SAPPI LIMITED

SAPPI
NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued)
for the year ended September 2010
2. ACCOUNTING POLICIES (Continued)
Estimates and assumptions used in the actuarial models include the discount rate, return on assets,
salary increases, health care cost trends, longevity and service lives of employees.
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, in other comprehensive
income. Any increase in the present value of plan liabilities expected to arise due to current service costs
is charged to operating profit.
Gains or losses on the curtailment or settlement of a defined benefit plan are recognized in profit or
loss when the group is demonstrably committed to the curtailment or settlement. Past service costs are
recognized immediately to the extent that the benefits are already vested, and otherwise are amortized
on a straight-line basis over the vesting period of those benefits.
The net liability recognized in the balance sheet represents the present value of the defined benefit
obligation adjusted for unrecognized past service costs, reduced by the fair value of the plan assets.
Where the calculation results in a benefit to the group, the recognized asset is limited to the net total of
past service costs and the present value of any future refunds from the plan or reductions in future
contributions to the plan.
Refer to note 27 for the key estimates, assumptions and other information on post-employment
benefits applicable as at the end of September 2010.
2.3.8 Provisions
Provisions are recognized when the group has a legal or constructive obligation arising from past
events that will probably be settled. Where the effect of discounting (time value) is material, provisions
are discounted and the discount rate used is a pre-taxation rate that reflects current market assessments
of the time value of money and, where appropriate, the risks specific to the liability.
The establishment and review of the provisions requires significant judgment by management as to
whether or not there is a probable obligation and as to whether or not a reliable estimate can be made of
the amount of the obligation.
Environmental accruals are recorded based on current interpretation of environmental laws and
regulations.
2.4 Adoption of accounting standards in the current year
The following standards, interpretations and significant amendments or revisions to standards have
been adopted by the group in the current year:
IFRS 8 Operating Segments
IFRS 8 requires an entity to report financial and descriptive information about its reportable
segments. Reportable segments are components of an entity for which separate financial information is
available that is evaluated regularly by the chief operating decision maker in deciding how to allocate
resources and assessing performance.
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