BT 2005 Annual Report Download - page 115

i Differences between United Kingdom and United States generally accepted accounting principles continued
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 income statement. The reassessment and purchase of derivatives in the year
ended 31 March 2005 gave rise to an adjustment reducing net income by £299 million net of tax (2004 – reduction
£133 million, 2003 reduction £610 million). The net unrealised holding gain on equity investments held as available-
for-sale securities for the year ended 31 March 2005 was £19 million (2004 – £5 million, 2003 – £22 million).
(h) 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.
(i) 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 which 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.
(j) 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. At 31 March 2005 total
deferred tax liabilities were £2,715 million primarily in respect of accelerated capital allowances and total deferred tax
assets were £2,221 million, primarily in respect of pension obligations.
The total valuation allowance recognised for deferred tax assets was as follows:
2005 2004
Movement in
year
£m £m £m
Capital losses 4,436 4,843 (407)
Overseas losses not utilised 860 572 288
Other 705 419 286
6,001 5,834 167
At 31 March 2005 the group had operating losses and capital losses carried forward. The group’s capital losses have no
expiry date restrictions. The expiry date of operating losses carried forward is dependent upon the tax law of the various
territories in which the losses arise. A summary of expiry dates for losses in territories in which restrictions do apply is
set out below:
Territory
Valuation
allowance Expiry of losses
£m
Restricted losses:
Americas 79 2015-2025
Europe 222 2006-2020
Total restricted losses 301
Unrestricted losses:
Operating losses 559 No expiry
Capital losses 4,436 No expiry
Total unrestricted losses 4,995
Total 5,296
114 BT Group plc Annual Report and Form 20-F 2005 United States Generally Accepted Accounting Principles