Vodafone 2002 Annual Report Download - page 134

Vodafone Group Plc Annual Report & Accounts and Form 20-F Notes to the Consolidated Financial Statements132
Notes to the Consolidated Financial Statements continued
37. GAAP information continued
Recently issued accounting standards
SFAS No. 141, “Business Combinations”and SFAS No. 142, “Goodwill and Other Intangible Assets”
In July 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141, “Business Combinations” and SFAS No. 142, “Goodwill and Other
Intangible Assets”. SFAS No. 141 requires that all business combinations completed after 30 June 2001 be accounted for using the purchase method and
requires the separate recognition of intangible assets where they meet one of two criteria – the contractual-legal criterion or the separability criterion. SFAS
No. 141 is not anticipated to have a significant impact on the Group’s existing accounting policies under US GAAP. SFAS No. 142 requires that goodwill and
other intangible assets with indefinite lives, not be amortised in the consolidated financial statements but be reviewed at least annually for impairment at the
reporting unit level. SFAS No. 142 is effective for financial years beginning after 15 December 2001 and, accordingly, becomes effective for the Group in the
financial year beginning 1 April 2002. However, certain provisions of SFAS No. 142, including the non-amortisation of goodwill and other intangible assets
with indefinite lives, should be adopted earlier and applied in respect of acquisitions completed after 30 June 2001. The Group has adopted these provisions
in its US GAAP results for the year ended 31 March 2002, the impact of which was to increase US GAAP net income by £6m. In respect of the Group’s
results for the year ending 31 March 2003, the adoption of SFAS No. 142 is likely to have a material effect on the Group’s financial position and results
under US GAAP, as goodwill is no longer amortised, and is estimated to increase US GAAP income by between £900m and £1,100m. In accordance with
the requirements of SFAS No. 142, the Group is currently undertaking an impairment review, effective 1 April 2002.
SFAS No. 143, “Accounting for Asset Retirement Obligations”
In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations”. SFAS No. 143 will be effective for financial years beginning
after 15 June 2002 and requires that the fair value of a liability for an asset retirement obligation be recognised in the period in which it is incurred if a
reasonable estimate of fair value can be made. The associated asset retirement costs are capitalised as part of the carrying amount of the long-lived asset.
The impact of SFAS No. 143 on the Group’s financial position and results under US GAAP is not expected to be significant.
SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”
In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. SFAS No. 144, which will be effective
for financial years beginning after 15 December 2001, addresses financial accounting and reporting for the impairment or disposal of long lived assets and
supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of” and the accounting and
reporting requirements of APB Opinion No. 30, “Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business”.
The Group is in the process of analysing the impact of SFAS No. 144 on its Consolidated Financial Statements.
Additional financial information
Financial instruments: General
The principal financial risks arising from the Group’s activities are funding risk, interest rate risk, currency risk and counterparty risk. The Group manages
these risks by a variety of methods, including the use of a number of financial instruments. All transactions in derivative financial instruments are undertaken
for risk management purposes only by specialist treasury personnel. No instruments are held by the Group for trading purposes. The Group has a central
treasury function which provides a centralised service to the Group for funding, foreign exchange, interest rate management and counterparty risk
management, with operations, including transactions in derivative financial instruments, conducted within a policy framework approved by the Board.
Interest rate risk
The Group’s main interest rate exposures are to pounds sterling, euro and yen interest rates, being the functional currencies of the countries in which the
Group has the majority of its floating rate borrowings. It is the Group’s interest rate management policy to maintain interest rates on monetary assets and
liabilities on a floating rate basis, however interest rates are fixed when net interest is forecast to have a significant impact on profits. At the end of the year,
38% (2001: 72%) of the Group’s gross borrowings were fixed for a period of at least one year. The term structure of interest rates is managed within limits
approved by the Board, using derivative financial instruments such as interest rate swaps, futures, options and forward rate agreements denominated in
various currencies. At 31 March 2002, the Group had interest rate swaps and futures contracts outstanding with a notional principle value of £18,580m
(2001: £48m). The fair value of these agreements was £64m in excess of their carrying value at 31 March 2002 (2001: £2m).