G4S Annual Report and Accounts 2011

Overview Strategic review Performance
Notes to the consolidated financial statements continued
4 Accounting estimates, judgements and assumptions
The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the
application of the group’s accounting policies, which are described in note 3, with respect to the carrying amounts of assets and liabilities at the date of the
financial statements, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and
expenses during the reporting period. These judgements, estimates and associated assumptions are based on historical experience and various other
factors that are believed to be reasonable under the circumstances, including current and expected economic conditions, and in some cases, actuarial
techniques. Although these judgements, estimates and associated assumptions are based on management’s best knowledge of current events and
circumstances, the actual results may differ.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the
estimate is revised and in any future periods affected.
The judgements, estimates and assumptions which are of most significance to the group are detailed below:
Valuation of acquired businesses
The initial accounting for an acquisition involves identifying and determining the fair values to be assigned to identifiable assets, liabilities and contingent
liabilities as well as the acquisition cost. In some instances, this initial accounting can only be determined provisionally by the end of the period in which the
acquisition is effected because the fair values and/or the cost is not known with full certainty. In such an event, the initial accounting can be completed using
provisional values with any adjustments to those provisional values being completed within 12 months of the acquisition date. Additionally, in determining
the fair value of acquisition-related intangible assets, in the absence of market prices for similar assets, valuation techniques are applied. These techniques
use a variety of estimates including projected future results and expected future cash flows, discounted using the weighted average cost of capital relevant
to the acquisition. Furthermore, management make an assessment of the useful economic life of acquired intangible assets upon recognition. Full details of
the fair values of assets and liabilities of acquired businesses are presented in note 17.
Assessment of the recoverable amounts in respect of assets tested for impairment
The group tests tangible and intangible assets, including goodwill, for impairment on an annual basis or more frequently if there are indications that amounts
may be impaired. The impairment analysis for such assets is based principally upon discounted estimated future cash flows from the use and eventual
disposal of the assets. Such an analysis includes estimation of future results, cash flows, any annual growth rates and judgement as to the appropriate
discount rates. The full methodology and results of the group’s impairment testing is presented in note 19.
Valuation of retirement benefit obligations
The valuation of defined retirement benefit schemes is arrived at using the advice of qualified independent actuaries who use the projected unit credit
method for determining the group’s obligations. This methodology requires the use of a variety of assumptions and estimates, including the appropriate
discount rate, the expected return on scheme assets, mortality assumptions, future service and earnings increases of employees and inflation. Full details of
the group’s retirement benefit obligations, including an analysis of the sensitivity of the calculations to the key assumptions are presented in note 34.
5 Revenue
An analysis of the group’s revenue is as follows:
Notes
Continuing operations
Sale of goods 218 125
Rendering of services 7,080 6,925
Revenue from construction contracts 224 208
Revenue from continuing operations as presented in the consolidated income statement 6 7,522 7,258
2011
£m
2010
£m
Discontinued operations
Sale of goods 3 1
Rendering of services 120 141
Revenue from construction contracts 3 –
Revenue from discontinued operations 6, 7 126 142
Other operating income
Interest income 18 11
Expected return on defined retirement benefit scheme assets 93 87
Total other operating income 111 98
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G4S plc
Annual Report and Accounts 2011