BT 2006 Annual Report Download - page 116

34. EXPLANATION OF TRANSITION TO IFRS continued
Certain financial assets and financial liabilities are required to be recorded at amortised cost under IAS 39. Under UK GAAP, the
majority of this amortised cost value was reflected on the balance sheet but elements were separately recorded in current assets
and current liabilities. These amounts have been reclassified on transition to either financial assets or loans and borrowings to
recognise the respective instruments at amortised cost.
The adjustments described above, on adoption of IAS 32 and IAS 39, have resulted in an overall reduction in total equity as
at 1 April, 2005 of £481 million (£209 million net of deferred taxation).
(g) Other adjustments and reclassifications
There are a number of other minor adjustments and reclassifications which include:
– The group’s share of results of associates and joint ventures is presented net of tax and finance expense on the face of the
income statement. Previously under UK GAAP the group’s share of associates and joint ventures’ interest and tax was included
in the relevant interest and tax line of the income statement.
– Liquid investments with maturities of less than three months at acquisition are classified within cash and cash equivalents under
IAS 7, ‘Cash Flow Statements’ rather than as current asset investments under UK GAAP.
– Cash flow statements prepared in accordance with IAS 7, ‘Cash Flow Statements’ have a different presentational format.
Although the underlying cash flows remain the same as previously reported, the cash flow statement reflects movements in cash
and cash equivalents. In addition, certain leases are non classified as finance leases which had previously been treated as
operating leases.
– Under UK GAAP, loans and borrowings and current asset investments were held at foreign currency rates prescribed in the
hedging instrument where hedging had been applied in accordance with the group’s accounting policies. Under IAS 21, ‘The
Effects of Changes in Foreign Exchanges Rates’, such forward rate adjustments are required to be disclosed separately and have
therefore been reclassified. On adoption of IAS 39 from 1 April, 2005, such forward rate adjustments form part of the overall
fair value of derivative financial instruments.
– Foreign exchange gains and losses on certain intercompany loans are recognised in the income statement. Under UK GAAP
these amounts were recognised in reserves.
– Profits on the sale of property fixed assets are classified within other operating income on the face of the income statement.
Under UK GAAP, these amounts had previously been disclosed after operating profit.
– The group has historically recognised revenue arising from calls to our premium rate numbers on a gross basis, with amounts
paid to service providers recorded separately within operating costs. In light of the transition to IFRS and changing market
practice we have reviewed the presentation of these arrangements. We have decided to change our presentation to a net basis
for these calls where we provide basic transmission and connectivity only. For those calls where we add value by providing
interactivity and a more significant and valuable part of the service, the associated revenue will continue to be reported on a
gross basis. Whilst reducing revenue and operating costs, this change has had no impact on reported profit, cash flows or the
balance sheet. The impact on revenue and operating costs was £194 million for the year ended 31 March 2005.
35. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The group’s consolidated financial statements are prepared in accordance with International Financial Reporting Standards as
adopted by the European Union (IFRS), which differ in certain respects from those applicable in the United States. For BT there are
no differences between IFRS as adopted for use in the EU and IFRS as published by the IASB.
(I) DIFFERENCES BETWEEN IFRS AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP)
The following are the main differences between IFRS and US GAAP which are relevant to the group’s consolidated
financial statements.
(a) Sale and leaseback of properties
Under IFRS, the sale of BT’s property portfolio is treated as a disposal and the vast majority of the subsequent leaseback is an
operating lease. Under US GAAP as BT has a continuing interest in the properties, these properties are recorded on the balance
sheet at their net book value, a leasing obligation is recognised and the gain on disposal is deferred until the properties are sold
and vacated by BT and the corresponding lease obligation is terminated. Rental payments made by BT are reversed and replaced
by a finance lease interest charge and a depreciation charge.
(b) Pension costs
Under IFRS, pension costs are accounted for in accordance with IAS 19. Under US GAAP, pension costs are determined in
accordance with the requirements of US Statements of Financial Accounting Standards (SFAS) Nos. 87 ‘Employers’ Accounting for
Pensions’ and 88 ‘Employer’s Accounting for Settlements and Curtailments of Defined Benefit Plans and for Termination Benefits’.
Differences between the IFRS and US GAAP amounts arise primarily due to differences in the recognition of actuarial gains and
losses and the application of different measurement dates. Under IFRS, actuarial gains and losses are recognised in the statement
of recognised income and expense whereas under US GAAP actuarial gains and losses are amortised over the average remaining
service period.
Under US GAAP, if the accumulated benefit obligation (ABO) exceeds the fair value of plan assets, the employer is required to
recognise a liability that is at least equal to the unfunded ABO.
BT Group plc Annual Report and Form 20-F 2006 Notes to the consolidated financial statements114