Savills plc 2012 Annual Report - (PDF) - Investor relations

Notes to the financial statementsYear ended 31 December 2012continued4. Critical accounting estimates and management judgementsCritical accounting estimates and assumptionsEstimates and judgements are continually evaluated and arebased on historical experience, current market conditions andother factors including expectations of future events that arebelieved to be reasonable under the circumstances. Actual resultsmay differ from these estimates. Changes in accounting estimatesmay be necessary if there are changes in circumstances onwhich the estimate was based, or as a result of new informationor more experience. The estimates and assumptions that have asignificant risk of causing a material adjustment to the carryingamounts of assets and liabilities within the next financial year arediscussed below.Pension benefitsThe present value of the defined benefit pension obligationsdepends on a number of factors that are determined on anactuarial basis using a number of assumptions including thediscount rate. Any changes in these assumptions will impact thecarrying amount of pension obligations. The Group determines theappropriate discount rate at the end of each year. In determiningthe appropriate discount rate, the Group considers the interestrates of high-quality corporate bonds that are denominated in thecurrency in which the benefits will be paid and that have terms tomaturity approximating the terms of the related pension liability.Other key assumptions for pension obligations are based in parton current market conditions. Additional information is disclosedin Note 9.Income taxesThe Group is subject to income taxes in numerous jurisdictions.Judgement is required in determining the provision for incometaxes. There are transactions and calculations for which theultimate tax determination is uncertain. Where the final taxoutcome of these matters is different from the amounts that wereinitially recorded, such differences will impact the income tax anddeferred tax provisions in the period in which such determinationis made.Deferred taxesThe recognition of deferred tax assets is based upon whetherit is probable that sufficient and suitable taxable profits will beavailable in the future, against which the reversal of temporarydifferences can be deducted. Recognition, therefore, involvesjudgement regarding the future financial performance of theparticular legal entity or tax group in which the deferred tax assethas been recognised, especially with regard to the extent thatfuture taxable profits will be available against which losses canbe utilised. Additional information is disclosed in Note 17.Estimated impairment of assetsThe Group tests annually whether goodwill has suffered anyimpairment. All other assets are tested for impairment where thereare indicators of impairment.The recoverable amounts of cash-generating units have beendetermined based on value-in-use calculations. The use of thismethod requires the estimate of future cash flows expected toarise from the continuing operation of the cash-generating unitand the choice of a suitable discount rate in order to calculate thepresent value. Actual outcomes could vary significantly from theseestimates. The estimates used in these financial statements arecontained in Note 14.Valuation of intangible assets and useful lifeThe Group has made assumptions in relation to the potentialfuture cash flows to be determined from separable intangibleassets acquired as part of business combinations. Thisassessment involves assumptions relating to potential futurerevenues, appropriate discount rates and the useful life of suchassets. These assumptions impact the income statement overthe useful life of the intangible asset.ProvisionsThe Group and its subsidiaries are party to various legal claims.Provisions made within these financial statements are containedin Note 24(a). Additional claims could be made which might notbe covered by existing provisions or by insurance as detailedin Note 28.Critical judgements in applying the entity’s accounting policiesThe application of the Group’s accounting policies may requiremanagement to make judgements, apart from those involvingestimates, that can affect the amounts recognised in theconsolidated financial statements. Such judgements include:Award of options and deferred shares to employeesThe Group applies judgement in deciding the proportion of theavailable bonus pool to be awarded to employees under itslong‐term share-based incentive scheme. The Group’s currentpolicy is to deduct from the bonus pool an amount equal to themarket value of the share price on the date of award. Under IFRS,the value of award is spread over the vesting period and chargedto the income statement. The charge to the income statement iscurrently higher than the market value of shares to be awarded.Fair value of options granted to employeesThe Group uses the Binomial Model in determining the fair value ofoptions granted to employees under the Group’s various schemesas detailed in the Remuneration report. Information on suchassumptions is contained in Note 26. The alteration of theseassumptions may impact charges to the income statement overthe vesting period of the award.76 Savills plc Report and Accounts 2012