BT 1997 Annual Report Download - page 67

67
United States Generally
Accepted Accounting
Principles reconciliations
The group’s consolidated financial statements are
prepared in accordance with accounting principles
generally accepted in the UK (UK GAAP), which differ
in certain significant respects from those applicable in
the US (US GAAP).
Differences between United Kingdom and United
States generally accepted accounting principles
The following are the main differences between UK and
US GAAP which are relevant to the group’s financial
statements.
(a) Pension costs
Under UK GAAP, pension costs are accounted for in
accordance with UK Statement of Standard Accounting
Practice No. 24, costs being charged against profits over
employees’ working lives. Under US GAAP, pension costs
are determined in accordance with the requirements of
US Statements of Financial Accounting Standards Nos. 87
and 88. Differences between the UK and US GAAP figures
arise from the requirement to use different actuarial
methods and assumptions and a different method of
amortising surpluses or deficits.
(b) Early release schemes
Under UK GAAP, the group generally charges to profit
and loss direct severance costs, primarily severance
payments and payments in lieu of notice, in the period in
which employees leave the group. The cost of providing
incremental pension benefits in respect of workforce
reductions are taken into account in determining current
and future pension costs, unless the most recent actuarial
valuation under UK actuarial conventions shows a deficit.
In this case, the costs of providing incremental pension
benefits are included in early release scheme expenses in
the year in which the employees leave the group.
Under US GAAP, if employees are encouraged to leave
voluntarily by the use of special termination benefits, then
the termination benefits, primarily severance payments,
payments in lieu of notice and the associated cost of
providing incremental pension benefits, are charged
against profits in the period in which the termination
terms are agreed with the employees. If staff terminations
are likely to be enforced, then the termination benefits are
charged against profits at the time when the group is
committed to the staff terminations and the associated
costs can be reasonably estimated.
(c) Capitalisation of interest
Under UK GAAP, the group does not capitalise interest in
its financial statements. To comply with US GAAP, the
estimated amount of interest incurred whilst constructing
major capital projects is included in fixed assets, and
depreciated over the lives of the related assets. The
amount of interest capitalised is determined by reference
to the average interest rates on outstanding borrowings.
(d) Goodwill
Under UK GAAP, the group writes off goodwill arising
from the purchase of subsidiary and associated
undertakings on acquisition against retained earnings.
The goodwill is reflected in the net income of the period of
disposal, as part of the calculation of the gain or loss on
divestment, or when recognising a permanent diminution
in value. Under US GAAP, such goodwill is held as an
intangible asset in the balance sheet and amortised over
its useful life and only the unamortised portion is included
in the gain or loss recognised at the time of divestment.
(e) Mobile cellular telephone and broadcasting
licences
Under UK GAAP, the group adopted the policy of stating
mobile cellular telephone and broadcasting licences, held
in a former associated undertaking, at historical cost. No
amortisation was provided on these assets. To comply
with US GAAP, such intangible assets were amortised
over a period of 40 years.
(f) Software capitalisation
Under UK GAAP, the group’s software development
expenditure is written off as incurred. Under US GAAP,
development expenditure, subsequent to proving
technical feasibility, and purchases are capitalised
and amortised over their useful lives.
(g) Deferred taxation
Under UK GAAP, provision for deferred taxation is
generally only made for timing differences which are
expected to reverse. Under US GAAP, deferred taxation
is provided on a full liability basis on all temporary
differences, as defined in US Statement of Financial
Accounting Standards No. 109.
(h) Dividends
Under UK GAAP, dividends are recorded in the year in
respect of which they are declared (in the case of interim
dividends) or proposed by the board of directors to the
shareholders (in the case of final dividends). Under
US GAAP, dividends are recorded in the period in
which dividends are declared.