BT 2003 Annual Report Download - page 77

Accounting policies
I Basis of preparation of the financial statements
The financial statements are prepared under
the historical cost convention and in accordance with
applicable accounting standards and the provisions
of the Companies Act 1985. The group financial
statements consolidate those of the company and
all of its subsidiary undertakings. Where the financial
statements of subsidiary undertakings, associates
and joint ventures do not conform with the group’s
accounting policies, appropriate adjustments are made
on consolidation in order to present the group financial
statements on a consistent basis. The principal
subsidiary undertakings’ financial years are all
coterminous with those of the company.
The preparation of financial statements requires
management to make estimates and assumptions
that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and
the reported amounts of income and expenditure
during the reporting period. Actual results could differ
from those estimates. Estimates are used principally
when accounting for interconnect income, provision
for doubtful debts, payments to telecommunication
operators, depreciation, goodwill amortisation and
impairment, employee pension schemes, provisions
for liabilities and charges and taxes.
II Turnover
Group turnover net of discounts, which excludes value
added tax and other sales taxes, comprises the value
of services provided and equipment sales by group
undertakings, excluding those between them.
Total turnover is group turnover together with
the group’s share of its associates’ and joint ventures’
turnover, excluding the group’s share of transactions
between the group and its principal joint venture,
Concert BV.
Turnover from calls is recognised in the group
profit and loss account at the time the call is made
over the group’s networks. Turnover from rentals is
recognised evenly over the period to which the charges
relate. Turnover from equipment sales is recognised
at the point of sale. Prepaid call card sales are deferred
until the customer uses the stored value in the card
to pay for the relevant calls. Turnover arising from
the provision of other services, including maintenance
contracts, is recognised evenly over the periods in
which the service is provided to the customer. Turnover
from installation and connection activities is recognised
in the same period as the related costs. Turnover from
classified directories, mainly comprising advertising
revenue, is recognised in the group profit and loss
account upon completion of delivery.
III Research and development
Expenditure on research and development is written
off as incurred.
IV Leases
Operating lease rentals are charged against the profit
and loss account on a straight-line basis over the
lease period except where the contractual payment
terms are considered to be a more systematic and
appropriate basis.
V Interest
Interest payable, including that related to financing
the construction of tangible fixed assets, is written off
as incurred. Discounts or premiums and expenses on
the issue of debt securities are amortised over the term
of the related security and included within interest
payable. Premiums payable on early redemptions
of debt securities, in lieu of future interest costs,
are written off when paid.
VI Foreign currencies
On consolidation, assets and liabilities of foreign
undertakings are translated into sterling at year end
exchange rates. The results of foreign undertakings are
translated into sterling at average rates of exchange
for the year.
Exchange differences arising from the retranslation
at year end exchange rates of the net investment in
foreign undertakings, less exchange differences on
borrowings which finance or provide a hedge against
those undertakings, are taken to reserves and are
reported in the statement of total recognised gains
and losses.
All other exchange gains or losses are dealt with
through the profit and loss account.
VlI Intangibles
(a) Goodwill
Goodwill, arising from the purchase of subsidiary
undertakings and interests in associates and joint
ventures, represents the excess of the fair value
of the purchase consideration over the fair value
of the net assets acquired.
For acquisitions completed on or after 1 April
1998, the goodwill arising is capitalised as an
intangible asset or, if arising in respect of an associate
or joint venture, recorded as part of the related
investment. Goodwill is amortised on a straight line
basis from the time of acquisition over its useful
economic life. The economic life is normally presumed
to be a maximum of 20 years.
For acquisitions on or before 31 March 1998,
the goodwill is written off on acquisition against
group reserves.
If an undertaking is subsequently divested,
the appropriate unamortised goodwill or goodwill
written off to reserves is dealt with through the profit
and loss account in the period of disposal as part
of the gain or loss on divestment.
(b) Other intangibles
Licence fees paid to governments, which permit
telecommunication activities to be operated for defined
periods, are amortised from the later of the start
of the licence period or launch of service to the end
of the licence period on a straight-line basis.
76 BT Annual Report and Form 20-F 2003