BT 2001 Annual Report Download - page 124

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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. This includes capitalisation of interest incurred on funding the 3G licences for the period up to the launch of
the related services. The amount of interest capitalised is determined by reference to the average interest rates on outstanding
borrowings. At 31 March 2001 under US GAAP, gross capitalised interest of »692 million (2000 --- »349 million) with regard to
the company and its subsidiary companies was subject to depreciation generally over periods of three to 25 years.
(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 2001 of
»10,309 million (2000 --- »7,978 million) was subject to amortisation over periods of three 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. When impairment
indicators exist, goodwill impairment is measured by discounting future projected cash£ows or using quoted market prices if
available.
(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 accounting under US GAAP.
United States Generally Accepted Accounting Principles
124 BT Annual report and Form 20-F