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Basis of preparation

EEV and IFRS reporting

The summary financial statements are prepared on both a European Embedded Value (EEV) basis and an International Financial Reporting Standards (IFRS) basis.

All European Union listed companies are required to prepare consolidated financial statements using IFRS issued by the International Accounting Standards Board.

Due to the nature of life insurance products, profits for a life assurance company are generated over the long term. EEV measures the net assets of the business plus the present value of future profits expected to arise from in-force long-term life assurance and pension policies and is designed to give a more accurate reflection of the performance of long-term savings business.

The EEV basis is in accordance with the guidance and principles as set out by the CFO forum. The CFO forum represents the chief financial officers of major European insurers, including Standard Life.

The IFRS summary financial statements on pages 28 to 31 and the EEV summary financial statements on pages 32 and 33 have been prepared on the basis of the accounting policies and the IFRS and EEV bases of preparation as set out in the Group’s 2006 Annual Report and Accounts that apply to the full consolidated financial statements.

IFRS income statement presentation

On 10 July 2006, The Standard Life Assurance Company demutualised and the shares of a new holding company for the Group, Standard Life plc, were admitted to the London Stock Exchange. As a result, the Group operated under two different operating models in the periods that are presented in the consolidated financial statements.

For the year ended 31 December 2005 and for the period from 1 January to 10 July 2006, the parent company of the Group was a mutual insurer and for the period from 10 July to 31 December 2006, the parent company of the Group was equity holder owned.

To reflect the different operating models in place over the reporting periods, the 2006 summary IFRS consolidated income statement has been split to show the period from 1 January to 10 July 2006 and the period from 10 July to 31 December 2006 in two separate columns with a third column which combines these periods to show the total result for the year ended 31 December 2006.

The summary IFRS consolidated income statement included in the financial statements for the year ended 31 December 2005 was appropriate when the parent company of the Group was a mutual and the presentation reflected that the Group did not report profit.

Prior to the demutualisation of SLAC, the balance on the consolidated income statement was transferred to the unallocated divisible surplus. Subsequent to the demutualisation of SLAC, the format has been revised to align the presentation more closely with that of an equity holder owned company. The summary IFRS consolidated income statement is shown on page 28.

Operating EEV and underlying IFRS profit

The summary IFRS pro forma reconciliation of Group underlying profit to profit before tax is presented directly after the summary IFRS consolidated income statement on page 29. This presents profit before tax attributable to equity holders adjusted for non-operating items.

The summary EEV consolidated income statement, presented on page 32 presents EEV profit showing both operating and non-operating items. In doing so the Directors believe they are presenting a more meaningful indication of the underlying business performance of the Group.

The IFRS pro forma reconciliation and the EEV consolidated income statement only cover the period from 10 July to 31 December 2006 when the Group reported a profit attributable to equity holders and, therefore, comparatives for the year ended 31 December 2005 and for the period 1 January to 10 July 2006 are not presented.

An explanation of the underlying IFRS profit is provided in full in the bases of preparation for the IFRS results, section (hh) of the Accounting Policies in the Annual Report and Accounts.

Pro forma results

To assist users and give shareholders a basis for future comparison, the EEV and IFRS results for the year ended 31 December 2005 and for the period from 1 January 2006 to 10 July 2006 have also been prepared on a pro forma basis.

This represents the mutual results for these periods, adjusted to calculate a profit figure for the Group as if its holding company had been a listed public company at the beginning of the relevant period.

Due to the nature of the adjustments required to the EEV and IFRS mutual figures, pro forma profit figures are not directly comparable and may differ from the actual results if the holding company of the Group had been a listed public company at the beginning of the relevant period.

The pro forma results for the period 1 January 2006 to 10 July 2006 and for the year ended 31 December 2005 are presented for comparison in the EEV pro forma income statement in section 4.2 and the IFRS pro forma underlying income statement in section 5.2 of the business review of the Annual Report and Accounts.

The figures presented in the Group financial highlights and the summary business review include IFRS and EEV results on a pro forma basis for the full year.

A reconciliation between the IFRS income statement and the IFRS pro forma underlying profit is contained in section 5.3 of the business review in the Annual Report and Accounts.