BT 2016 Annual Report Download - page 164

170 BT Group plc
Annual Report 2016
Notes to the consolidated financial
statements
1. Basis of preparation
Preparation of the nancial statements
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 (the
IASB). The consolidated financial statements are prepared on a
going concern basis.
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. The
consolidated financial statements are presented in Sterling, the
functional currency of BT Group plc, the parent company.
New and amended accounting standards adopted with
no signicant impact on the group
The group has applied the following standards and amendments
for the first time for its annual reporting period commencing
1 April 2015:
– Annual Improvements to IFRSs – 2010–12 Cycle and 2011–13
Cycle.
– Defined Benefit Plans: Employee contributions – Amendments
to IAS 19.
The adoption of these amendments did not have any impact on
the current or prior periods.
New and amended accounting standards that have
been issued but are not yet effective
The following standards have been issued and are effective for
accounting periods ending on or after 1 April 2016 and are
expected to have an impact on the group financial statements.
IFRS 15 ‘Revenue from Contracts with Customers’
In May 2014, IFRS 15 ‘Revenue from Contracts with Customers’
was issued and will be effective for periods beginning on or after
1 January 2018, following the July 2015 decision to delay the
effective date by one year. For the group, transition to IFRS 15
will take place on 1 April 2018. Quarterly results in the 2018/19
financial year will be IFRS 15 compliant, with the first Annual
Report and Form 20-F published in accordance with IFRS 15
being the 31 March 2019 report.
IFRS 15 sets out the requirements for recognising revenue from
contracts with customers. The standard requires entities to
apportion revenue earned from contracts to individual promises,
or performance obligations, on a relative standalone selling price
basis, based on a five-step model.
The group is still in the process of quantifying the implications of
this standard, however we expect the following indicative impacts:
– Currently, the group recognises connections revenue upon
performance of the connection activity. The transition to IFRS15
will result in this revenue being deferred and recognised on a
straight-line basis over the associated line/circuit contractual
period. This leads to the recognition of what is known as a
contract liability – a liability arising from secured revenue flows –
on the balance sheet.
– Under the current accounting policy, revenue recognised in
relation to equipment and mobile handsets is based on the
corresponding customer charge when the asset is transferred
to the customer. Generally customer premises equipment is
provided for free, and mobile handsets are either provided for
free or for a small upfront charge. Under IFRS 15, additional
revenue will be allocated to all equipment and handsets with
reference to the asset’s relative standalone value within the
contract, regardless of contract pricing. As a result, on adoption
of IFRS 15, there will be an acceleration of revenue for these
items, with a corresponding reduction in ongoing service revenue
over the contract period. The difference between the revenue
and the customer charge will be recognised as a contract asset
– a receivable arising from secured cash flows – on the balance
sheet.
– Sales commissions and other third party acquisition costs
resulting directly from securing contracts with customers are
currently expensed when incurred. IFRS 15 will require these
costs of acquiring contracts to be recognised as an asset when
incurred, to be expensed over the associated contract period.
– IFRS 15 will also result in some contract fulfilment costs which
are currently expensed at a point in time to be deferred on the
balance sheet where they relate to a performance obligation
which is satisfied over time.
– IFRS15 gives far greater detail on how to account for contract
modifications than current revenue standards IAS18 and
IAS11. Changes must be accounted for either as a retrospective
change (creating either a catch up or deferral of past revenues),
prospectively with a reallocation of revenues amongst identified
performance obligations, or prospectively as separate contracts
which will not require any reallocation.
– There will be a corresponding effect on tax liabilities in relation to
all of the above impacts.
The group is continuing its analysis of the expected impacts of
transition to IFRS 15.
IFRS 9 ‘Financial instruments’
IFRS 9 was published in July 2014 and will be effective for BT
from 1 April 2018 subject to EU endorsement. It is applicable to
financial assets and financial liabilities, and covers the classification,
measurement, impairment and de-recognition of financial assets
and financial liabilities together with a new hedge accounting
model.
We do not expect this to have a material impact on our results,
with the key changes for BT being around documentation of
policies, hedging strategy and new hedge documentation.
However, the provision for lifetime expected losses on all financial
assets will be reviewed as part of quantifying the impact of the
standard.
IFRS 16 ‘Leases’
IFRS 16 was published in January 2016 and will be effective for
BT from 1 April 2019, replacing IAS17 ‘Leases’ subject to EU
endorsement. The standard requires lessees to recognise assets and
liabilities for all leases unless the lease term is 12 months or less or
the underlying asset is of low value.