BT 2007 Annual Report Download - page 48

GEOGRAPHICAL INFORMATION
In the 2007 financial year, approximately 85% of the group’s
revenue was generated by operations in the UK, compared with
87% in the 2006 financial year and 92% in the 2005 financial
year. The group’s operating profits have been derived from its
UK operations with losses being incurred outside the UK in the
each of the last three financial years.
CRITICAL ACCOUNTING POLICIES
The group’s principal accounting policies are set out on pages
78 to 85 of the consolidated financial statements and conform
with IFRS. These policies, and applicable estimation techniques,
have been reviewed by the directors who have confirmed them
to be appropriate for the preparation of the 2007 financial
statements.
We, in common with virtually all other companies, need to
use estimates in the preparation of our financial statements. The
most sensitive estimates affecting our financial statements are in
the areas of assessing the level of interconnect income with and
payments to other telecommunications operators, providing for
doubtful debts, establishing asset lives of property, plant and
equipment for depreciation purposes, assessing the stage of
completion and likely outcome under long term contracts,
making appropriate long-term assumptions in calculating
pension liabilities and costs, making appropriate medium-term
assumptions on asset impairment reviews and calculating current
and deferred tax liabilities. Details of critical accounting
estimates and key judgements are provided in the accounting
policies on page 84 to 85.
US GAAP
The group’s net income and earnings per share for the three
financial years ended 31 March 2007 and shareholders’ equity at
31 March 2007 and 2006 under US Generally Accepted
Accounting Principles (US GAAP) are shown in the United States
Generally Accepted Accounting Principles in note 35. Differences
between IFRS and US GAAP include the treatment of leasing
transactions, pension costs, redundancy costs, deferred taxation,
capitalisation of interest and financial instruments.
US GAAP DEVELOPMENTS
In February 2006, the FASB issued SFAS No 155, ‘Accounting
for Certain Hybrid Instruments – an amendment to FASB
statements No 133 and 140’ (‘‘FAS 155’’), that amends SFAS No
133, ‘Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities’ (‘‘FAS 133’’). This statement
resolves issues addressed in FAS 133 Implementation Issue No.
D1, ‘Application of Statement 133 to Beneficial Interests in
Securitised Financial Assets’. The statement permits fair value
remeasurement for any hybrid financial instrument that contains
an embedded derivative that otherwise would require
bifurcation. Additionally it clarifies which interest-only strips and
principal-only strips are not subject to the requirements of FAS
133. FAS 155 also establishes a requirement to evaluate
interests in securitised financial assets to identify interests that
are freestanding derivatives or that are hybrid financial
instruments that contain an embedded derivative requiring
bifurcation. It clarifies that concentrations of credit risk in the
form of subordination are not embedded derivatives. Also FAS
155 amends FAS 140 to eliminate the prohibition on a
qualifying special purpose entity from holding a derivative
financial instrument that pertains to a beneficial interest other
than another derivative financial instrument. FAS 155 is effective
for BT for all financial instruments acquired or issued after
31 March 2007. The group does not expect this to have a
material impact on the consolidated financial statements.
In March 2006 the FASB issued SFAS No 156, ‘Accounting for
Servicing of Financial Assets: an amendment of FASB No 140’
(‘‘FAS 156’’) that amends SFAS No 140 ‘Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of
Liabilities’ (‘‘FAS 140’’) with respect to the accounting for
separately recognised servicing assets and servicing liabilities.
FAS 156 is effective for BT from 1 April 2007. The group does
not anticipate that the adoption of this new statement at the
required effective date will have a material impact on the
consolidated financial statements.
In September 2006, the FASB issued SFAS No 157, ‘Fair
Value Measurements’ (‘‘FAS 157’’). FAS 157 defines fair value,
establishes a framework for measuring fair value in generally
accepted accounting principles, and expands disclosures about
fair value measurements. The provisions of this standard apply to
other accounting pronouncements that require or permit fair
value measurements. FAS 157 applies for the group’s financial
year beginning 1 April 2008. The group is currently evaluating
the impact, if any, that the adoption of FAS 157 will have on
the consolidated financial statements.
In February 2007, the FASB issued SFAS No 159 ‘The Fair
Value Option for Financial Assets and Financial Liabilities’
(‘‘FAS 159’’). FAS 159 permits entities to choose to measure, on
an item by item basis, specified financial instruments and certain
other items at fair value. Unrealised gains and losses on items
for which the fair value option has been elected are required to
be reported in earnings at each reporting date. FAS 159 is
effective for the 2009 financial year, the provisions of which are
required to be applied prospectively. The group is currently
evaluating the impact, if any, that the adoption of FAS 159 will
have on the consolidated financial statements.
In July 2006, the FASB issued Interpretation No 48
‘Accounting for Uncertainty in Income Taxes – An Interpretation
of FASB Statement No 109’ (‘‘FIN 48’’). FIN 48 requires tax
benefits from uncertain positions to be recognised only if it is
‘‘more likely than not’’ that the position is sustainable based on
its technical merits. The interpretation also requires qualitative
and quantitative disclosures, including discussion of reasonably
possible changes that might occur in unrecognised tax benefits
over the next 12 months, a description of open tax years by
major jurisdiction, and a roll-forward of all unrecognised tax
benefits. FIN 48 applies to the group’s 2008 financial. The group
is currently in the process of evaluating the impact, if any, that
the adoption of FIN 48 will have on the consolidated financial
statements.
In September 2006, the FASB ratified Emerging Issues Task
Force No 06-01 ‘Accounting for Consideration Given by a
Service Provider to Manufactures or Resellers of Equipment
Necessary for an End-Customer to Receive Service from the
Service Provider’ (‘‘EITF 06-01’’). This guidance requires the
application of EITF 01-09 ‘Accounting for Consideration Given
by a Vendor to a Service provider’s end customer’ (‘‘EITF 01-
09’’), when consideration is given to a reseller or manufacturer
for benefit to the service provider’s end customer. EITF 01-09
requires the consideration given to be recorded as a liability at
the time of the sale of the equipment and, also, provides
guidance for the classification of the expense. EITF 06-01 is
effective for the group’s 2008 financial year. The group is
currently in the process of quantifying the impact, if any, that
the adoption of EITF 01-09 will have on the consolidated
financial statements.
BT Group plc Annual Report & Form 20-F 47
Report of the Directors Financial