BT 2011 Annual Report Download - page 94

FINANCIAL STATEMENTS
91BT GROUP PLC ANNUAL REPORT & FORM 20-F 2011
FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
Accounting policies
(i) Basis of preparation and presentation of the
financial statements
Compliance with applicable law and IFRS
These consolidated financial statements have been prepared in
accordance with the Companies Act 2006, Article 4 of the IAS
Regulation and International Accounting Standards (IAS) and
International Financial Reporting Standards (IFRS) and related
interpretations, as adopted by the European Union. The
consolidated financial statements are also in compliance with IFRS
as issued by the International Accounting Standards Board.
Accounting convention
The consolidated financial statements are prepared on the historical
cost basis, except for certain financial and equity instruments that
have been measured at fair value.
Presentation of specific items
The group’s income statement and segmental analysis separately
identify trading results before specific items. Specific items are
those that in management’s judgment need to be disclosed by
virtue of their size, nature or incidence. In determining whether an
event or transaction is specific, management considers quantitative
as well as qualitative factors such as the frequency or predictability
of occurrence. This is consistent with the way that financial
performance is measured by management and reported to the
Board and the
Operating Committee 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 identified by virtue of their size,
nature or incidence. Furthermore, the group considers 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 by management and reported to the
Board and the
Operating Committee . Specific items may not be
comparable to similarly titled measures used by other companies.
Items which have been considered to be specific items by virtue of
their size, nature or incidence include disposals of businesses and
investments, business restructuring programmes, asset impairment
charges, property rationalisation programmes and the settlement of
multiple tax years in a single payment. In 2011 net interest on
pensions has been included in specific items because of its volatile
nature, and also BT Global Services contract and financial review
charges in 2009, by virtue of their size and nature. Accordingly,
specific items for comparative periods have been re-presented to
reflect this reclassification. The impact of subsequent changes to the
contract and financial review charges from revisions in estimates and
assumptions are included within trading results before specific
items, and are separately disclosed if considered significant. Specific
items for the current and prior years are disclosed in note 8.
Critical accounting estimates and key judgements
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates. 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 on pages 97 and 98 in Critical
accounting estimates and key judgements.
Composition of the group
The group’s principal operating subsidiaries and associate are
detailed on page 155.
(ii) Basis of consolidation
The group financial statements consolidate the financial statements
of BT Group plc (‘the company’) and its subsidiaries, and they
incorporate its share of the results of associated and joint ventures
using the equity method of accounting.
Accounting for subsidiaries
A subsidiary is an entity that is controlled by another entity, known
as the parent. Control is the power to govern the financial and
operating policies of an entity so as to obtain benefits from its
activities generally accompanied by a shareholding of more than
one half of the voting rights.
Non-controlling interests in the net assets of consolidated
subsidiaries are identified separately from the group’s equity. Non-
controlling interests consist of the amounts of those interests at the
date of the original business combination and non-controlling
share of changes in equity since the date of the combination.
The results of subsidiaries acquired or disposed of during the year
are consolidated from and up to the date of change of control.
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 including any gains or losses, balances,
income or expenses are eliminated in full on consolidation.
Changes in the group’s ownership interests in subsidiaries that do
not result in the group losing control over the subsidiaries are
accounted for as equity transactions. The carrying amounts of the
group’s interests and the non-controlling interests are adjusted to
reflect the changes in their relative interests in the subsidiaries. Any
difference between the amount by which the non-controlling
interests are adjusted and the fair value of the consideration paid or
received is recognised directly in equity.
When the group loses control of a subsidiary, the profit or loss on
disposal is calculated as the difference between (i) the aggregate of
the fair value of the consideration received and the fair value of any
retained interest and (ii) the previous carrying amount of the assets
(including goodwill), and liabilities of the subsidiary and any non-
controlling interests.
Interests in associates and joint ventures
An associate is an entity over which another entity has significant
influence and that is neither a subsidiary nor an interest in a joint
venture. Significant influence is the power to participate in the
financial and operating policy decisions of an entity but is not
control or joint control over those policies.
A joint venture is an entity that is jointly controlled by two or more
entities. Joint control is the contractually agreed sharing of control
over an economic activity, and exists only when the strategic
financial and operating decisions relating to the activity require the
unanimous consent of the parties sharing control.
Investments in associates and joint ventures are initially recognised
at cost. Any excess of the cost of acquisition over the group's share
of the net fair value of the identifiable assets, liabilities and
contingent liabilities of an associate or joint venture at the date of
acquisition is recognised as goodwill, which is included within the
carrying amount of the investment.
Subsequent to acquisition, the carrying value of the group’s
investment in associates and joint ventures includes the group’s share
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