BT 2003 Annual Report Download - page 49

losses annually. Pension fund deficits, calculated in
accordance with prescribed rules in the standard, will
be shown on the balance sheet as will any surpluses to
the extent we expect to obtain value from them in the
foreseeable future. In accordance with the transitional
rules of the standard the pension fund deficit and profit
and loss charge calculated under FRS 17 is disclosed in
note 31. It should be noted that the deficit is largely
dependent on the strength of equity markets at the
balance sheet date and is expected to be volatile.
Economic and Monetary Union
The euro is now established as a single currency
spanning the 12 EU member countries participating
in Economic and Monetary Union (EMU).
Most of the group’s business in Europe is
conducted in the UK, which is not one of the 12
participants. Government policy on UK membership
was set out by the Chancellor of the Exchequer in his
statement to the House of Commons in October 1997
and restated by the Prime Minister in February 1999.
The Chancellor has set five economic tests to define
whether or not a clear and unambiguous case can be
made in support of the UK joining the EMU.
Based on the outcome of the economic
assessment, the Government will take a decision
on whether the five tests have been met and an
announcement on whether the UK should join will
be made in the House of Commons on 9 June 2003.
If the Government decides to recommend UK
entry, it will be put to a vote in Parliament and then
to a referendum. In the interim, BT has maintained
a steering group, with representatives from across each
of the lines of business and supporting group functions,
to review the impact of the euro. A project team acts
as co-ordination point to ensure consistency of
approach across the group and that plans are in place
to meet agreed business strategy for the possibility of
euro changeover in the UK.
US GAAP
The group’s net income (loss) and earnings (loss) per
share for the three financial years ended 31 March
2003 and shareholders’ equity at 31 March 2003 and
2002 under US Generally Accepted Accounting
Principles (US GAAP) are shown further in the United
States Generally Accepted Accounting Principles
Section (see Consolidated financial statements).
Differences between UK GAAP and US GAAP include
results of the differing accounting treatment of leasing
transactions, pension costs, redundancy costs,
intangible assets, goodwill, deferred taxation,
capitalisation of interest, financial instruments,
contributing assets to joint ventures, stock
compensation, and dividends. Cash flow information
under the US GAAP presentation is also shown further
in this document.
In July 2001, the Financial Accounting Standards
Board (FASB) issued SFAS No. 143 ‘‘Accounting for
Asset Retirement Obligations’’ which is applicable to
financial years commencing after 15 June 2002. SFAS
No. 143 requires that the fair value of a liability for an
asset retirement obligation be recognised in the period
in which it is incurred if it is possible to make a
reasonable estimate of the fair value. The associated
asset retirement costs are required to be capitalised
as part of the carrying value of the long lived asset.
The adoption of SFAS No. 143 is not expected to
have a material impact on the consolidated
financial statements.
In July 2002, the FASB issued SFAS No. 146,
‘‘Accounting for Costs Associated with Exit or Disposal
Activities’’ which is applicable to disposals initialised
after 31 December 2002. The Statement requires costs
associated with exit or disposal activities to be
recognised when the costs are incurred rather than
at the date of the commitment to an exit or disposal
plan. Accordingly, we have reflected the impact of
SFAS No. 146 in the 2003 financial year. SFAS No. 146
may apply to future activities which are not currently
envisaged and accordingly it is not possible to assess
the future impact of SFAS No. 146 on any such
activities at this time.
In December 2002, the FASB issued SFAS No.
148, ‘‘Accounting for Stock Based Compensation –
Transition and Disclosure – an amendment of FASB
Statement No. 123’’ which is applicable to financial
years beginning after 15 December 2002. The
Statement permits two additional transition methods
for an entity voluntarily adopting fair value based
accounting for stock based compensation. It also
amends the disclosure requirements to require
prominent disclosure about the effects on reported net
income of an entity’s accounting policy decisions with
respect to stock based employee compensation. This
Statement does not have a significant impact on the
consolidated financial statements as SFAS No. 123
continues to be satisfied for disclosure purposes only.
In April 2003 the FASB issued SFAS No. 149
‘‘Amendment of Statement 133 on Derivative
Instruments and Hedging Activities’’. This Statement
amends and clarifies financial accounting and reporting
for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively
referred to as derivatives) and for hedging activities
under SFAS No. 133, ‘‘Accounting for Derivative
Instruments and Hedging Activities’’. BT is currently
evaluating the impact of this change.
In November 2002, the FASB issued FASB
Interpretation No. (FIN) 45, ‘‘Guarantor’s Accounting
and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others’’. FIN 45
requires that certain guarantees must be recognised
at fair value. FIN 45 also requires disclosure of detailed
information about each guarantee or group of
guarantees. The disclosure requirements are effective
for financial statements ending after 15 December
2002. The recognition and measurement provisions of
FIN 45 are applicable to guarantees issued or modified
after 31 December 2002. FIN 45 could have an impact
on the future results of BT depending on guarantees
issued; however, at this time the adoption of this
statement did not have a material impact on BT’s
consolidated financial statements.
In January 2003, the FASB issued FIN 46,
‘‘Consolidation of Variable Interest Entities – an
Financial review
48 BT Annual Report and Form 20-F 2003