BT 2006 Annual Report Download - page 67

(I) BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS
These group financial statements have been prepared in
accordance with applicable law and International Financial
Reporting Standards (IFRS) as adopted by the European Union
(EU). For BT there are no differences between IFRS as adopted
for use in the EU and full IFRS as published by the International
Accounting Standards Board (IASB). The financial statements
have been prepared under the historical cost convention,
modified for the revaluation of certain financial assets and
liabilities at fair value.
Where there are significant differences to US GAAP, these
have been described in note 35.
IFRS 1, ‘First-time Adoption of International Financial
Reporting Standards’, has been applied in preparing these
group financial statements. These are the group’s first financial
statements to be prepared in accordance with IFRS; note 34
describes how the directors have applied the first-time adoption
provisions as set out in IFRS 1.
The policies set out below have been consistently applied to
all the years presented with the exception of those relating to
financial instruments under IAS 32, ‘Financial Instruments:
Disclosure and Presentation’ and IAS 39, ‘Financial
Instruments: Recognition and Measurement’, which have been
applied with effect from 1 April 2005.
The preparation of financial statements in conformity with
IFRS requires the use of accounting estimates. It also requires
management to exercise its judgement in the process of
applying the group’s accounting policies. The areas involving a
higher degree of judgement or complexity or areas where
assumptions and estimates are significant to the consolidated
financial statements are disclosed below in ‘Critical accounting
estimates and key judgements’.
The group’s income statement and segmental analysis
separately identifies material one-off or unusual items (termed
‘specific items’). This is in accordance with IAS 1, ‘Presentation
of Financial Statements’ and is consistent with the way that
financial performance is measured by management and assists
in providing a meaningful analysis of the trading results of the
group. Specific items may not be comparable to similarly titled
measures used by other companies. Items which have been
considered material one-off or unusual in nature include
disposals of businesses and investments, business restructuring
and property rationalisation programmes. The directors intend
to follow such a presentation on a consistent basis in the future.
Specific items for the current and prior year are disclosed in
note 4.
Accounting policies in respect of the parent company
information for BT Group plc are set out on page 124. These
are in accordance with UK GAAP.
(II) BASIS OF CONSOLIDATION
The group financial statements consolidate the financial
statements of BT Group plc (‘‘the company’’) and entities
controlled by the company (its subsidiaries) and incorporate its
share of the results of jointly controlled entities (joint ventures)
and associates using the equity method of accounting.
The results of subsidiaries acquired or disposed of during the
year are consolidated from the effective date of acquisition or
up to the effective date of disposal, as appropriate. Where
necessary, adjustments are made to the financial statements of
subsidiaries, associates and joint ventures to bring the
accounting policies used into line with those used by the group.
All intra-group transactions, balances, income and expenses are
eliminated on consolidation.
Investments in associates and joint ventures are carried at cost
plus post-acquisition changes in the group’s share of the net
assets or liabilities of the associate or joint venture, less any
impairment in value in individual investments. The income
statement reflects the group’s share of the results of operations
after tax of the associate or joint venture using the equity
method of accounting.
The group’s principal operating subsidiaries and associate
are detailed on page 127.
(III) REVENUE
Revenue represents the fair value of the consideration received
or receivable for services provided and equipment sales, net of
discounts and sales taxes. Revenue from the sale of equipment
and rendering of services is recognised when it is probable that
the economic benefits associated with a transaction will flow to
the group, and the amount of revenue, and the associated costs
incurred, or to be incurred, can be measured reliably. Where
the group acts as agent in a transaction amounts collected on
behalf of the principal are excluded from revenue.
Revenue arising from separable installation and connection
activities is recognised when it is earned, upon activation.
Revenue from the rental of analogue and digital lines and
private circuits is recognised evenly over the period to which the
charges relate. Revenue from calls is recognised at the time the
call is made over the group’s networks.
Subscription fees, consisting primarily of monthly charges for
access to broadband and other internet access or voice services,
are recognised as revenue over the associated subscription
period. Revenue arising from the interconnection of voice and
data traffic between other telecommunications operators is
recognised at the time of transit across the group’s network.
Sales of peripheral and other equipment are recognised
when all of the significant risks and rewards of ownership are
transferred to the buyer, which is normally the date the
equipment is delivered and accepted by the customer.
Revenue and costs from long term contractual arrangements
are recognised based on the percentage of completion method.
The stage of completion is estimated using an appropriate
measure according to the nature of the contract. For fixed price
contracts, revenue and costs are recognised on the proportional
performance basis. For milestone based contracts, revenue and
costs are recognised at the time a milestone is achieved and
accepted by the customer. In the case of time and materials
contracts, revenue and costs are recognised as the service is
rendered. An element of the costs incurred in the initial phase
of contracts may be deferred when they relate directly to the
specific contract, relate to future activity of the contract and will
generate future economic benefits.
The percentage of completion method relies on estimates of
total expected contract revenues and costs, as well as reliable
measurement of the progress made towards completion. Unless
the financial outcome of a contract can be estimated with
reasonable certainty, no attributable profit is recognised.
Recognised revenue and profits are subject to revisions during
the contract in the event that the assumptions regarding the
overall contract outcome are changed. The cumulative impact
of a revision in estimates is recorded in the period in which such
revisions become likely and can be estimated. Where the actual
and estimated costs to completion exceed the estimated
revenue for a contract, the full contract life loss is immediately
recognised.
Where a contractual arrangement consists of two or more
separate elements that have value to the customer on a
standalone basis, revenue is recognised for each element as if it
ACCOUNTING POLICIES
Accounting policies BT Group plc Annual Report and Form 20-F 2006 65