BT 2002 Annual Report Download - page 130

I Differences between United Kingdom and United States generally accepted accounting principles continued
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.
These ®nancial instruments, under US GAAP, are carried at market value with valuation adjustments recorded in pro®t
and loss. Own shares held in trust are treated as a reduction to shareholders' equity until they are reissued to employees.
The reassessment and purchase of derivatives in the year ended 31 March 2002 gave rise to an adjustment reducing net
income by £20 million (2001 ± £93 million). The net unrealised holding gain on available-for-sale securities for the year
ended 31 March 2002 was £271 million (2001 ± £8 million, 2000 ± £311 million). SFAS 133 became effective for BT on
1 April 2001 and a transitional adjustment on adoption of £46 million net of tax has been recorded in shareholders' equity.
(h) Deferred gain
Under UK GAAP, assets contributed to a joint venture by the group's partners are measured at their net replacement cost.
Any difference between the group's share of the joint venture's resulting net assets and the net book value of assets
contributed by the group to the joint venture, including certain accrued start up costs, is immediately re¯ected by adjusting
the group's investment in the joint venture and recording a deferred difference in shareholders' equity. Under US GAAP, the
assets contributed by all joint venture partners are carried at their historical net book value and any difference between the
group's share of the joint venture's resulting net assets and the net book value of assets contributed by the group to the
joint venture is amortised over the life of the items giving rise to the difference.
(i) Employee share plans
Certain share options have been granted under BT save-as-you-earn plans at a 20% discount. Under UK GAAP, the share
issues are recorded at their discounted price when the options are exercised. Under US GAAP, a plan is considered
compensatory when the discount to market price is in excess of 15%. Compensation cost is recognised for the difference
between the exercise price of the share options granted and the quoted market price of the shares at the date of grant or
measurement date and accrued over the vesting period of the options.
Under UK GAAP, shares held by employee share ownership trusts are recorded as ®xed asset investments at cost less
amounts written off. Under US GAAP, those shares not fully vested are regarded as treasury stock and recorded at cost as
a deduction from shareholders' equity.
(j) Investments in associates
Under UK GAAP, the group records the share of operating pro®t and loss of ventures based upon the total interest in the
venture based upon the consolidation structure. The group records the equity in the operations of the venture on the basis
of its consolidated results excluding the holdings of any of the group's other ventures for the purpose of determining the
economic interest. The share of the operations of the ventures is reduced to the economic interest through an increase to
minority interests at the group level. Under US GAAP, the share of the operating results of the venture is recorded at the
amount of the group's economic interest.
(k) Deferred taxation
Following the introduction of FRS 19, under UK GAAP, provision is made for deferred tax in so far as a liability or asset
arose as a result of transactions that had occurred by the balance sheet date and give rise to an obligation to pay more tax
in the future, or a right to pay less tax in the future. Under US GAAP, deferred taxation is provided for on a full liability basis.
(l) Dividends
Under UK GAAP, dividends are recorded in the year in respect of which they are declared (in the case of interim or any
special dividends) or proposed by the board of directors to the shareholders (in the case of ®nal dividends). Under
US GAAP, dividends are recorded in the period in which dividends are declared.
(m) Impairment
Under UK GAAP, if there is an indication of impairment the assets should be tested for impairment and, if necessary written
down to the value in use, calculated based on discounted future pre-tax cash ¯ows related to the asset or the income
generating unit to which the asset belongs.
US GAAP requires that an entity assess whether impairment has occurred based on the undiscounted future cash
¯ows. An impairment loss exists if the sum of these cash ¯ows is less than the carrying amount of the asset. The
impairment loss recognised in the income statement is based on the asset's fair value, being either market value or the sum
of discounted future cash ¯ows.
United States Generally Accepted Accounting Principles
BT Group Annual Report and Form 20-F 2002 129