

- The fair values of variable rate financial instruments, including loan assets and liabilties carried at amortised cost, cash collateralon securities borrowed/cash collateral on securities lent and reverse repurchase/repurchase agreements, are approximated bytheir carring amounts. The fair value of loan assets repayable without penalty is approximated by their carring value.

- The fair value of fixed rate loans is estimated by reference to current market rates offered on similar loans and the creditworthiness of the borrower.

- The fair value of debt issues and subordinated debt is based on market prices where available. Where maret prices are notavailable the fair value is based on discounted cash flows using rates appropriate to the term and issue and incorprateschanges in the consolidated entity's own credit spread.

- Substantially all of the consolidated entity's commitments to extend credit are at variable rates. As such, there is no signifcantexpsure to fair value fluctuations resulting from interest rate movements relating to these commitments.

- The fair values of balances due from/to subsidiaries On the Company's separate financial statements) and balances due from/torelated body corprate entities On the Company's and consolidated financial statements) are approximated by their carryng

amount as the balances are generally receivable/payable on demand.


Note 39. Fair values of financial assets and liabilities continued

The tables below summarise the cang value and fair value of all financial instruments of the consolidated entity and Companyat 31 March 200:

UabiltiesDue to related body corprate entitles

Due to subsidiaries

Total financial liabilities

2009 2009Carring Fairamount value

$m $m

Consolidated

2,057 2,057

823 824

2,954 2,954

5,834 5,835

956 956

159 159

10,769 10,769

606 569

12,490 12,453

2009 2009Carrying Fairamount value

$m $mCompany

41 39

277 277

9,954 9,954

10,272 10,270

10,441 10,441

1,905 1,905

12,34 12,34

AssetsDue from banks



Total financial assets

LiabiltiesDue to banks

Deposits

Due to related body corporate entities

Macquarie Convertible Preference Securities

Total financial liabilties

AssetsLoan assets held at amortised cost



Total financial assets

The fair value equivalent of financial assets and financial liabilties held at amortised cost at 31 March 2008 has not bendisclosed on the basis that the fair value was not materially diferent from the carryng value.

61



Note 40. Audit and other services provided by PricewaterhouseCoopers

During the financial year, the auditor of the Company and consolidated entity PricewateriouseCopers (PwC), and its relatedpractices eamed the following remuneration:

Consolidated2009

$'000

PwC - Australian firmAudit and review of financial reports of the Company or anyentity in the consolidated entity

Other audit-related work

Other assurance services

Total audit and other assurance services

Other advisory servces

Taxation

Total remuneration paid to PwC - Australian firm

3,752450

467

4,669

379

391

5,439

Related Practices of PwC Australian Firm (including PwC - Overseas Firms)Audit and review of financial reports of the Company or anyentity in the consolidated entity

Other audit-related work

Other assurance services

Total audit and other assurance services

Advisory services

Taxation

Total remuneration paid to related practices of PWC-Australian Firm

Total Remuneration Paid to PwC

3,162

37

938

4,1372,293

1,542

7,972

13,411

Consolidated2008$'00

Company2008$'00

Company2009

$'000

1,111

193

107

1,411

5

5

141

1,552 5

906

19

106

1,031

146

374

1,551

3,103 5

Use of PwC's services for engagements other than audit and assurance is restricted in accordance with the Company's AuditorIndependence policy. These assignments are principally tax compliance and agreed upon assurance procedures In relation toacquisitions.

Certain fees for advisory services are in relation to Initial Public Oferings and due dilgence servces for new funds. These feesmay be recovered by the consolidated entity upon the successful establishment of the funds.

It is the Company's policy to seek competitive tenders for all major advisory projects.


Note 41. Acquisitions and disposals of subsidiares

Significant entities acquired or consolidated due to acquisition of control:

Macquare Ast Leing Trust

On 23 July 2008, a subsidiary of MFHL acquired from the Banking Group 100 per cent interest in Macquare Asset LeasingTrust.

