BT 1999 Annual Report Download - page 98

97
United States Generally Accepted Accounting Principles
The group’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the
UK (UK GAAP), which differ in certain significant respects from those applicable in the US (US GAAP).
I Differences between United Kingdom and United States generally accepted accounting principles
The following are the main differences between UK and US GAAP which are relevant to the group’s financial statements.
(a) Pension costs
Under UK GAAP, pension costs are accounted for in accordance with UK Statement of Standard Accounting Practice No. 24,
costs being charged against profits over employees’ working lives. Under US GAAP, pension costs are determined in accordance
with the requirements of US Statements of Financial Accounting Standards (SFAS) Nos. 87 and 88. Differences between the UK
and US GAAP figures arise from the requirement to use different actuarial methods and assumptions and a different method of
amortising surpluses or deficits.
(b) Accounting for redundancies
Under UK GAAP, the cost of providing incremental pension benefits in respect of workforce reductions is taken into account when
determining current and future pension costs, unless the most recent actuarial valuation under UK actuarial conventions shows a
deficit. In this case, the cost of providing incremental pension benefits is included in redundancy charges in the year in which the
employees agree to leave the group.
Under US GAAP, the associated costs of providing incremental pension benefits are charged against profits in the period in which
the termination terms are agreed with the employees.
(c) Capitalisation of interest
Under UK GAAP, the group does not capitalise interest in its financial statements. To comply with US GAAP, the estimated amount
of interest incurred whilst constructing major capital projects is included in fixed assets, and depreciated over the lives of the
related assets. The amount of interest capitalised is determined by reference to the average interest rates on outstanding
borrowings. At 31 March 1999 under US GAAP, gross capitalised interest of £499m (1998 – £525m) with regard to the company
and its subsidiary companies was subject to depreciation generally over periods of 2 to 25 years.
(d) Goodwill
Under UK GAAP, in respect of acquisitions completed prior to 1 April 1998, the group wrote off goodwill arising from the purchase
of subsidiary undertakings, associates and joint ventures on acquisition against retained earnings. The goodwill is reflected in the
net income of the period of disposal, as part of the calculation of the gain or loss on divestment. Under US GAAP, such goodwill
is held as an intangible asset in the balance sheet and amortised over its useful life and only the unamortised portion is included
in the gain or loss recognised at the time of divestment. Gross goodwill under US GAAP at 31 March 1999 of £1,957m
(1998 – £925m) was subject to amortisation over periods of 3 to 20 years. Goodwill relating to MCI was unchanged for the
period from 31 October 1997 when the investment ceased to have associated company status until disposal on 15 September
1998. The value of goodwill is reviewed annually and the net asset value is written down if a permanent diminution in value has
occurred. Under UK GAAP, goodwill arising on acquisitions completed on or after 1 April 1998 is generally accounted for in line
with US GAAP.
(e) Mobile cellular telephone licences, software and other intangible assets
Certain intangible fixed assets recognised under US GAAP purchase accounting requirements are subsumed within goodwill
under UK GAAP. Under US GAAP these separately identified intangible assets are valued and amortised over their useful lives.
(f) Investments
Under UK GAAP, investments are held on the balance sheet at historical cost. Under US GAAP, trading securities and available-for-
sale securities are carried at market value with appropriate valuation adjustments recorded in profit and loss and shareholder’s
equity, respectively. The net unrealised holding gain on available-for-sale securities for the year ended 31 March 1999 was £76m
(1998 – £1,315m relating primarily to the investment in MCI, 1997 – £nil).
(g) Deferred taxation
Under UK GAAP, provision for deferred taxation is generally only made for timing differences which are expected to reverse.
Under US GAAP, deferred taxation is provided on a full liability basis on all temporary differences, as defined in SFAS No. 109.
At 31 March 1999, the adjustment of £1,424m (1998 – £2,095m) reconciling ordinary shareholders’ equity under UK GAAP
to the approximate amount under US GAAP included the tax effect of other US GAAP adjustments. This comprised an
adjustment increasing non-current assets by £59m (1998 – £76m decrease); an adjustment increasing current assets by
£50m (1998 – £68m increase); £nil adjustment (1998 – £184m decrease) to current liabilities; an adjustment decreasing
minority interests by £11m (1998 – £3m decrease) and an adjustment increasing long-term liabilities by £1,544m
(1998 – £2,274m increase).