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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
3 Critical accounting estimates and judgements
Estimates and judgements of management are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
3.1 Critical accounting estimates and assumptions
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below:
(i) Provision for bad and doubtful debts
A provision for bad and doubtful trade receivables is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, default or delinquency in payments and industry trends are considered indicators that the trade receivable is impaired. Management will revise the basis to increase the provision for bad and doubtful debts where the actual recoveries are less than previously estimated, or it will write-off the trade receivables that have been determined unrecoverable.
(ii) Useful lives of Plant and Equipment
Management determines the estimated useful lives and related depreciation charges for its plant and equipment which comprise mainly the switching and other network equipment. This estimate is based on projected product lifecycles of the assets of its main business segments. It could change significantly as a result of technical innovations and competitor actions in response to severe industry cycles. Management will increase the depreciation charge where useful lives are less than previously estimated lives, or it will write-off or write-down technically obsolete or non-strategic assets that have been abandoned or sold.
(iii) Impairment of goodwill
The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in Note 2.6. The recoverable amounts of cash generating units have been determined based on value-in-use calculations. These calculations require the use of estimates (Note 16).
No impairment charge requiring adjustment to the Consolidated financial statements arose in the cash generating units during the course of the year 2008.
(iv) Defined benefit obligations
The present value of the defined benefit plan obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost (income) for defined benefit plan include the discount rate. Any changes in these assumptions will impact the carrying amount of defined benefit plan obligations.
The Group determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the defined benefit plan obligations. In determining the appropriate discount rate, the Group considers the interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability.
Other key assumptions for defined benefit
plan obligations are based in part on current market conditions. Additional information is disclosed in Note 26 to these Consolidated financial statements.
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