Telstra 2002 Annual Report Download - page 309

Telstra Corporation Limited and controlled entities
306
Notes to the Financial Statements (continued)
Notes to the reconciliations to financial reports prepared using
USGAAP (continued)
30(u) Recently issued United States accounting
standards
Business combinations, goodwill and other intangibles assets
On 29 June 2001, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 141 (SFAS
141) “Business Combinations” and Statement of Financial Accounting
Standards No. 142 (SFAS 142) “Goodwill and Other Intangible Assets”,
effective for fiscal years beginning after 15 December 2001.
SFAS 141 eliminates the pooling-of-interests method of accounting
for business combinations, except for qualifying business
combinations that were initiated prior to 1 July 2001, and changes the
criteria to recognise intangible assets apart from goodwill. SFAS 141 is
effective for any business combinations’ accounted for by the
purchase method that is completed after 30 June 2001.
Under SFAS 142, goodwill and intangible assets with indefinite lives
are no longer amortised but are tested annually, or more frequently if
impairment indicators arise, for impairment. Separable intangible
assets that have finite lives will continue to be amortised over their
useful lives with no imposed time limit.
For goodwill and intangible assets acquired prior to 1 July 2001,
amortisation will continue to be recognised for the reconciliation to
USGAAP until we are required to adopt SFAS 142 on 1 July 2002.
We are not required to amortise goodwill and indefinite lived
intangible assets acquired after 30 June 2001, and the impairment
provisions of SFAS 142 only apply to these assets upon adoption of
SFAS 142 on 1 July 2002.
Goodwill will be required to be tested for impairment at a “reporting
unit” level using a two-step approach. Initially an “implied” fair value
of goodwill is calculated by comparing the fair value of the reporting
unit to its carrying value and then goodwill impairment is recorded if
the reporting unit's goodwill carrying value exceeds the implied fair
value of goodwill. More frequent testing will need to be undertaken
between the annual tests if an event occurs or circumstances change
that more-likely-than-not reduce the fair value of a reporting unit
below its carrying value. An indefinite lived intangible asset is
required to be tested for impairment between the annual tests if an
event occurs or circumstances change indicating the asset might be
impaired.
The impact of adoption of SFAS 141 and SFAS 142 on the reconciliation
of net income will be an increase to net income by goodwill expense
measured and reported under USGAAP by approximately $139 million
for controlled entities and approximately $41 million for joint venture
entities each year. This is based on the fiscal 2002 goodwill
amortisation expense and has not taken into account the additional
40% acquisition of RWC.
Management have assessed the impact on adoption relating to the
performance of the annual impairment tests for goodwill and believe
that an impairment will exist for the RWC goodwill that was
previously written off on acquisition under AGAAP but reversed under
USGAAP. Refer note 30(r). Apart from this adjustment, there are no
other impairments expected to be recorded on the adoption of SFAS
141/142.
Accounting for the Impairment of Long Lived Assets
In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144 (SFAS 144) “Accounting for the Impairment of Long
Lived Assets”, effective for fiscal years beginning after 15 December
2001. SFAS 144 addresses the financial accounting and reporting for
the impairment of long-lived assets and for long-lived assets to be
disposed of. We are required to adopt SFAS 144 from 1 July 2002.
Management have not yet determined the effect, if any, the adoption
of SFAS 144 will have on the financial position, results of operations or
cash flows of the Company, other than the reclassification of assets
held for sale as described in note 30(a).
Accounting for Costs Associated with Exit or Disposal Activities
In July 2002, the FASB issued Statement of Financial Accounting
Standards No. 146 (SFAS 146) “Accounting for Costs Associated with
Exit or Disposal Activities”, effective for fiscal years beginning after 31
December 2002. SFAS 146 requires that a liability for a cost that is
associated with an exit or disposal activity be recognised when the
liability is incurred. In SFAS 146, the FASB acknowledges that an
entity's commitment to a plan does not, by itself, create a present
obligation to other parties that meets the definition of a liability.
SFAS 146 also establishes that fair value is the objective for the initial
measurement of the liability. Management have not yet determined
the effect, if any, the adoption of SFAS 146 will have on our financial
position, results of operations or cash flows.
30. United States generally accepted accounting principles disclosures (continued)