Vodafone 2007 Annual Report Download - page 97

Vodafone Group Plc Annual Report 2007 95
Notes to the Consolidated Financial Statements
Financials
1. Basis of preparation
The Consolidated Financial Statements are prepared in accordance with
International Financial Reporting Standards (“IFRS”) as issued by the
International Accounting Standards Board (“IASB”). The Consolidated
Financial Statements are also prepared in accordance with IFRS adopted by
the European Union (“EU”), the Companies Act 1985 and Article 4 of the EU
IAS Regulations. IFRS and IFRS as adopted by the EU differ 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.
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 year ended, 31 March 2007, 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 30 March 2007. This rate was $1.9685: £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
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 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.