BT 2000 Annual Report Download - page 104

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The group's consolidated ¢nancial statements are prepared in accordance with accounting principles generally accepted in
the UK (UK GAAP), which di¡er in certain 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 di¡erences between UK and US GAAP which are relevant to the group's ¢nancial 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 pro¢ts 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. Di¡erences
between the UK and US GAAP ¢gures arise from the requirement to use di¡erent actuarial methods and assumptions and
a di¡erent method of amortising surpluses or de¢cits.
(b) Accounting for redundancies
Under UK GAAP, the cost of providing incremental pension bene¢ts in respect of workforce reductions is taken into
account when determining current and future pension costs, unless the most recent actuarial valuation, combined with the
provision for pension costs in the group balance sheet, under UK actuarial conventions shows a de¢cit. In this case, the
cost of providing incremental pension bene¢ts 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 bene¢ts are charged against pro¢ts 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 ¢nancial statements. To comply with US GAAP, the
estimated amount of interest incurred whilst constructing major capital projects is included in ¢xed 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 2000 under US GAAP, gross capitalised interest of »349 million
(1999 --- »499 million) with regard to the company and its subsidiary companies was subject to depreciation generally over
periodsof3to25years.
(d) Goodwill
Under UK GAAP, in respect of acquisitions completed prior to 1 April 1998, the group wrote o¡ goodwill arising from the
purchase of subsidiary undertakings, associates and joint ventures on acquisition against retained earnings. The goodwill
is re£ected 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 2000 of »7,978 million (1999 --- »1,957 million) was subject to amortisation over periods of 3 to 20 years. 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 ¢xed assets recognised under US GAAP purchase accounting requirements are subsumed within
goodwill under UK GAAP. Under US GAAP these separately identi¢ed intangible assets are valued and amortised over
their useful lives.
(f) Financial instruments
Under UK GAAP, investments are held on the balance sheet at historical cost, and own shares held in trust for share
schemes are recorded in ¢xed asset investments. Gains and losses on instruments used for hedges are not recognised until
the exposure being hedged is recognised. Under US GAAP, trading securities and available-for-sale securities are carried at
market value with appropriate valuation adjustments recorded in pro¢t and loss and shareholders' equity, respectively.
Certain derivative ¢nancial instruments which qualify as hedge accounting under UK GAAP do not qualify for hedge
United States Generally Accepted Accounting Principles
Annual report and Form 20-F 103