BT 2010 Annual Report Download - page 96

FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS
94 BT GROUP PLC ANNUAL REPORT & FORM 20-F
Income tax
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. We believe the estimates,
assumptions and judgements are reasonable but this can involve
complex issues which may take a number of years to resolve. The
final determination of prior year tax liabilities could be different
from the estimates reflected in the financial statements and may
result in the recognition of an additional tax expense or tax credit in
the income statement.
The value of the group’s income tax liability is disclosed on the
balance sheet on page 100.
Deferred tax
Deferred tax assets and liabilities require management judgement
in determining the amounts to be recognised. In particular,
judgement is used when assessing the extent to which deferred tax
assets should be recognised with consideration given to the timing
and level of future taxable income.
The carrying value of the group’s deferred tax assets and
liabilities are disclosed in notes 29 and 22, respectively.
Goodwill
The recoverable amount of cash generating units has been
determined based on value in use calculations. These calculations
require the use of estimates, including management’s expectations
of future revenue growth, operating costs and profit margins for
each cash generating unit.
The carrying value of goodwill and the key assumptions used in
performing the annual impairment assessment are disclosed in
note 12.
Determination of fair values
Certain financial instruments such as investments, derivative
financial instruments and certain elements of loans and
borrowings, are carried on the balance sheet at fair value, with
changes in fair value reflected in the income statement. Fair values
are estimated by reference in part to published price quotations
and in part by using valuation techniques.
The fair values of financial instruments are disclosed in note 32.
Providing for doubtful debts
BT provides services to consumer and business customers, mainly
on credit terms. We know that certain debts due to us will not be
paid through the default of a small number of our customers.
Estimates, based on our historical experience, are used in
determining the level of debts that we believe will not be collected.
These estimates include such factors as the current state of the
economy and particular industry issues.
The value of the provision for doubtful debts is disclosed in
note 17.
Provisions
As disclosed in note 21, the group’s provisions principally relate to
obligations arising from property rationalisation programmes,
restructuring programmes, claims and litigation and regulatory risks.
Under our property rationalisation programmes we have
identified a number of surplus properties. Although efforts are
being made to sub-let this space, this is not always possible given
the current regulatory environment. Estimates have been made of
the cost of vacant possession and of any shortfall arising from any
sub-lease income being lower than the lease costs. Any such
shortfall is recognised as a provision.
In respect of claims, litigation and regulatory risks, the group
provides for anticipated costs where an outflow of resources is
considered probable and a reasonable estimate can be made of the
likely outcome. The ultimate liability may vary from the amounts
provided and will be dependent upon the eventual outcome of any
settlement.
Accounting standards, interpretations and
amendments to published standards
adopted in the year ended 31 March 2010
The following new, revised and amended standards and
interpretations have been adopted in 2010 and have affected the
amounts reported in these financial statements or have resulted in
a change in presentation or disclosure.
Amendment to IFRS 2 ‘Share-based payment – Vesting
Conditions and Cancellations’
The adoption of the amendment to IFRS 2 ‘Share-based payment –
Vesting Conditions and Cancellations’ has resulted in a change in
the group’s accounting policy for share-based payments. The
amendment clarifies that only service and performance conditions
are vesting conditions. Any other conditions are non-vesting
conditions which have to be taken into account to determine the
fair value of the equity instruments granted. In the case that the
award does not vest as a result of a failure to meet a non-vesting
condition that is within the control of either the group or the
counterparty, this must be treated as a cancellation. Cancellations
are treated as accelerated vestings and all remaining future charges
are immediately recognised in the income statement with the credit
recognised directly in equity. Prior to the adoption of the
amendment to IFRS 2, the monthly savings requirement under the
group’s all employee sharesave plans was classified as a vesting
condition and any cancellations made by employees prior to the
normal vesting date resulted in the reversal of all charges
recognised to date.
The amendment to IFRS 2 requires retrospective adoption and
hence prior period comparatives have been restated resulting in an
increase of £110m in the share-based payment charge for 2009
(2008: £nil) and a reduction of 1.4p in basic and diluted loss per
share for 2009 (2008: nil). There was no impact on net assets and
cash flow. There was no material impact on the share-based payment
charge in 2010, following the adoption of the amendment.
IAS 1 (Revised) ‘Presentation of Financial Statements’
IAS 1 (Revised) introduced some changes in the format and content
of the financial statements. In addition, the revised standard
requires the presentation of a third balance sheet as at 1 April 2008
because the group has applied two new accounting policies
retrospectively.
The adoption of the amendment to IAS 1 (Revised) arising from
the Annual Improvements to IFRSs 2007 has also resulted in a
change in accounting policy applied to the classification of
derivatives which have not been allocated to a specific hedge
relationship. Where such derivatives have a maturity of and are
expected to be held for more than twelve months after the
reporting period, they are now presented as non current assets or
liabilities. Prior period balance sheets have been reclassified to be
on a consistent basis. The impact of these changes on the balance
sheet line items is an increase in non current assets as at 31 March
2009 of £86m (31 March 2008: £6m) and a reduction in current
assets as at 31 March 2009 of £86m (31 March 2008: £6m), and a
reduction in current liabilities as at 31 March 2009 of £284m
(31 March 2008: £209m) and an increase in non current liabilities
of £284m (31 March 2008: £209m).