Carphone Warehouse 2007 Annual Report Download - page 72

Notes to the Company Financial Statements
The Carphone Warehouse Group PLC Annual Report 2007
68
1 Accounting policies
Basis of preparation
The financial statements have been prepared in accordance with applicable
United Kingdom accounting standards under the historical cost convention,
as modified by FRS26 ‘Financial Instruments: Measurement’. The principal
accounting policies set out below have been applied consistently throughout
the current and preceding period, except for the amendment to FRS26 and the
accounting interpretation to FRS20 ‘Group and Treasury Share Transactions’
that came into force in the current financial period, which are as follows:
FRS26 ‘Financial Instruments: Measurement’
The accounting policy relating to financial instruments has remained consistent
with the prior period except for a change in the accounting treatment of
financial guarantee contracts arising from the adoption of the Amendment to
FRS26, which was issued by the Accounting Standards Board in April 2005
(see Financial guarantees below).
UITF44 ‘FRS20 – Group and Treasury Share Transactions’
The Company has adopted UITF44 and in accordance with the interpretation
has restated the balance sheet with effect from 3 April 2005. The UITF
requires that the issue of options over the Company’s shares to its subsidiary
undertakings represents a capital contribution, resulting in an addition
to investments and a corresponding increase in shareholders’ equity
(see Share-based payments below).
The Carphone Warehouse Group PLC consolidated financial statements for the
period ended 31 March 2007 contain a consolidated statement of cashflows.
Consequently, the Company has applied the exemption in FRS1 ‘Cash Flow
Statements’ not to present its own cash flow statement.
Investments
Investments held in Group companies are recognised at cost, being the fair
value of the consideration, acquisition charges associated with the investment,
and capital contributions by way of share-based payments, less any provision
for permanent diminution in value.
Investments held in non-Group companies are treated as available-for-sale and
recorded at fair value. Changes in fair value, together with any related deferred
taxation, are taken directly to reserves, and recycled to the profit and loss
account when the investment is sold or is determined to be impaired.
Share-based payments
The Company issues equity settled share-based payments to certain
employees in the Group. Equity settled share-based payments are measured
at fair value at the date of grant, and expensed over the vesting period, based
on the Company’s estimate of the number of shares that will eventually vest.
Fair value is measured by use of a Binomial model for share-based payments
with internal performance criteria (such as Earnings Per Share targets) and a
Monte Carlo model for those with external performance criteria (such as Total
Shareholder Return targets).
For schemes with internal performance criteria, the number of options expected
to vest is recalculated at each balance sheet date, based on expectations of
performance against target and of leavers prior to vesting. The movement in
cumulative expense since the previous balance sheet is recognised in the profit
and loss account, with a corresponding entry in reserves.
For schemes with external performance criteria, the number of options
expected to vest is adjusted only for expectations of leavers prior to vesting.
The movement in cumulative expense since the previous balance sheet is
recognised in the profit and loss account, with a corresponding entry in reserves.
Share-based payments issued by the Company to its subsidiary undertakings
are treated as additions to investments based on the fair value of the grant,
spread over the relevant vesting period, with a corresponding credit to
reserves. Where the Company recharges the cost of share-based payments
to its subsidiary undertakings the investment is reduced accordingly.
Dividends
Dividends receivable from the Company’s subsidiaries are recognised only
when they are approved by shareholders.
Final dividend distributions to the Company’s shareholders are recognised as
a liability in the financial statements in the period in which they are approved
by the Company’s shareholders. Interim dividends are recognised in the period
in which they are paid.
Foreign currency translation
Material transactions in foreign currencies are hedged using forward purchases
or sales of the relevant currencies and are recognised in the financial statements
at the exchange rates thus obtained. Unhedged transactions are recorded at
the exchange rate on the date of the transaction. Material monetary assets and
liabilities denominated in foreign currencies are hedged, mainly using forward
foreign exchange contracts to create matching liabilities and assets, and are
retranslated at each balance sheet date. Hedge accounting as defined by
FRS26 has been applied in the period.
Financial guarantees
The Company has guaranteed certain commitments given by subsidiary
undertakings. The fair value of any such guarantees is amortised through the
profit and loss account on a straight-line basis over the guarantee period.