Macquarie Seuriies (Tailand) Umited

On 3 September 2008, a subsidiary of MFHL acquired the remaining 51 per cent interest not previously owned of Macquarie

Securities (Tailand) Limited, an entity engaged in the business of providing stockbroking services and other equity-relatedtransactions.Charreuse et Mont Blanc Global Holdings S.CAOn 12 November 2008, a subsidiary of MFHL acquired 49 per cent (99.99 per cent voting rights) of Chartreuse et Mont BlancGlobal Holdings S.CA, a manufacturer of ski equipment.Entities of the Banking Group (Real Estate Group)Pursuant to an intemal reorganisation, during the second half of the financial year, subsidiaries of MFHL acquired from theBanking Group 100 per cent interest in certain subsidiaries.

Other entities acquired during the financial year are as follows:

Tension Services Germany GmbH, AOG Inc. and Fremantle Energy Holdings LLC.

Aggregate details of the above entities nncluding disposal groups) acquired or consolidated due to acquisition of control are asfollows:

2009 2008

Fair value of net assets acquired(1)

Cash, other financial assets and other assets

Goodwil and other intangible assets

Propert, plant, equipment and assets under operating leases(2

Assets of disposal groups classifed as held for sale

Payables, provisions, borrowings and other liabilties

Liabilties of disposal groups classifed as held for sale

Minority interest

Minority interest in disposal groups classifed as held for sale

Total fair value of net assets acquired

Restructure and operating costs - disposal groups classifed as held for sale

Adjusted net assets

Purchase consideration

Cash consideration and costs directly attributable to acquisition

Deferred consideration

Tota purchase consideration

569 15,877

26 330

2 356

683 731

(405) (14,219)

(274) (364)

(26)

(179) (5)

422 2,680

(110)

312 2,680

222 16,838

133

222 16,971

Reconcilation of cash movementCash consideration and costs directly attributable to acquisition (222) (16,838)Less cash and cash equivalents acquired 120 2,259Net cash outow (102) (14,579)

(ii In relation to the acquisition of Macquarie Asset Leasing Trust and certain subsidiaries of the Banking Group, assets andliabilities acquired were recognised at carrng amounts. In accordance with the consolidated entity's accounting policy, thediference between the fair value of the consideration given over the carring amounts recognised is recorded directly inreserves. For the financial year ended 31 March 200, $19 millon was recognised in reserves - distribution to the ultimateparent entity.

(2 The prior year balance includes assts under operating leases of $177 millon.

63



Note 41. Acquisitions and disposals of subsidiares continued

The operating results of these entities have not had a material impact on the results of the consolidated entity.

There are no significant differences between the fair value of net assets acquired and their carryng amounts, other thangoodwil and other intangible assets as noted above.

The 31 March 2008 comparatives relate to entities acquired from the Banking Group as part of the Macquarie GroupRestructure, Orion Financial Inc. and CIT Equipment Leasing, being the material entities acquired or consolidated due toacquisition of control.

Significan entities disposed of or deconsolidated due to loss of control:- Subsidiaries of MFHL

Pursuant to an internal reorganisation, certain subsidiaries of MFHL were disposed of to the Banking Group between 1 August2008 and 2 December 2008.Longvew Oil and Gas

On 10 April 2008, a subsidiary of MFHL disposed of its 100 per cent interest in Longview Oi and Gas.

Other entity disposed of or deconsolidated during the financial year is as follows:-ConnectEast Management Limited

Aggregate details of the above entities disposed of or deconsolidated are as follows:

2009 2008

Carrying value of assets and liabilties disposed of or deconsolidatedCash, other financial assets and other assets

Loan assets at amortised cost

Goodwil and other intangible assets

Property, plant and equipment

Assets of disposal groups classified as held for sale

Payables, provisions and other liabilties

Borrowings

Liabilties of disposal groups classifed as held for sale

Total caring value of assets and liabilities disposed of or deconsolidated

771

4,311

119239

121 179

(2,069)

(3,010)

(59) (114)

423 65

582 149

(47)

(199) (8)

383 94

Reconcilation of cash movementCash received

Less:Investment retained

Cash and cash equivalents disposed of or deconsolidated

Net cash inflow

The 31 March 2008 comparatives relate to Marine Services Holdings Limited, Windpark Bippen Grundstuecks and WindkraftHolleben 1.

Note 42. Events occurrng after balance sheet date

There were no material events subsequent to 31 March 200 that have not been reflected in the financial statements.



Directors' declaration

In the Directors' opinion

(a) the financial statements and notes set out on pages 7 to64 are in accordance with the Corporations Act 2001,including:

Q) complying with Australian Accounting Standards, theCorprations Regulations 2001 and other mandatory

professional reporting requirements; and

Qi) giving a true and fair view of the Company andconsolidated entity's financial position as at 31 March2008 and of its performance, as represented by theresults of its operations and its cash flows, for thefinancial year ended on that date; and

nb) there are reasonable groundS to believe that MacquarieFinancial Holdings Limited wil be able to pay its debts asand when they beome due and payable.

The Directors have been given the declarations by thechief executive offcer and chief financial offcer required bysection 295A of the Corporations Act 2001.

This declaration is made in accordance with a resolution ofthe Directors.

~rlGreg WardDirector

Sydney27 May 2009

65


Independent audit reportto the members of Macquarie Financial Holdings Limited

fJcEWtRHOUsF(PERS IReport on the financial report

We have audited the accompanying financial report ofMacquarie Financial Holdings Umited (the company),which comprises the balance sheet as at 31 March2009, and the income statement, statement ofchanges in equity and cash flow statement for the yearended on that date, a summary of significantaccounting policies, other explanatory notes and thedirectors' declaration for both Macquarie FinancialHoldings Limited and the Macquarie Financial HoldingsGroup (the consolidated entity). The consolidatedentity comprises the company and the entities itcontroUed at the year's end or from time to time duringthe financial year.

Our procedures include reading the other informationin the Annual Report to determine whether it containsany material inconsistencies with the financial report.

For further explanation of an audit, visit our websitehttp://ww.pwc.comlau/nancialstatementaudit.

Our audit did not involve an analysis of the prudence ofbusiness decisions made by directors or management.

We believe that the audit evidence we have obtained issuffcient and appropriate to provide a basis for ouraudit opinions.

Directors' responsibilty for the financial report

The directors of the company are responsible for thepreparation and fair presentation of the financial reportin accordance with Australian Accounting StandardsOncluding the Australian Accounting Interpretations)and the Corprations Act 2001. This responsibiltyincludes establishing and maintaining internal controlsrelevant to the preparation and fair presentation of thefinancial report that is free from material misstatement,whether due to fraud or error; selecting and applyingappropriate accounting policies; and makingaccounting estimates that are reasonable in thecircumstances. In Note 2, the directors also state, inaccordance with Accounting Standard AASB 101Presentation of Anancia! Statements, that compliancewith the Australian equivalents to International FinancialReporting Standards ensures that the financial report,comprising the financial statements and notes,complies with International Financial ReportingStandards.

Independence

In conducting our audit, we have complied with theindependence requirements of the Corprations Act2001.

Auditor's opinion

In our opinion:

(a) the financial report of Macquarie Financial HoldingsLimited is in accordance with the Corprations Act2001, including:

0) giving a true and fair view of the company's andconsolidated entity's financial position as at31 March 2009 and of their performance for theyear ended on that date; and

Oi complying with Australian Accounting StandardsOncluding the Australian AccountingInterpretations) and the Corprations Regulations2001; and

(b) the financial report also complies with International

Financial Reporting Standards as disclosed innote 2.

Auditor's responsibilty

Our responsibilty is to express an opinion on thefinancial report based on our audit. We conducted ouraudit in accordance with Australian Auditing Standards.These Auditing Standards require that we comply withrelevant ethical requirements relating to auditengagements and plan and perform the audit to obtainreasonable assurance whether the financial report isfree from material misstatement.

An audit involves performing procedures to obtainaudit evidence about the amounts and disclosures inthe financial report. The procedures selected dependon the auditor's judgement, including the assessmentof the risks of material misstatement of the financialreport, whether due to fraud or error. In making thoserisk assessments, the auditor considers internal controlrelevant to the entity's preparation and fairpresentation of the financial report in order to designaudit procedures that are appropriate in thecircumstances, but not for the purpose of expressingan opinion on the effectiveness of the entity's internalcontrol. An audit also includes evaiuating the

appropriateness of accounting policies used and thereasonableness of accounting estimates made by thedirectors, as weU as evaluating the overaU presentationof the financial report.

P~rPricewaterhouseCpers

DH ArstrongPartnerSydney27 May 2009

Uabilty is limited by a scheme approved under ProfessionalStandards Legislation


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