The group's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the UK (UK GAAP), which differ in certain significant respects from those applicable in the US (US GAAP).

Differences between United Kingdom and United States generally accepted accounting principles The following are the main differences between UK and US GAAP which are relevant to the group's financial statements.

(a) Pension cost

Under UK GAAP, pension costs are accounted for in accordance with UK Statement of Standard Accounting Practice No. 24, costs being charged against profits over employees' working lives. Under US GAAP, pension costs are determined in accordance with the requirements of US Statements of Financial Accounting Standards Nos. 87 and 88. Differences between the UK and US GAAP figures arise from the requirement to use different actuarial methods and assumptions and the method of amortising surpluses or deficits.

(b) Early release schemes and group restructuring

Under UK GAAP, direct severance costs, primarily severance payments and payments in lieu of notice, are generally expensed in the period in which employees leave the group. However, direct severance costs for managers leaving in the context of the group's restructuring programme were charged to the restructuring provision established in the year ended 31 March 1990. The cost of providing incremental pension benefits in respect of workforce reductions are taken into account in determining current and future pension costs, unless the most recent actuarial valuation under UK actuarial conventions shows a deficit. In this case, the costs of providing incremental pension benefits are included in early release scheme expenses in the year in which the employees leave the group.

Under US GAAP, all termination benefits, primarily severance payments, payments in lieu of notice and the associated cost of providing incremental pension benefits, are charged in the period in which employees and the group agree to termination terms.

(c) Capitalisation of interest

Under UK GAAP, the group does not capitalise interest in its financial statements. To comply with US GAAP, the estimated amount of interest incurred whilst constructing major capital projects is included in fixed assets, and depreciated over the lives of the related assets. The amount of interest capitalised is determined by reference to the average interest rates on outstanding borrowings.

(d) Goodwill

Under UK GAAP, goodwill arising from the purchase of subsidiary and associated undertakings is written off on acquisition against retained earnings, but reflected in the net income of the period of disposal as part of the calculation of the gain or loss on divestment. Under US GAAP, such goodwill is held as an intangible asset in the balance sheet and amortised over its useful life and only the unamortised portion is included in the gain or loss recognised at the time of divestment.

(e) Mobile cellular telephone and broadcasting licences

Under UK GAAP, the group adopts the policy of stating mobile cellular telephone and broadcasting licences, held in associated undertakings, at historical cost. No amortisation is provided on these assets unless a permanent diminution in value has occurred. To comply with US GAAP, such intangible assets are being amortised over a period of 40 years.

(f) Acquisition provisions

Under UK GAAP, in assessing the fair value of the net assets of subsidiary and associated undertakings, provisions are made on acquisition for commitments and developments in progress. To comply with US GAAP, the provisions established on acquisition are eliminated, the relevant costs being charged to income in the year in which they arise.

(g) Deferred taxation

Under UK GAAP, provision for deferred taxation is generally only made for timing differences which are expected to reverse. Under US GAAP, deferred taxation is provided on a full liability basis on all temporary differences, as defined in US Statement of Financial Accounting Standards No. 109. Under UK GAAP, changes in corporation tax rates are accounted for in the period in which HM Government announces such changes. Under US GAAP, such changes are effected in the period in which they are enacted.

(h) Dividends

Under UK GAAP, dividends are recorded in the year in respect of which they are declared (in the case of interim dividends) or proposed by the board of directors to the shareholders (in the case of final dividends). Under US GAAP, dividends are recorded in the period in which dividends are declared.