Vodafone 2005 Annual Report Download - page 142

Information on International Financial Reporting Standards continued
140 |Shareholder information
Deferred and Current Taxes
The scope of IAS 12, “Income Taxes”is wider than the corresponding UK GAAP standards, and requires deferred tax to be provided on all temporary differences rather than just
timing differences under UK GAAP.
As a result, the Group’s IFRS opening balance sheet at 1 April 2004 includes an additional deferred tax liability of £1,801 million in respect of the differences between the carrying
value and tax written down value of the Group’s investments in associated undertakings and joint ventures. This comprises £1.3 billion in respect of differences that arose when
US investments were acquired and £0.5 billion in respect of undistributed earnings of certain associated undertakings and joint ventures, principally Vodafone Italy. UK GAAP does
not permit deferred tax to be provided on the undistributed earnings of the Group’s associated undertakings and joint ventures until there is a binding obligation to distribute those
earnings.
IAS 12 also requires deferred tax to be provided in respect of the Group’s liabilities under its post employment benefit arrangements and on other employee benefits such as share
and share option schemes.
Share-based Payments
IFRS 2, “Share-based Payment”requires that an expense for equity instruments granted be recognised in the financial statements based on their fair value at the date of grant.
This expense, which is primarily in relation to employee option and performance share schemes, is recognised over the vesting period of the scheme.
While IFRS 2 allows the measurement of this expense to be calculated only on options granted after 7 November 2002, the Group has applied IFRS 2 to all instruments granted
but not fully vested as at 1 April 2004. The Group has adopted the binomial model for the purposes of computing fair value under IFRS.
Principal presentational differences
Scope of consolidation
IAS 31, “Interests in Joint Ventures”defines a jointly controlled entity as an entity where unanimous consent over the strategic financial and operating decisions is required between
the parties sharing control. Control is defined as the power to govern the financial and operating decisions of an entity so as to obtain economic benefit from it.
The Group has reviewed the classification of its investments and concluded that the Group’s 76.8% interest in Vodafone Italy, currently classified as a subsidiary undertaking under
UK GAAP, should be accounted for as a joint venture under IFRS. In addition, the Group’s interests in South Africa, Poland, Romania, Kenya and Fiji, which are currently classified
as associated undertakings under UK GAAP, have been classified as joint ventures under IFRS as a result of the contractual rights held by the Group. The Group has adopted
proportionate consolidation as the method of accounting for these six entities.
Under UK GAAP, the revenue, operating profit, net financing costs and taxation of Vodafone Italy are consolidated in full in the income statement with a corresponding allocation to
minority interest. Under proportionate consolidation, the Group recognises its share of all income statement lines with no allocation to minority interest. There is no effect on the
result for a financial period from this adjustment.
Under UK GAAP, the Group’s interests in South Africa, Poland, Romania, Kenya and Fiji are accounted for under the equity method, with the Group’s share of operating profit,
interest and tax being recognised separately in the consolidated income statement. Under proportionate consolidation, the Group recognises its share of all income statement lines.
There is no effect on the result for a financial period from this adjustment.
Under UK GAAP, the Group fully consolidates the cash flows of Vodafone Italy, but does not consolidate the cash flows of its associated undertakings. The IFRS consolidated cash
flow statements reflect the Group’s share of cash flows relating to its joint ventures on a line by line basis, with a corresponding recognition of the Group’s share of net debt for
each of the proportionately consolidated entities.
Associated undertakings taxation
Under IFRS, in accordance with IAS 1, “Presentation of Financial Statements”, “Tax on (loss)/profit on ordinary activities”on the face of the consolidated income statement
comprises the tax charge of the Company, its subsidiaries and its share of the tax charge of joint ventures. The Group’s share of its associated undertakings’ tax charges is shown
as part of “Share of result in associated undertakings”rather than being disclosed as part of the tax charge under UK GAAP.
In respect of the Verizon Wireless partnership, the line “Share of result in associated undertakings”includes the Group’s share of pre-tax partnership income and the Group’s share
of the post-tax income attributable to corporate entities (as determined for US corporate income tax purposes) held by the partnership. The tax attributable to the Group’s share of
allocable partnership income is included as part of “Tax on (loss)/profit on ordinary activities”on the consolidated income statement. This treatment reflects the fact that tax on
allocable partnership income is, for US corporate income tax purposes, a liability of the partners and not the partnership.