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ix US
GAAP developments
In December
2004, the FASB issued Statement of Financial Accounting Standards
No. 123R (SFAS 123R) “Share-Based Payment” which revises
SFAS 123 and supersedes APB 25. SFAS 123R requires that the cost
of all share-based payment transactions be recognised in the financial
statements. SFAS 123R also establishes fair value as the measurement
method in accounting for share-based payments to employees. BT
adopted SFAS 123R on 1 April 2005 using the modified prospective
transition method. BT estimates the application of the expensing
provisions of SFAS 123R will result in a pre-tax expense of approximately
£45 million in the 2006 financial year subject to additional
grants and awards.
In
December 2004, the FASB issued Statement of Financial Accounting
Standards No. 153 (SFAS 153) “Exchanges of Non-monetary Assets
– an amendment of APB Opinion No. 29” SFAS 153 addresses
the measurement of exchanges of non-monetary assets. It eliminates
the exception from fair value measurement for non-monetary exchanges
of similar productive assets in paragraph 21(b) of APB Opinion
No. 29 “Accounting for Non-monetary Transactions” and
replaces it with an exception for exchanges that do not have commercial
substance. A non-monetary exchange has commercial substance if
the future cash flows of the entity are expected to change significantly
as a result of the exchange. As required by SFAS 153, we will
adopt this new accounting standard effective 1 July 2005. The
adoption of SFAS 153 is not expected to have a material impact
on our financial position, results of operations or cash flows.
In
November 2004, the FASB issued Statement of Financial Accounting
Standards No.151 (SFAS 151), “Inventory Costs – an amendment
of ARB No. 43, Chapter 4”, which clarifies that abnormal
amounts of idle facility expense, freight, handling costs, and
wasted material (spoilage) should be recognised as a current period
expense. In addition, SFAS 151 requires that allocation of
fixed production overhead to the costs of conversion be based
on the normal capacity of the production facilities. SFAS 151
is effective for fiscal years beginning after 15 June 2005. BT
does not believe that the implementation of this standard will
have a material impact on its financial position, results of operations
or cash flows.
In September 2004, the
EITF reached a consensus on EITF Issue No. 02-14 ‘Whether an
Investor Should Apply the Equity Method of Accounting to Investments
Other Than Common Stock’, in which the Task Force reached the
consensus that an investor that has the ability to exercise significant
influence over the operating and financial policies of the investee
should apply the equity method of accounting when it has an investment
in common stock and/or an investment that is in-substance common
stock. The consensus of this EITF is to be applied in reporting
periods beginning after September 15, 2004. We do not believe the
adoption of this standard will have a material impact on our financial
position, results of operations or cash flows.
In
October 2004, the EITF reached a consensus on Issue No. 04-1 ‘Accounting
for Pre-existing Relationships between the Parties to a Business
Combination’ (EITF 04-1). EITF 04-1 addresses the accounting
treatment of pre-existing relationships between the parties of a
business combination. The consensus of EITF 04-1 should be applied
to business combinations consummated and goodwill impairment tests
performed in reporting periods beginning after the FASB ratified
the consensus at its October 13, 2004 meeting. The group will adopt
the provisions of EITF 04-1 as of April 1, 2005. If it is determined
that assets of an acquired entity are related to a pre-existing
contractual relationship, thus requiring accounting separate from
the business combination, BT will evaluate whether the acquiring
entity of the group should recognise contractual relationships as
assets separate from goodwill in that business combination.
In
March 2004, the EITF reached a consensus on EITF Issue No. 03-1,
‘The Meaning of Other-Than-Temporary Impairment and Its Application
to Certain Investments’ (EITF 03-1). The guidance prescribed
a three-step model for determining whether an investment is other-than-temporarily
impaired and requires disclosure for unrealized losses on investments.
In September 2004, the FASB issued FASB Staff Position EITF 03-1-1
‘Effective Date of Paragraphs 10-20 of EITF Issue No. 03-1’
(FSP EITF 03-1-1). FSP EITF 03-1-1 delays the effective date for
the measurement and recognition guidance contained in paragraphs
10-20 of EITF 03-1. The disclosure requirements of EITF 03-1 remain
effective for fiscal years ending after June 15, 2004. No effective
date for the measurement and recognition guidance has been established
in FSP EITF 03-1-1. During the period of delay, FSP EITF 03-1-1
states that companies should continue to apply current guidance
to determine if an impairment is other-than-temporary. The adoption
of EITF 03-1, excluding paragraphs 10-20, did not impact the group’s
consolidated position, results of operations or cash flows. The
group will assess the impact of paragraphs 10-20 of EITF 03-1 once
the guidance has been finalised.
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