National Grid 2010 Annual Report Download - page 28

26 National Grid Gas plc Annual Report and Accounts 2009/10
stated policy under which the company is charged for the costs
of providing pensions.
A change in these arrangements may lead to the company
recognising the cost of providing pensions on a different basis,
together with a proportion of the actuarial gains and losses and
of the assets and liabilities of the pension scheme.
Exceptional items and remeasurements
Exceptional items and remeasurements are items of income
and expenditure that, in the judgement of management, should
be disclosed separately on the basis that they are material,
either by their nature or their size, to an understanding of the
company’s financial performance and distort the comparability
of financial performance between periods.
Items of income or expense that are considered by
management for designation as exceptional items include such
items as significant restructurings, write-downs or impairments
of non-current assets, material changes in environmental
provisions, gains or losses on disposals of businesses or
investments.
Remeasurements comprise gains or losses recorded in the
income statement arising from changes in the fair value of
derivative financial instruments. These fair values increase or
decrease as a consequence of changes in financial indices and
prices over which the company has no control.
Provisions
Provisions are made for liabilities, the timing and amount of
which is uncertain. These include provisions for the cost of
environmental restoration and remediation, restructuring and
employer and public liability claims.
Calculations of these provisions are based on estimated cash
flows relating to these costs, discounted at an appropriate rate
where the impact of discounting is material. The total costs and
timing of cash flows relating to environmental liabilities are
based on management estimates supported by the use of
external consultants.
Tax estimates
The tax charge is based on the profit for the year and tax rates
in effect. Current tax assets and liabilities arising from transfer
pricing adjustments, which are expected to be fully recovered
through group relief, are recognised where material. Further
adjustments are recognised when tax returns are submitted to
the tax authorities. The determination of appropriate provisions
for taxation requires us to take into account anticipated
decisions of tax authorities and estimate its ability to utilise tax
benefits through future earnings and tax planning.
In order to illustrate the impact that changes in assumptions
could have on our results and financial position, the following
sensitivities are presented:
Revenue accruals
A 10% change in our estimate of unbilled revenues at 31 March
2010 would result in an increase or decrease in our recorded
net assets and profit for the year by approximately £13 million
net of tax.
Asset useful lives
An increase in the useful economic lives of assets of one year
on average would reduce our annual depreciation charge on
property, plant and equipment by £14 million (pre-tax) and our
annual amortisation charge on intangible assets by £2 million
(pre-tax).
Hedge accounting
If using our derivative financial instruments, hedge accounting
had not been achieved during the year ended 31 March 2010
then the profit for the year would have been £131 million lower
than that reported net of tax, and net assets would have been
£79 million lower.
Assets carried at fair value
A 10% change in assets and liabilities carried at fair value
would result in an increase or decrease in the carrying value of
derivative financial instruments of £49 million.
Provisions
A 10% change in the estimates of future cash flows estimated
in respect of provisions for liabilities would result in an increase
or decrease in our provisions of approximately £17 million.
Accounting developments
Accounting standards, amendments to standards and
interpretations adopted in 2009/10
In preparing our consolidated financial statements we have
complied with International Financial Reporting Standards,
International Accounting Standards and interpretations
applicable for 2009/10. The standards, amendments to
standards and interpretations adopted during 2009/10 are
discussed in the financial statements on page 36. None of
these resulted in a material change to our consolidated results,
assets or liabilities in 2009/10 or in those of previous periods.
Accounting standards, amendments to standards and
interpretations not yet adopted
New accounting standards, amendments to standards and
interpretations which have been issued but not yet adopted by
National Grid are discussed in the financial statements on page
37.