BT 2009 Annual Report Download - page 81

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW
79BT GROUP PLC ANNUAL REPORT & FORM 20-F
FINANCIAL STATEMENTS
Accounting policies
(i) Basis of preparation of the financial statements
These consolidated financial statements have been prepared in
accordance with applicable law and, as required by Article 4 of the
IAS Regulation, in accordance with IFRS as issued by the IASB and
IFRS as adopted by the EU. The financial statements have been
prepared under the historical cost convention, modified for the
revaluation of certain financial assets and liabilities at fair value.
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
identify trading results before significant one-off or unusual
items (termed ‘specific items’). This 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.
The directors believe that presentation of the group’s results in
this way is relevant to an understanding of the group’s financial
performance as specific items are significant one-off or unusual in
nature and have little predictive value. Furthermore, the group
considers a columnar presentation to be appropriate, as it improves
the clarity of the presentation and is consistent with the way that
financial performance is measured and reported to the Board of
directors. Specific items may not be comparable to similarly
titled measures used by other companies. Items which have been
considered to be significant one-off or unusual in nature include
disposals of businesses and investments, business restructuring,
asset impairment charges 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 years are
disclosed in note 4.
Accounting policies in respect of the parent company, BT Group
plc, are set out on page 138. These are in accordance with UK GAAP.
In the 2008 financial year, the group revised its previous financial
statements to exclude from ‘Cash equivalents’ certain investments
and include them within ‘Current available-for-sale assets’, as
management considered this to be a more appropriate maturity
classification. The balance sheet revision as at 31 March 2007
reduced cash and cash equivalents by £267m and increased current
asset investments by £267m. The impact in the cash flow statement
for the year ended 31 March 2007 was an increase in ‘Proceeds on
disposal of current financial assets’ and ‘Purchase of current
financial assets’ by £4,838m and £4,581m, respectively, decreasing
the net cash outflow from investing activities by £257m and
decreasing cash and cash equivalents at the beginning and end of
the year ended 31 March 2007 by £526m and £267m, respectively.
(ii) Basis of consolidation
The group financial statements consolidate the financial statements
of BT Group plc (‘the company’) and its subsidiaries, and they
incorporate its share of the results of joint ventures and associates
using the equity method of accounting.
A subsidiary is an entity that is controlled by another entity,
known as the parent. Control is the power to govern the financial
and operating policies of an entity so as to obtain benefits from
its activities.
A joint venture is an entity that is jointly controlled by two or
more entities. Joint control is the contractually agreed sharing of
control over an economic activity, and exists only when the
strategic financial and operating decisions relating to the activity
require the unanimous consent of the parties sharing control.
An associate is an entity over which another entity has significant
influence and that is neither a subsidiary nor an interest in a joint
venture. Significant influence is the power to participate in the
financial and operating policy decisions of an entity but is not
control or joint control over those policies.
The results of subsidiaries acquired or disposed of during the
year are consolidated from and up to the date of change of control.
Where necessary, adjustments are made to the financial statements
of subsidiaries, associates and joint ventures to bring the
accounting policies used in 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 initially
recognised at cost. Subsequent to acquisition, the carrying value of
the group’s investment in associates and joint ventures includes the
group’s share of post acquisition reserves, less any impairment in
the value of individual assets. The income statement reflects the
group’s share of the results of operations after tax of the associate
or joint venture.
The group’s principal operating subsidiaries and associates are
detailed on page 141.
(iii) Revenue
Revenue represents the fair value of the consideration received or
receivable for communication services and equipment sales, net of
discounts and sales taxes. Revenue from the rendering of services
and sale of equipment 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 associated costs can be
measured reliably. Where the group acts as agent in a transaction, it
recognises revenue net of directly attributable costs.
Revenue arising from separable installation and connection
services 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 network.
Subscription fees, consisting primarily of monthly charges for
access to broadband and other internet access or voice services,
are recognised as revenue as the service is provided. 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.
Revenue from the sale of peripheral and other equipment is
recognised when all 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 from long-term contractual arrangements is 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 long-term services contracts,
revenue is recognised on a straight line basis over the term of the
contract. However, if the performance pattern is other than straight
line, revenue is recognised as services are provided, usually on an
output or consumption basis. For fixed price contracts, including
contracts to design and build software solutions, revenue is
recognised by reference to the stage of completion, as determined
by the proportion of costs incurred relative to the estimated total
contract costs, or other measures of completion such as contract
milestone customer acceptance. In the case of time and materials
contracts, revenue is recognised as the service is rendered.
FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS