BT 2003 Annual Report Download - page 130

I Differences between United Kingdom and United States generally accepted accounting principles continued
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 profit and loss and
shareholders’ equity, respectively.
Certain derivative financial instruments which qualify for hedge accounting under UK GAAP do not qualify for
hedge accounting under US GAAP. Under US GAAP, financial instruments do not qualify for hedge accounting
due to the extensive documentation requirements. These financial instruments, under US GAAP, are carried
at market value with valuation adjustments recorded in the profit and loss account. The reassessment and
purchase of derivatives in the year ended 31 March 2003 gave rise to an adjustment increasing net income by
£610 million net of tax (2002 – reduction £20 million). The net unrealised holding gain on available-for-sale
securities for the year ended 31 March 2003 was £22 million (2002 – £271 million, 2001 – £8 million). SFAS 133
became effective for BT on 1 April 2001 and the unamortised transitional adjustment of £26 million net of tax
remains in shareholders’ equity at 31 March 2003.
(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 reflected 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 fixed 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 economic interest in the associates’ operating profits before minority interest is reported as
part of the total operating profit. For those associates in whom a minority interest is recognised in their respective
statements of profit and loss, such minority interest is reported as minority interest in the consolidated profit and
loss account. Under US GAAP, the minority interest in the associates is reclassified from minority interest and
reported within the share of results of associates.
(k) Deferred taxation
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. Future
tax benefits are recognised as deferred tax assets to the extent that their realisation is more likely than not.
As a result of changes in circumstances, previously recognised deferred tax liabilities have been released in
the 2003 financial year. At 31 March 2003 total deferred tax liabilities were £2,806 million primarily in respect
of accelerated capital allowances and total deferred tax assets were £2,491 million, primarily in respect of
pension obligations.
(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 final 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 flows 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 flows. An impairment loss exists if the sum of these cash flows 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 flows.
United States Generally Accepted Accounting Principles
BT Annual Report and Form 20-F 2003 129