BT 2002 Annual Report Download - page 129

The group's consolidated ®nancial statements are prepared in accordance with accounting principles generally accepted in
the UK (UK GAAP), which differ 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 differences between UK and US GAAP which are relevant to the group's ®nancial statements.
(a) Sale and leaseback of properties
Under UK GAAP, the sale of BT's property portfolio is treated as a ®xed asset disposal and the subsequent leaseback is an
operating lease. Under US GAAP, the transaction is regarded as ``®nancing'' and the land and buildings are recorded on
the balance sheet at their net book value, an obligation equivalent to the cash proceeds is recognised and the gain on
disposal is deferred until the properties are vacated by BT. Rental payments made by BT are reversed and replaced by a
®nance lease interest charge and a depreciation charge.
(b) 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.
Differences between the UK and US GAAP ®gures arise from the requirement to use different actuarial methods and
assumptions and a different method of amortising surpluses or de®cits.
(c) 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.
(d) 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 included capitalisation of interest incurred on funding the 3G licences up to the date of the
demerger. The amount of interest capitalised is determined by reference to the average interest rates on outstanding
borrowings. At 31 March 2002 under US GAAP, gross capitalised interest of £330 million (2001 ± £692 million) with regard
to the company and its subsidiary companies was subject to depreciation generally over periods of three to 25 years.
(e) 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
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 2002 of £675 million (2001 ± £10,309 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.
(f) 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.
(g) 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
United States Generally Accepted Accounting Principles
128 BT Group Annual Report and Form 20-F 2002