Note 2: Basis of preparation and accounting policies

for the six months ended September 30, 2009

Basis of preparation

The condensed consolidated interim financial statements have been prepared in accordance with IAS34 Interim Financial Reporting and in compliance with the Listings Requirements of the JSE Limited and the South African Companies Act,1973.

The condensed consolidated interim financial statements are prepared on the historical cost basis, with the exception of certain financial instruments and share-based payments which are measured at grant date fair value. The results of the interim period are not necessarily indicative of the results for the entire year, and these reviewed financial statements should be read in conjunction with the audited financial statements for the year ended March 31, 2009.

The preparation of condensed consolidated interim financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Although these estimates are based on management's best knowledge of current events and actions that the Group may undertake in the future, actual results may differ from those estimates.

Significant accounting policies

Except as described below, the accounting policies applied by the Group in the interim financial statements are consistent with those applied in the previous financial year.

IFRS3 Business combinations

The Group has early adopted IFRS3 Business Combinations (revised) and IAS27 Consolidated and Separate Financial Statements (revised) for business combinations occurring in the financial reporting period starting April 1, 2009. All business combinations occurring on or after April 1, 2009 were accounted for by applying the acquisition method as disclosed in Note 15.

The Group measures goodwill at the fair value of the consideration transferred including the recognised amount of any non- controlling interest in the acquiree, less the net recognised amount of identifiable assets acquired and liabilities assumed, all measured as of the acquisition date.

The consideration transferred includes the fair value of the assets transferred, the liabilities incurred by the Group to the previous owners of the acquiree and equity interest issued by the Group. Consideration transferred also includes any contingent consideration at fair value.

Any transaction costs that the Group incurs in connection with the business combination such as legal fees, due diligence fees and other professional and consultation fees are expensed as incurred.

A contingent liability of the acquiree is assumed in a business combination only if such a liability represents a present obligation which arises as a result of a past event, and its fair value can be measured reliably.

The change in accounting policy was applied prospectively and had no impact on earnings per share.

IAS27 Consolidated and Separate Financial Statements

The Group has adopted IAS27 (revised) for the acquisition of non-controlling interests occurring in the financial period starting April 1, 2009. In terms of the new accounting policy, acquisitions of non-controlling interest are accounted for as transaction with equity holders in their capacity as equity holders and therefore no goodwill is recognised as a result of such transactions. Previously goodwill was recognised arising on the acquisition of non-controlling interest in the subsidiary, and that represented the excess of the cost of the additional investment over the carrying amount of the interest in the net assets acquired at the date of the exchange.

The change in accounting policy was applied prospectively and had no impact on earnings per share.

IFRS8 Operating Segments

As of April 1, 2009, the Group determines and presents operating segments based on the information that is internally provided to the Executive Committee, which is the Group's chief operating decision maker. This change in accounting policy is due to the adoption of IFRS8 Operating Segments. The impact is disclosed in note 18.

The Executive Committee assesses the performance of the operating segments based on a measure of adjusted earnings before interest and tax ('EBIT'). This measurement basis excludes the effects of non-operating expenditure from the operating segments, such as restructuring costs, legal expenses and impairments. Other information provided to them is measured in a manner consistent with that in the financial statements.

IAS1 Presentation of Financial Statements

IAS1 (revised) introduces a statement of comprehensive income, previously the income statement, with two optional formats and refers to the balance sheet and cash flow statement by different names: the 'statement of financial position' and 'statement of cash flows', respectively. The Group has elected to present the statement of comprehensive income using the single statement approach.

The Group presents all owner changes in equity under the consolidated statement of changes in equity. All non-owner changes in equity are presented in the statement of comprehensive income under other comprehensive income.

The presentation of comparatives information has been changed in order to comply with the new revised standard.

There is no impact on earnings per share since the standard focuses on presentation issues.

IAS19 Employee Benefits

As of April 1, 2009, the Group changed its accounting policy on defined benefits by adopting the option available under IAS 19 Employee Benefits, paragraph 93A. Under this option, actuarial gains and losses are recognised in other comprehensive income in the period in which they occur. The Group believes that recognising actuarial gains and losses in other comprehensive income results in better disclosure in the statement of financial position.

The impact of the change in accounting policy has been retrospectively applied in accordance with IAS8 Accounting Policies, Changes in Accounting Estimates and Errors. The financial quantification of this change is disclosed below.

BASIS OF PREPARATION AND ACCOUNTING POLICIES (continued)

IFRIC17 Distributions of Non-Cash Assets to Owners

IFRIC17 provides guidance on when and how a liability for certain distributions of non-cash assets to owners, acting in their capacity as owners, are recognised and measured, and how to account for settlement of that liability.

The Group has early adopted IFRIC17 as well as specific paragraphs of IFRS5 as amended by IFRIC17. The amendments specify that a non-current asset or disposal group held for distribution to owners of the entity shall be accounted for in accordance with the provisions of the amended IFRS5.

The Vodacom 35% interest unbundling transaction was accounted for in accordance with the requirements of the new interpretation IFRIC17 and had a material impact on the Group financial statements as disclosed in note 20.

Circular 3/2009 Headline Earnings

Circular 3/2009 Headline Earnings was issued by the South African Institute of Chartered Accountants ('SAICA') and is effective for fi nancial periods (interim and/or annual periods) ending on or after August 31, 2009.

Circular 3/2009 supercedes Circular 8/2007, as it updates the latter with the amendments and revisions to International Financial Reporting Standards ('IFRS') issued between June 2007 and April 2009. The only changes to Circular 8/2007 are some of the detailed rules in Section C for amendments and revisions to specifi c IFRSs, as well as the new terminology brought in by IAS1 Presentation of Financial Statements.

The following new standards, amendments to standards and interpretations which are mandatory for financial periods beginning January 1, 2009 do not have an impact on the Group:

IFRS1 and IAS27 (amendment) Cost of an investment on first time adoption

IFRS2 (amendment) Vesting conditions

IAS1 (revised) Presentation of financial statements - Amendments relating to disclosure of puttable instruments and obligations arising on liquidation

IAS16 (amendment) Property, plant and equipment - Recoverable amount

IAS16/IAS7(amendment) Property, plant and equipment - Sale of assets held for rental

IAS19 (amendment) Employee benefits

IAS20 (amendment) Government grants

IAS23 (amendment) Borrowing costs

IAS28/IAS32/IFRS7 (amendment) Investments in associates - Consequential amendments arising from amendments to IFRS3

IAS28 (amendment) Investment in associates - Impairment testing

IAS31/IAS32/IFRS7 (amendment) Interest in joint ventures - Consequential amendments arising from amendments to IFRS3

IAS32/IAS1 (amendment) Puttable financial instruments and obligations arising on liquidation

IAS39 (amendment) Financial instruments: Recognition and measurement

IFRIC13 Customer loyalty programmes

IFRIC15 Agreements for the construction of real estate

IFRIC16 Hedges of a net investment in a foreign operation