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Notes to the Consolidated Financial Statements

5 Operating expenses

5 Operating expenses
All figures in £ millions Notes 2006 2005
By function:      
Cost of goods sold   1,917 1,787
Operating expenses      
Distribution costs   299 292
Administrative and other expenses   1,504 1,351
Other income   (99) (84)
Total operating expenses   1,704 1,559
Total   3,621 3,346
By nature:      
Utilisation of inventory 18 820 767
Depreciation of property, plant and equipment 11 71 76
Amortisation of intangible assets – pre-publication 17 210 192
Amortisation of intangible assets – other 12 48 26
Employee benefit expense 6 1,280 1,177
Operating lease rentals   125 111
Other property costs   121 84
Royalties expensed   360 363
Advertising, promotion and marketing   212 198
Information technology costs   90 81
Other costs   383 355
Other income   (99) (84)
Total   3,621 3,346

During the year the Group obtained the following services from the Group's auditor:

During the year the Group obtained the following services from the Group’s auditor:
All figures in £ millions 2006 2005
Audit services    
Fees payable to the Company’s auditor for the audit of
parent companyand consolidated accounts
1 1
Non-audit services    
Fees payable to the Company’s auditor and its associates
for other services:
– The audit of the Company’s subsidiaries pursuant
to legislation
4 3
– Other services pursuant to legislation 4
– Tax services 1 1
– Services relating to corporate finance transactions 1 1
– All other services 1
  11 7

'Other services pursuant to legislation' represents fees payable for services in relation to other statutory filings or engagements that are required to be carried out by the appointed auditor. In particular, this includes fees for reports under section 404 (S-404) of the US Public Company Accounting Reform and Investor Protection Act of 2002 (Sarbanes-Oxley) which are required for the first time in 2006.

'Services relating to corporate finance transactions' relate to a carve-out audit of Pearson Government Solutions in 2006. In 2005 this largely related to due diligence work at IDC.

'All other services' in 2005 relate to IFRS transition work and Sarbanes-Oxley section 404 compliance services.

Audit fees in relation to the IDC SEC filings have been entirely included in 'The audit of the Company's subsidiaries pursuant to legislation'. The audit fee relates to an integrated S-404 review and audit in which the audit work takes leverage from the results of S-404 testing. The fees for the S-404 review and the audit are not separate, therefore no IDC fees have been included in 'Other services pursuant to legislation'.

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