Annual Report & Accounts 2012 - Euromoney Institutional Investor ...

Euromoney Institutional Investor PLC Annual Report and Accounts 2012
www.euromoneyplc.com
Notes to the Consolidated
Financial Statements continued
2 Key judgemental areas adopted in preparing these
financial statements continued
Goodwill
Goodwill is impaired where the carrying value of goodwill is higher than
the net present value of future cash flows of those cash generating units to
which it relates. Key areas of judgement in calculating the net present value
are the forecast cash flows, the long-term growth rate of the applicable
businesses and the discount rate applied to those cash flows. Goodwill
held on the Statement of Financial Position at September 30 2012 was
£333.1 million (2011: £336.6 million).
Deferred consideration
The group often pays for a portion of the equity acquired at a future date.
This deferred consideration is contingent on the future results of the entity
acquired and applicable payment multipliers dependent on those results.
The initial amount of the deferred consideration is recognised as a liability
in the Statement of Financial Position. Each period end management
reassess the amount expected to be paid and any changes to the initial
amount are recognised as a finance income or expense in the Income
Statement. Significant management judgement is required to determine
the amount of deferred consideration that is likely to be paid, particularly
in relation to the future profitability of the acquired business.
Acquisition option commitments
The group is party to a number of put and call options over the remaining
non-controlling interests in some of its subsidiaries. IAS 39 ‘Financial
Instruments: Recognition and Measurement’ requires the discounted
present value of these acquisition option commitments to be recognised
as a liability on the Statement of Financial Position with a corresponding
decrease in reserves. The discounts are unwound as a notional interest
charge to the Income Statement. Key areas of judgement in calculating
the discounted present value of the options are the expected future cash
flows and earnings of the business, the period remaining until the option
is exercised and the discount rate. At September 30 2012 the discounted
present value of these acquisition option commitments was £7.9 million
(2011: £11.0 million).
Share-based payments
The group makes long-term incentive payments to certain employees.
These payments are measured at their estimated fair value at the date of
grant, calculated using an appropriate option pricing model. The fair value
determined at the grant date is expensed on a straight-line basis over the
expected vesting period, based on the estimate of the number of shares
that will eventually vest. The key assumptions used in calculating the fair
value of the options are the discount rate, the group’s share price volatility,
dividend yield, risk free rate of return, and expected option lives.
These assumptions are set out in note 24. Management regularly perform
a true-up of the estimate of the number of shares that are expected to
vest, which is dependent on the anticipated number of leavers.
The directors regularly reassess the expected vesting period. A plan that
vests earlier than originally estimated results in an acceleration of the fair
value expense of the plan recognised in the Income Statement at the time
the reassessment occurs. Equally, a plan that vests later than previously
estimated results in a credit to the Income Statement at the date of
reassessment.
The charge for long-term incentive payments for the year ended
September 30 2012 is £6.3 million (2011: £16.1 million).
Defined benefit pension scheme
The surplus or deficit in the defined benefit pension scheme that is
recognised through the Statement of Comprehensive Income is subject
to a number of assumptions and uncertainties. The calculated liabilities of
the scheme are based on assumptions regarding salary increases, inflation
rates, discount rates, the long-term expected return on the scheme’s assets
and member longevity. Details of the assumptions used are shown in note
27. Such assumptions are based on actuarial advice and are benchmarked
against similar pension schemes.
Taxation
The group’s tax charge on ordinary activities is the sum of the total
current and deferred tax charges. The calculation of the group’s total
tax charge necessarily involves a degree of estimation and judgement in
respect of certain items whose tax treatment cannot be finally determined
until resolution has been reached with the relevant tax authority or, as
appropriate, through a formal legal process. The final resolution of some
of these items may give rise to material profit and loss and/or cash flow
variances.
The group is a multi-national group with tax affairs in many geographical
locations. This inherently leads to a higher than usual complexity to the
group’s tax structure and makes the degree of estimation and judgement
more challenging. The resolution of issues is not always within the control
of the group and it is often dependent on the efficiency of the legislative
processes in the relevant taxing jurisdictions in which the group operates.
Issues can, and often do, take many years to resolve. Payments in respect
of tax liabilities for an accounting period result from payments on account
and on the final resolution of open items. As a result, there can be
substantial differences between the tax charge in the Income Statement
and tax payments.
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