BT 2004 Annual Report Download - page 128

(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 were released in
the 2003 financial year. At 31 March 2004 total deferred tax liabilities were £2,780 million primarily in respect
of accelerated capital allowances and total deferred tax assets were £2,240 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.
(n) Discontinued operations
Under UK GAAP, the disposal of certain lines of business and joint ventures and associates are shown as
discontinued activities. Under US GAAP, only the disposals of lines of business under SFAS No. 144 would be
reported as discontinued operations.
(o) Disposals of businesses
There are timing differences between UK GAAP and US GAAP for recognition of gains on the sale of certain
businesses. Foreign exchange movements taken to reserves under UK GAAP are reported in the income
statement under US GAAP. Historical GAAP differences on disposed businesses are also shown under this
line item.
(p) Property rationalisation provision
Under UK GAAP in the 2003 financial year, a provision in connection with the rationalisation of the group’s
London office property portfolio was recorded. Under US GAAP, in accordance with SFAS No 146, these costs are
not recognised until the group fully exits and therefore ceases to use the affected properties.
(q) Software
Under UK GAAP long-term contracts to design, build and operate software solutions are accounted for under
SSAP 9 ‘‘Stocks and long-term contracts’’ and FRS 5 ‘‘Reporting the substance of transactions’’, under which
turnover is recognised as earned over the contract period.
Under US GAAP revenue of £77 million under these contracts is deferred in the 2004 financial year under
SOP 97-2 ‘‘Software revenue recognition’’, which requires vendor specific objective evidence to support the fair
value of the separate elements to be delivered. There was no impact on net income.
BT Annual Report and Form 20-F 2004127 United States Generally Accepted Accounting Principles