2007 Annual Report - Sappi

Notes to the group annual financial statements continued
for the year ended September 2007
2. Accounting policies continued
2.3.11 Provisions
Provisions are recognised when the group has a present legal
or constructive obligation as a result of a past event, in respect
of which it is probable that an outflow of economic benefits will
occur and a reliable estimate can be made of the amount of
the obligation. Where the effect of discounting (time value) is
material, provisions are discounted and the discount rate used
is a pre-tax rate that reflects current market assessments of the
time value of money and, where appropriate, the risks specific
to the liability.
The following specific policies are applied:
• A provision for onerous contracts is recognised when the
expected benefits to be derived by the group from a contract
are lower than the unavoidable cost of meeting the
obligations under the contract.
• A provision for restructuring is recognised only if the group has
created a detailed formal plan and raised a valid expectation,
among those parties directly affected, that the plan will be
carried out, either by having begun implementation or by
publicly announcing the plan’s main features. Future operating
costs or losses are not provided for.
2.3.12 Pension plans and other
post-retirement benefits
(i) Post-employment benefits – pensions
Defined-benefit and defined-contribution plans have been
established for eligible employees of the group, with the assets
held in separate trustee-administered funds.
The projected unit credit method is used in determining the
present value of the defined-benefit obligation and related
current service cost. The current service cost in respect of
defined-benefit plans is recognised as an expense in profit or
loss in the current period.
The projected unit credit method is defined as an actuarial
valuation method that sees each period of service as giving rise
to an additional unit of benefit entitlement and measures each
unit separately to build up the final obligation. The current
service cost is defined as the increase in the present value of the
defined-benefit obligation resulting from employee service in the
current period.
The group’s policy is to recognise actuarial gains and losses,
which can arise from differences between expected and actual
outcomes or changes in actuarial assumptions, these are
recognised immediately in the consolidated statement of
recognised income and expense. Any increase in the present
value of plan liabilities expected to arise from employee service
during the period is charged to operating profit. The expected
return on plan assets and the expected increase during the
period in the present value of plan liabilities are included in
investment income and interest expense.
Gains or losses on the curtailment or settlement of a definedbenefit
plan are recognised in the income statement when
the group is demonstrably committed to the curtailment or
settlement. Past service costs are recognised immediately to
the extent that the benefits are already vested, and otherwise
are amortised on a straight-line basis over the vesting period
of those benefits.
The effects of plan amendments in respect of retired employees
in defined-benefit plans are measured at the present value of
the effect of the amendments and are recognised as an
expense or income in profit or loss for the peiod. The amount
recognised in the balance sheet represents the present value of
the defined-benefit obligation adjusted for unrecognised past
service costs, reduced by the fair value of the plan assets.
Where the calculation results in a benefit to the group, the
recognised asset is limited to the net total of past service costs
and the present value of any future refunds from the plan or
reductions in future contributions to the plan.
Contributions in respect of defined-contribution plans are
recognised as an expense in profit or loss as incurred.
(ii) Post-employment benefits – medical
The projected unit credit method is used in determining the
present value of post-employment medical benefits. The
estimated cost of retiree health care and life insurance benefit
plans is accrued during the participants’ actual service periods
up to the dates they become eligible for full benefits. Experience
adjustments and plan amendments in respect of existing
employees are treated in a similar manner as described in the
preceding paragraph, in the statement of recognised income
and expenditure.
(iii) Workmen’s compensation insurance
Sappi Fine Paper North America has a combination of selfinsured
and insured workers’ compensation programmes. The
self-insurance claim liability for workers’ compensation is based
on claims reported and actuarial estimates of adverse
developments and claims incurred but not reported.
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