Vodafone 2006 Annual Report Download - page 77

Vodafone Group Plc Annual Report 2006 75
Notes to the Consolidated Financial Statements
1. Basis of preparation
The Consolidated Financial Statements are prepared in accordance with International
Financial Reporting Standards (“IFRS”) (including International Accounting Standards
(“IAS”) and interpretations issued by the International Accounting Standards Board
(“IASB”) and its committees, and as interpreted by any regulatory bodies applicable to
the Group as adopted for use in the European Union (“EU”), the Companies Act 1985
and Article 4 of the IAS Regulations. The Consolidated Financial Statements have been
prepared in accordance with IFRS, which differs in certain material respects from US
generally accepted accounting principles (“US GAAP”) – see note 38.
The preparation of financial statements in conformity with IFRS requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. For a discussion on the Group’s critical accounting estimates see “Performance –
Critical Accounting Estimates” elsewhere in this Annual Report. Actual results could
differ from those estimates. The estimates and underlying assumptions are reviewed on
an ongoing basis. Revisions to accounting estimates are recognised in the period in
which the estimate is revised if the revision affects only that period or in the period of
the revision and future periods if the revision affects both current and future periods.
Certain amounts in relation to the previous financial year have been reclassified to
conform presentation with the requirements of IFRS.
Amounts in the Consolidated Financial Statements are stated in pounds sterling (£), the
currency of the country in which the Company is incorporated. The translation into US
dollars of the Consolidated Financial Statements as of, and for the financial year ended,
31 March 2006, is for convenience only and has been made at the Noon Buying Rate for
cable transfers as announced by the Federal Reserve Bank of New York for customs
purposes on 31 March 2006. This rate was $1.7393: £1. This translation should not be
construed as a representation that the sterling amounts actually represented have been,
or could be, converted into dollars at this or any other rate.
2. Significant accounting policies
The Group’s significant accounting policies are described below.
Accounting convention
The Consolidated Financial Statements are prepared on a historical cost basis except for
certain financial and equity instruments that have been measured at fair value.
Basis of consolidation
The Consolidated Financial Statements incorporate the financial statements of the
Company and entities controlled, both unilaterally and jointly, by the Company.
Accounting for subsidiaries
A subsidiary is an entity controlled by the Company. Control is achieved where the
Company has the power to govern the financial and operating policies of an entity so as
to obtain benefits from its activities.
The results of subsidiaries acquired or disposed of during the year are included in the
income statement from the effective date of acquisition or up to the effective date of
disposal, as appropriate. Where necessary, adjustments are made to the financial
statements of subsidiaries to bring their accounting policies into line with those used by
other members of the Group.
All intra-group transactions, balances, income and expenses are eliminated on
consolidation.
Minority interests in the net assets of consolidated subsidiaries are identified separately
from the Group’s equity therein. Minority interests consist of the amount of those
interests at the date of the original business combination and the minority’s share of
changes in equity since the date of the combination. Losses applicable to the minority
in excess of the minority’s share of changes in equity are allocated against the interests
of the Group except to the extent that the minority has a binding obligation and is able
to make an additional investment to cover the losses.
Business combinations
The acquisition of subsidiaries is accounted for using the purchase method. The cost of
the acquisition is measured at the aggregate of the fair values, at the date of exchange,
of assets given, liabilities incurred or assumed, and equity instruments issued by the
Group in exchange for control of the acquiree, plus any costs directly attributable to the
business combination. The acquiree’s identifiable assets and liabilities are recognised at
their fair values at the acquisition date.
Goodwill arising on acquisition is recognised as an asset and initially measured at cost,
being the excess of the cost of the business combination over the Group’s interest in the
net fair value of the identifiable assets, liabilities and contingent liabilities recognised.
The interest of minority shareholders in the acquiree is initially measured at the
minority’s proportion of the net fair value of the assets, liabilities and contingent
liabilities recognised.
Previously held identifiable assets, liabilities and contingent liabilities of the acquired
entity are revalued to their fair value at the date of acquisition, being the date at which
the Group achieves control of the acquiree. The movement in fair value is taken to the
asset revaluation surplus.
Interests in joint ventures
A joint venture is a contractual arrangement whereby the Group and other parties
undertake an economic activity that is subject to joint control, that is when the strategic
financial and operating policy decisions relating to the activities require the unanimous
consent of the parties sharing control.
The Group reports its interests in jointly controlled entities using proportionate
consolidation. The Group’s share of the assets, liabilities, income, expenses and cash
flows of jointly controlled entities are combined with the equivalent items in the results
on a line-by-line basis.
Any goodwill arising on the acquisition of the Group’s interest in a jointly controlled
entity is accounted for in accordance with the Group’s accounting policy for goodwill
arising on the acquisition of a subsidiary.
Investments in associates
An associate is an entity over which the Group 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 the investee, but is not
control or joint control over those policies.
The results and assets and liabilities of associates are incorporated in the Consolidated
Financial Statements using the equity method of accounting. Under the equity method,
investments in associates are carried in the consolidated balance sheet at cost as
adjusted for post-acquisition changes in the Group’s share of the net assets of the
associate, less any impairment in the value of the investment. Losses of an associate in
excess of the Group’s interest in that associate are not recognised. Additional losses are
provided for, and a liability is recognised, only to the extent that the Group has incurred
legal or constructive obligations or made payments on behalf of the associate.
Any excess of the cost of acquisition over the Group’s share of the net fair value of the
identifiable assets, liabilities and contingent liabilities of the associate recognised at the
date of acquisition is recognised as goodwill. The goodwill is included within the carrying
amount of the investment.
The licences of the Group’s associated undertaking in the US, Verizon Wireless, are
indefinite lived assets as they are subject to perfunctory renewal. Accordingly they are
not subject to amortisation but are tested annually for impairment, or when indicators
exist that the carrying value is not recoverable.
Intangible assets
Goodwill
Goodwill arising on the acquisition of an entity represents the excess of the cost of
acquisition over the Group’s interest in the net fair value of the identifiable assets,
liabilities and contingent liabilities of the entity recognised at the date of acquisition.
Goodwill is initially recognised as an asset at cost and is subsequently measured at cost
less any accumulated impairment losses. Goodwill is held in the currency of the
acquired entity and revalued to the closing rate at each balance sheet date.
Goodwill is not subject to amortisation but is tested for impairment.
Negative goodwill arising on an acquisition is recognised directly in the income statement.
On disposal of a subsidiary or a jointly controlled entity, the attributable amount of
goodwill is included in the determination of the profit or loss recognised in the income
statement on disposal.
Goodwill arising before the date of transition to IFRS, on 1 April 2004, has been retained
at the previous UK GAAP amounts subject to being tested for impairment at that date.
Goodwill written off to reserves under UK GAAP prior to 1998 has not been reinstated
and is not included in determining any subsequent profit or loss on disposal.
Financials