BT 2014 Annual Report Download - page 131

128 Financial statements
Presentation of specic items
The group’s income statement and segmental analysis separately
identify trading results before specic items. Specic items are those
that in management’s judgement need to be disclosed separately by
virtue of their sie, nature or incidence. In determining whether an event
or transaction is specic, management considers quantitative as well as
qualitative factors such as the frequency or predictability of occurrence.
This is consistent with the way that nancial performance is measured by
management and reported to the Board and the
Operating Committee
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 nancial performance,
as specic items are identied by virtue of their sie, nature or
incidence. 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 nancial performance is measured by
management and reported to the Board and the
Operating Committee.
Specic items may not be comparable to similarly titled measures used
by other companies.
Specic items include disposals of businesses and investments,
regulatory settlements, historic insurance or litigation claims,
business restructuring programmes, asset impairment charges,
property rationalisation programmes, net interest on pensions and
the settlement of multiple tax years.
Specic items for the current and prior years are disclosed in note8.
2. Critical accounting estimates and key judgements
The preparation of nancial statements in conformity with IFRS requires
the use of accounting estimates and assumptions. It also requires
management to exercise its judgement in the process of applying the
group’s accounting policies. We continually evaluate our estimates,
assumptions and judgements based on available information and
experience. As the use of estimates is inherent in nancial reporting,
actual results could dier from these estimates. Management has
discussed its critical accounting estimates and associated disclosures
with the
Audit & Risk Committee . The areas involving a higher degree
ofjudgement or complexity are described below.
Long-term customer contracts
Long-term customer contracts can extend over a number of nancial
years. During the contractual period recognition of costs and prots
may be impacted by estimates of the ultimate protability of each
contract. If, at any time, these estimates indicate that any contract will
be unprotable, the entire estimated loss for the contract is recognised
immediately. If these estimates indicate that any contract will be less
protable than previously forecast, contract assets may have to be
written down to the extent they are no longer considered to be fully
recoverable. The group performs ongoing protability reviews of its
contracts in order to determine whether the latest estimates
are appropriate.
Key factors reviewed include
– Transaction volumes or other inputs aecting future revenues which
can vary depending on customer requirements, plans, market position
and other factors such as general economic conditions.
– Our ability to achieve key contract milestones connected with the
transition, development, transformation and deployment phases for
customer contracts.
– The status of commercial relations with customers and the implication
for future revenue and cost projections.
– Our estimates of future sta and third-party costs and the degree to
which cost savings and eciencies are deliverable.
The carrying value of assets comprising the costs of the initial set up,
transition or transformation phase of long-term networked IT services
contracts is disclosed in note 16.
Pension obligations
BT has a commitment, mainly through the BTPS, to pay pension
benets to approximately 313,000 people over a period of more than
80years. The accounting cost of these benets and the present value
of our pension liabilities depend on such factors as the life expectancy
of the members, the salary progression of our current employees, price
ination and the discount rate used to calculate the net present value of
the future pension payments. We use estimates for all of these factors in
determining the pension costs and liabilities incorporated in our nancial
statements. The assumptions reect historical experience and our
judgement regarding future expectations.
The value of the net pension obligation at 31 March 2014, the key
nancial assumptions used to measure the obligation, the sensitivity
of the IAS 19 (Revised 2011) pension liability at 31 March 2014,
and of the income statement charge in 2014/15 to changes in these
assumptions are disclosed in note 19.
Useful lives for property, plant and equipment and software
The plant and equipment in our networks is long lived with cables and
switching equipment operating for over ten years and underground
ducts being used for decades. We also develop software for use in IT
systems and platforms that supports the products and services provided
to our customers and that is also used within the group. The annual
depreciation and amortisation charge is sensitive to the estimated
service lives allocated to each type of asset. Asset lives are assessed
annually and changed when necessary to reect current thinking on the
remaining lives in light of technological change, network investment
plans (including the group’s bre rollout programme), prospective
economic utilisation and physical condition of the assets concerned.
Changes to the service lives of assets implemented from 1 April 2013
had no signicant impact in aggregate on the results for the year ended
31 March 2014.
The carrying values of software and property, plant and equipment are
disclosed in notes 12 and 13. The useful lives applied to the principal
categories of assets are disclosed on page 131.
Provisions and contingent liabilities
As disclosed in note 18, the group’s provisions principally relate
to obligations arising from property rationalisation programmes,
restructuring programmes, claims, litigation and regulatory risks.
Under our property rationalisation programmes we have identied a
number of surplus properties. Although eorts are being made to
sub-let this space, this is not always possible. Estimates have been made
of the cost of vacant possession and of any shortfall arising from any
sub-lease income being lower than the lease costs. Any such shortfall
is recognised as a provision.
1. Basis of preparation continued