## REED ELSEVIER NV 

## Accounting policies 

These statutory financial statements report the profit and loss account, cash flow and financial position of Reed Elsevier NV. Unless otherwise indicated, all amounts shown in the financial statements are in millions of euros. 

The financial statements have been prepared under the historical cost convention and in accordance with applicable accounting standards. 

The Reed Elsevier combined financial statements on pages 40 to 69 form an integral part of the notes to Reed Elsevier NV’s statutory financial statements. 

The basis of the merger of the businesses of Reed Elsevier NV and Reed Elsevier PLC is set out on page 22. As a consequence of the merger of the company’s businesses with those of Reed Elsevier PLC, described on page 22, the shareholders of Reed Elsevier NV and Reed Elsevier PLC can be regarded as having the interests of a single economic group, enjoying substantially equivalent ordinary dividend and capital rights in the earnings and net assets of the Reed Elsevier combined businesses. 

## Adoption of UK GAAP 

The financial statements have been prepared in accordance with generally accepted accounting principles in the United Kingdom (“UK GAAP”). Prior to 2003, Reed Elsevier NV presented statutory financial statements prepared in accordance with generally accepted accounting principles in the Netherlands (“Dutch GAAP”) and the combined financial statements were prepared in accordance with both UK and Dutch GAAP. Following changes to Dutch GAAP effective for the 2003 financial year in respect of the presentation of dividends and pension accounting, UK GAAP and Dutch GAAP have diverged. As permitted by Article 362.1 of Book 2 Title 9 of the Netherlands Civil Code, Reed Elsevier NV has therefore determined to prepare its financial statements in accordance with UK GAAP, thereby ensuring consistency with the prior year of the accounting policies applied within the Reed Elsevier combined financial statements, and with the accounting policies of Reed Elsevier PLC. 

## Parent company financial statements 

Under UK GAAP, Reed Elsevier NV presents financial statements for the parent company which reflect, in the profit and loss account, its own income, including dividends from Reed Elsevier Group plc and Elsevier Reed Finance BV companies, and expenses, and, in the balance sheet, its fixed asset investments in these joint ventures accounted for using the historical cost method. These parent company financial statements have been presented for the first time as if UK GAAP had been adopted in prior 

years. The impact of the change in accounting principles from Dutch to UK GAAP on the parent company financial statements of Reed Elsevier NV is set out in note 18. 

## Group financial statements 

Reed Elsevier NV holds a majority interest in Elsevier Reed Finance BV (61%) and is therefore prima facierequired to prepare consolidated financial statements in accordance with Book 2 Title 9 of the Netherlands Civil Code. However, management believes that a better insight into the financial position and results of Reed Elsevier NV is provided by looking at the investment in the combined businesses in aggregate, as presented in the Reed Elsevier combined financial statements. 

Reed Elsevier NV group financial statements are presented, as in prior years, incorporating Reed Elsevier NV’s investments in the Reed Elsevier combined businesses accounted for using the gross equity method, as adjusted for the effects of the equalisation arrangement between Reed Elsevier NV and Reed Elsevier PLC. The arrangement lays down the distribution of dividends and net assets in such a way that Reed Elsevier NV’s share in the profit and net assets of the Reed Elsevier combined businesses equals 50%, with all settlements accruing to shareholders from the equalisation arrangements taken directly to reserves. These group financial statements also meet the additional information requirements of the UK financial reporting standard FRS9: Associates and Joint Ventures where consolidated financial statements are not prepared. 

Because the dividend paid to shareholders by Reed Elsevier NV is equivalent to the Reed Elsevier PLC dividend plus the UK tax credit received by certain Reed Elsevier PLC shareholders, Reed Elsevier NV normally distributes a higher proportion of the combined profit attributable than Reed Elsevier PLC. Reed Elsevier PLC’s share in this difference in dividend distributions is settled with Reed Elsevier NV and is credited directly to group reserves under equalisation. Reed Elsevier NV can pay a nominal dividend on its R-shares held by Reed Elsevier PLC that is lower than the dividend on the ordinary shares. Reed Elsevier PLC is compensated by direct dividend payments by Reed Elsevier Group plc. Equally, Reed Elsevier NV has the possibility to receive dividends directly from Dutch affiliates. The settlements flowing from these arrangements are also taken directly to group reserves under equalisation. 

In accordance with UITF38: Accounting for ESOP Trusts issued in December 2003 by the UK Accounting Standards Board, shares in Reed Elsevier NV and Reed Elsevier PLC purchased by the Reed Elsevier Group plc Employee Benefit Trust, previously included within share of gross assets of joint ventures, are presented as shares held in 

