BT 2008 Annual Report Download - page 92

BT Group plc Annual Report & Form 20-F 91
when it is demonstrably committed to the affected employees
leaving the group.
(xv) Post retirement benefits
The group operates a funded defined benefit pension plan,
which is administered by an independent trustee, for the
majority of its employees.
The group’s net obligation in respect of defined benefit
pension plans is calculated separately for each scheme by
estimating the amount of future benefit that employees have
earned in return for their service to date. That benefit is
discounted to determine its present value, and the fair value of
any plan assets is deducted. The discount rate used is the yield
at the balance sheet date on AA credit rated bonds that have
maturity dates approximating the terms of the group’s
obligations. The calculation is performed by a qualified actuary
using the projected unit credit method. The net obligation
recognised in the balance sheet is the present value of the
defined benefit obligation less the fair value of the plan assets.
The income statement charge is allocated between an
operating charge and a net finance charge. The operating
charge reflects the service cost which is spread systematically
over the working lives of the employees. The net finance charge
reflects the unwinding of the discount applied to the liabilities
of the plan, offset by the expected return on the assets of the
plan, based on conditions prevailing at the start of the year.
Actuarial gains and losses are recognised in full in the period
in which they occur and are presented in the statement of
recognised income and expense.
Actuarial valuations of the main defined benefit plan are
carried out by an independent actuary as determined by the
trustees at intervals of not more than three years, to determine
the rates of contribution payable. The pension cost is
determined on the advice of the group’s actuary, having regard
to the results of these trustee valuations. In any intervening
years, the actuaries review the continuing appropriateness of the
contribution rates.
The group also operates defined contribution pension schemes
and the income statement is charged with the contributions
payable.
(xvi) Share based payments
The group has a number of employee share schemes, share
option and award plans under which it makes equity settled
share based payments to employees. The fair value of options
and awards granted is recognised as an employee expense after
taking into account the group’s best estimate of the number of
awards expected to vest allowing for non market and service
conditions. Fair value is measured at the date of grant and is
spread over the vesting period of the award. The fair value of
options and awards granted is measured using either the
Binomial or Monte Carlo model, whichever is most appropriate
to the award. Any proceeds received are credited to share
capital and share premium when the options are exercised. The
group has applied IFRS 2 ‘Share based payment’ retrospectively
to all options and awards granted after 7 November 2002 and
not fully vested at 1 January 2005.
(xvii) Taxation
Current tax, including UK corporation tax and foreign tax, is
provided at amounts expected to be paid (or recovered) using
the tax rates and laws that have been enacted or substantially
enacted by the balance sheet date.
Deferred tax is recognised, using the liability method, in
respect of temporary differences between the carrying amount
of the group’s assets and liabilities and their tax base.
Deferred tax liabilities are offset against deferred tax assets
within the same taxable entity or qualifying local tax group. Any
remaining deferred tax asset is recognised only when, on the
basis of all available evidence, it can be regarded as probable
that there will be suitable taxable profits, within the same
jurisdiction, in the foreseeable future against which the
deductible temporary difference can be utilised.
Deferred tax is determined using tax rates that are expected
to apply in the periods in which the asset is realised or liability
settled, based on tax rates and laws that have been enacted or
substantially enacted by the balance sheet date.
Deferred tax is provided on temporary differences arising on
investments in subsidiaries, associates and joint ventures, except
where the timing of the reversal of the temporary difference can
be controlled and it is probable that the temporary difference
will not reverse in the foreseeable future.
Current and deferred tax are recognised in the income
statement, except when the tax relates to items charged or
credited directly in equity, in which case the tax is also
recognised in equity.
(xviii) Advertising and marketing
The costs associated with the group’s advertising and marketing
activities are expensed within other operating costs as incurred.
(xix) Dividends
Final dividends are recognised as a liability in the year in which
they are declared and approved by the company’s shareholders
in general meeting. Interim dividends are recognised when they
are paid.
(xx) Provisions
Provisions are recognised when the group has a present legal or
constructive obligation as a result of past events, it is more likely
than not that an outflow of resources will be required to settle
the obligation and the amount can be reliably estimated.
Financial liabilities within provisions are initially recognised at
fair value and subsequently carried at amortised cost using the
effective interest method. Provisions are discounted to present
value where the effect is material.
Certain comparative amounts have been adjusted to conform
with the presentation adopted in 2008, resulting in a
reclassification of £45 million from other payables to non-
current provisions.
(xxi) Financial instruments
Recognition and derecognition of financial assets and
financial liabilities
Financial assets and financial liabilities are recognised when the
group becomes party to the contractual provisions of the
instrument. Financial assets are derecognised when the group no
longer has rights to cash flows, the risks and rewards of
ownership or control of the asset. Financial liabilities are
derecognised when the obligation under the liability is
discharged, cancelled or expires. In particular, for all regular way
purchases and sales of financial assets, the group recognises the
financial assets on the settlement date, which is the date on
which the asset is delivered to or by the group.
Financial assets
Financial assets at fair value through income statement
A financial asset is classified in this category if acquired
principally for the purpose of selling in the short term (held for
trading) or if so designated by management. Financial assets
held in this category are initially recognised and subsequently
measured at fair value, with changes in value recognised in the
Financial statements