Annual Report PDF - Carphone Warehouse Group plc

www.cpwplc.com 69Notes to the Company Financial Statements1 Accounting policiesBasis of preparationThe financial statements have been prepared in accordance with applicableUnited Kingdom accounting standards under the historical cost convention,as modified by FRS26 ‘Financial Instruments: Measurement’ as detailed below.The following principal accounting policies have been applied consistentlythroughout the period and the preceding period, except as required byaccounting standards that came into force in the current financial period,which are as follows:FRS20 ‘Share-based Payment’Requires that the fair value of options granted, defined at the date of grant,is recognised in the profit and loss account over the vesting period(see Share-based payments below).FRS21 ‘Events After The Balance Sheet Date’Requires that dividends proposed but not yet authorised are not recognisedas assets or liabilities in the financial statements.FRS26 ‘Financial Instruments: Measurement’Requires third-party investments to be recorded at fair value rather than cost.During the period the Company also adopted FRS23 ‘The Effects ofChanges in Foreign Exchange Rates’, FRS25 ‘Financial Instruments:Disclosure and Presentation’, and FRS28 ‘Corresponding Amounts’.The adoption of these standards has not had a significant impacton the Company’s financial statements.InvestmentsAll investments are initially recognised at cost, being the fair value of theconsideration given and including acquisition charges associated withthe investment.The Company adopted FRS26 from 3 April 2005, as a result of which itsthird-party investments are categorised as available-for-sale and recordedat fair value from this date.Changes in fair value, together with any related deferred tax, are takendirectly to reserves, and recycled to the profit and loss account when theinvestment is sold or is determined to be impaired.Share-based paymentsThe Company issues equity settled share-based payments to certainemployees. Equity settled share-based payments are measured at fair valueat the date of grant, and expensed over the vesting period, based on theCompany’s estimate of the number of shares that will eventually vest.Fair value is measured by use of a Binomial model for share-based paymentswith internal performance criteria (such as Earnings Per Share targets) anda Monte Carlo model for those with external performance criteria (such asTotal Shareholder Return targets).For schemes with internal performance criteria, the number of options expectedto vest is recalculated at each balance sheet date, based on expectations ofperformance against target and of leavers prior to vesting. The movement incumulative expense since the previous balance sheet is recognised in the profitand loss account, with a corresponding entry in reserves.For schemes with external performance criteria, the number of optionsexpected to vest is adjusted only for expectations of leavers prior to vesting.The movement in cumulative expense since the previous balance sheetis recognised in the profit and loss account, with a corresponding entryin reserves.The Company has applied the requirements of FRS20 ‘Share-basedPayment’, which in accordance with the transitional provisions has beenapplied to all grants of equity instruments after 7 November 2002.DividendsDividends receivable from the Company’s subsidiaries are recognised onlywhen they are approved by shareholders.Final dividend distributions to the Company’s shareholders are recognised asa liability in the financial statements in the period in which they are approvedby the Company’s shareholders. Interim dividends are recognised in theperiod in which they are paid.Foreign exchangeMaterial transactions in foreign currencies are hedged using forward purchasesor sales of the relevant currencies and are recognised in the financial statementsat the exchange rates thus obtained. Unhedged transactions are recordedat the exchange rate on the date of the transaction. Monetary assets andliabilities denominated in foreign currencies are hedged, mainly using forwardforeign exchange contracts to create matching liabilities and assets.Financial instrumentsThe Company uses forward currency contracts to reduce its exposure toexchange rate fluctuations. From 3 April 2005, such contracts are measuredat their fair value based on contracted exchange rates. Changes in fair valueare recognised in the income statement.Financial Statements