2006 20-F - Sappi

SAPPI
NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued)
2. ACCOUNTING POLICIES (Continued)
The following specific policies are applied:-
for the year ended September 2006
• 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.
2.2.13 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 majority of the defined benefit
funds are closed to new entrants.
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 and 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 recognize 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 defined benefit 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
and 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.
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