Tiscali 2003 Annual Report Download - page 72

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7474
Accounts to the year ending 31 December 2003
As explained in the section in these notes on accounting policies, at the end of 2003, Tiscali reviewed the residual useful life of
the consolidation difference, following the extraordinary write-downs made in 2001. This assessment was carried out with refe-
rence to the amounts attributable to the different Group companies, largely corresponding to the various countries and geogra-
phical areas in which the Group operates, and led to a change in the estimated residual life of the consolidation difference. The
change in the estimated useful life of the consolidation difference is justified by the structural conditions described in the sec-
tion on accounting policies.
Specifically, the consolidation difference is now amortised from the acquisition date of the Company or division over 12 years,
compared to five years previously (until 31 December 2002).
An impairment test was carried out to provide an updated valuation of the consolidation difference, based on an analysis of the
value of the Group companies to which this item refers, using a discounted cash flow calculation based on the business plans for
all business units in each country in which Tiscali operates. This analysis showed that the net book value of goodwill pertaining
to the different countries was much lower than the corresponding value derived from the methodology described above. In addi-
tion, the board of directors commissioned a report by an independent consultant, who confirmed that there was a significant dif-
ference between the value of goodwill estimated on the basis of the business plans for each business unit, and the book value of
goodwill recorded for each business unit. The consultant also suggested that an amortisation period of between 10 and 15 years
was sustainable for the Group.
Furthermore, from 2005 (but for comparative purposes, from the 2004 accounts), IAS/IFRS accounting principles will be applied,
under which (according with the current version, in the draft format) goodwill is no longer amortised. Instead, it is valued each
year according to impairment test criteria, for the purposes of checking the book value and ascertaining whether any write-downs
should be recorded. In this context, where there is a significant difference between the value of goodwill determined by the
report/impairment test and its book value, it is considered appropriate to extend the amortisation period, as other sector compa-
nies have done.
This change in the estimated residual useful life of the consolidation difference led to lower amortisation charges (by around EUR
129.8 million) in the year ending 31 December 2003 than those calculated according to the period of estimated use in previous
years, thereby increasing the Company’s net result and consolidated shareholders’ equity by the same amount.