BT 2007 Annual Report Download - page 79

(I) BASIS OF PREPARATION OF THE FINANCIAL
STATEMENTS
These consolidated financial statements have been prepared in
accordance with applicable law and IFRSs as adopted by the EU.
For BT there are no differences between IFRSs as adopted for
use in the EU and full IFRS as published by the IASB. The
financial statements have been prepared under the historical
cost convention, modified for the revaluation of certain financial
assets and liabilities at fair value.
Where there are significant differences to US GAAP, these
have been described in note 35.
The policies set out below have been consistently applied to
all years presented with the exception of those relating to
financial instruments under IAS 32, ‘Financial Instruments:
Disclosure and Presentation’ and IAS 39, ‘Financial Instruments:
Recognition and Measurement’, which have been applied with
effect from 1 April 2005.
Certain comparative balance sheet amounts for the 2006
financial year have been reclassified to conform with the
presentation adopted in the 2007 financial year. These include
£305 million which has been reclassified from prepayments to
non current assets at 31 March 2006 in respect of costs relating
to the initial set up, transition or transformation phase of long
term networked IT services contracts. In addition, £267 million
has been reclassified from property, plant and equipment to
intangible assets at 31 March 2006 in respect of IT software
application assets.
The preparation of financial statements in conformity with
IFRSs requires the use of accounting estimates. It also requires
management to exercise its judgement in the process of
applying the group’s accounting policies. The areas involving a
higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the consolidated
financial statements, are disclosed below in ‘Critical accounting
estimates and key judgements’.
The group’s income statement and segmental analysis
separately identifies trading results before significant one-off or
unusual items (termed ‘specific items’), a non GAAP measure.
This is consistent with the way that financial performance is
measured by management and assists in providing a meaningful
analysis of the trading results of the group. The directors believe
that presentation of the group’s results in this way is relevant to
an understanding of the group’s financial performance as
specific items are significant one-off or unusual in nature and
have little predictive value. Furthermore, the group consider a
columnar presentation to be appropriate as it improves the
clarity of the presentation and is consistent with the way that
financial performance is measured and reported to the board of
directors. Specific items may not be comparable to similarly
titled measures used by other companies. Items which have been
considered significant one-off or unusual in nature include
disposals of businesses and investments, business restructuring,
asset impairment charges and property rationalisation
programmes. The directors intend to follow such a presentation
on a consistent basis in the future. Specific items for the current
and prior years are disclosed in note 4.
Accounting policies in respect of the parent company, BT
Group plc, are set out on page 145. These are in accordance
with UK GAAP.
(II) BASIS OF CONSOLIDATION
The group financial statements consolidate the financial
statements of BT Group plc (‘‘the company’’) and entities
controlled by the company (its subsidiaries) and incorporate its
share of the results of jointly controlled entities (joint ventures)
and associates using the equity method of accounting.
The results of subsidiaries acquired or disposed of during the
year are consolidated from the effective date of acquisition or
up to the effective date of disposal, as appropriate. Where
necessary, adjustments are made to the financial statements of
subsidiaries, associates and joint ventures to bring the
accounting policies used in line with those used by the group.
All intra-group transactions, balances, income and expenses are
eliminated on consolidation.
Investments in associates and joint ventures are initially
recognised at cost. Subsequent to acquisition the carrying value
of the group’s investment in associates and joint ventures
includes the group’s share of post acquisition reserves, less any
impairment in the value of individual assets. The income
statement reflects the group’s share of the results of operations
after tax of the associate or joint venture.
The group’s principal operating subsidiaries and associate are
detailed on page 148.
(III) REVENUE
Revenue represents the fair value of the consideration received
or receivable for communication services and equipment sales,
net of discounts and sales taxes. Revenue from the rendering of
services and sale of equipment is recognised when it is probable
that the economic benefits associated with a transaction will
flow to the group and the amount of revenue and the
associated costs can be measured reliably. Where the group acts
as agent in a transaction it recognises revenue net of directly
attributable costs.
Revenue arising from separable installation and connection
services is recognised when it is earned, upon activation.
Revenue from the rental of analogue and digital lines and
private circuits is recognised evenly over the period to which the
charges relate. Revenue from calls is recognised at the time the
call is made over the group’s network.
Subscription fees, consisting primarily of monthly charges for
access to broadband and other internet access or voice services,
are recognised as revenue as the service is provided. Revenue
arising from the interconnection of voice and data traffic
between other telecommunications operators is recognised at
the time of transit across the group’s network.
Revenue from the sale of peripheral and other equipment is
recognised when all the significant risks and rewards of
ownership are transferred to the buyer, which is normally the
date the equipment is delivered and accepted by the customer.
Revenue from long term contractual arrangements is
recognised based on the percentage of completion method. The
stage of completion is estimated using an appropriate measure
according to the nature of the contract. For long term services
contracts revenue is recognised on a straight line basis over the
term of the contract. However, if the performance pattern is
other than straight line, revenue is recognised as services are
provided, usually on an output or consumption basis. For fixed
price contracts, including contracts to design and build software
Consolidated financial statements
Accounting policies
78 BT Group plc Annual Report & Form 20-F