BT 2004 Annual Report Download - page 47

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investments and tangible fixed assets in our balance
sheet. The amount of the charges are in most cases
based on the discounted present value of the future
cash flows that we expected to be derived from these
assets. We use estimates in determining these future
cash flows and the discount rate.
The actual tax we pay on our profits is determined
according to complex tax laws and regulations. Where
the effect of these laws and regulations is unclear, we
use estimates in determining the liability for the tax to
be paid on our past profits which we recognise in our
financial statements.
International accounting standards
The Council of the European Union (EU) announced in
June 2002 that all European listed companies will be
required to adopt EU endorsed International Financial
Reporting Standards (IFRSs) and International
Accounting Standards (IASs) in the preparation of
financial statements from 2005 onwards. This means
the group will prepare its first financial statements in
accordance with endorsed IFRSs and IASs for the year
ending 31 March 2006. The international standard
setter, the International Accounting Standards Board
(IASB), has undertaken an extensive exercise to
develop new standards and improve existing ones. The
work on those standards that are applicable is now
substantially complete. In addition, the IASB may issue
non-mandatory standards up to the date of transition.
Our project to manage the transition of financial
reporting from UK GAAP to international accounting is
progressing well. The group has completed initial high
level assessments of the impact on our results and net
assets and rolled out the initial phase of detailed
quantifications of comparative information.
The IFRSs which will be mandatory in the 2006
financial year are now substantially complete and, in
addition, certain IFRSs may be issued before the 2006
financial year which we may decide to adopt early. The
effects of such early adoptions, if any, cannot be
quantified at present. However, we believe that the
major areas of impact on our net profit and
shareholders’ funds will be due to the standards
regarding financial instruments, pensions, leases and
share based payments. Details of the required
adjustments for the restated periods will be provided at
the appropriate time.
US GAAP
The group’s net income (loss) and earnings (loss) per
share for the three financial years ended 31 March
2004 and shareholders’ equity at 31 March 2004 and
2003 under US Generally Accepted Accounting
Principles (US GAAP) are shown further in the United
States Generally Accepted Accounting Principles
Section (see Consolidated financial statements).
Differences between UK GAAP and US GAAP include
results of the differing accounting treatment of leasing
transactions, pension costs, redundancy costs,
intangible assets, goodwill, deferred taxation,
capitalisation of interest, financial instruments,
contributing assets to joint ventures, stock
compensation, and dividends. Cash flow information
under the US GAAP presentation is also shown further
in this document.
In January 2003, the Financial Accounting
Standards Board (FASB) issued Financial Interpretation
No. 46 (FIN 46), ‘‘Consolidation of Variable Interest
Entities’’ and in December 2003 issued a revised
interpretation, FIN 46R. The interpretation requires
the primary beneficiary to consolidate a variable
interest entity if it has a variable interest that will
absorb a majority of the entity’s losses if they occur, or
receive a majority of the entity’s expected returns or
both. BT had adopted FIN 46 in June 2003, and the
further adoption of FIN 46R did not have a material
effect on the results or statement of financial position
of the group.
In May 2003 the FASB issued SFAS No. 150,
‘‘Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity’’. SFAS
No. 150 establishes standards for how to classify and
measure certain financial instruments with
characteristics of both liabilities and equity. It requires
that an issuer classify a financial instrument that is
within its scope as a liability, or an asset in some
circumstances. On adoption, SFAS No. 150 did not
have a material effect on the results or statement of
financial position of the group.
In November 2002 the Emerging Issues Task Force
reached a consensus on EITF 00-21 ‘‘Revenue
arrangements with multiple deliverables’’. BT adopted
this consensus for contracts entered into after 15 June
2003. Adoption of the consensus did not have a
material impact on the results of the group.
BT Annual Report and Form 20-F 200446 Operating and financial review