Accounting Methodology Document 28 October 2016 1 Contents 1. INTRODUCTION ....................................................................................................................................... 5 1.1 REGULATORY REPORTING REQUIREMENTS ......................................................................................................... 5 1.2 INTRODUCTION TO THE AMD .......................................................................................................................... 5 1.3 STRUCTURE AND PURPOSE OF THE AMD ........................................................................................................... 5 2. BUSINESS OVERVIEW ............................................................................................................................. 8 2.1 BT GROUP AND REGULATORY REPORTING ......................................................................................................... 8 2.2 AS SYSTEMS AND THE REPORTING HIERARCHY .................................................................................................... 8 2.2.1 Attribution of financial information to Markets and Services .......................................................... 10 2.2.2 Scope of document ......................................................................................................................... 10 3. OPENREACH REPORTING ...................................................................................................................... 11 3.1 INTRODUCTION .......................................................................................................................................... 11 3.2 OPENREACH PRODUCT GROUPS ..................................................................................................................... 11 3.4 FORMAT OF THE OPENREACH INFORMATION STATEMENTS ................................................................................... 12 3.5 DISAGGREGATING SMP DEFINED INFORMATION INTO OPENREACH REGULATORY STATEMENTS .................................... 12 3.5.1 OPENREACH REVENUE ................................................................................................................................. 12 3.5.2 NORTHERN IRELAND ................................................................................................................................... 12 3.6 RECONCILIATION OF OPENREACH INCOME STATEMENT........................................................................................ 12 4. ACCOUNTING POLICIES ......................................................................................................................... 14 4.1 BASIS OF PREPARATION OF THE RFS .............................................................................................................. 14 4.2 PRINCIPLES OF VALUATION OF NON-CURRENT ASSETS. ..................................................................................... 15 4.3 PROPERTY, PLANT AND EQUIPMENT AND SOFTWARE INTANGIBLE ASSETS ............................................................. 15 4.3.1 Current Cost of Property, Plant and Equipment and Software Intangible Assets.............................. 15 4.3.2 Depreciation .................................................................................................................................... 16 5. SYSTEM ................................................................................................................................................ 17 5.1 SYSTEM OVERVIEW .................................................................................................................................... 17 5.2 SYSTEM PROCESS AND PROCESSING LEVELS ..................................................................................................... 18 5.3 CONTROLS ................................................................................................................................................ 21 5.4 TRANSFER CHARGES AS A BASIS FOR COST ATTRIBUTION ...................................................................................... 21 6. VALUATION METHODOLOGIES ............................................................................................................. 23 6.1 INTRODUCTION .......................................................................................................................................... 23 6.1.1 Choice of Valuation Method ............................................................................................................ 24 6.1.1 Cost Adjustments ............................................................................................................................ 26 6.1.2 New Technology and its use as MEA ................................................................................................ 26 6.1.3 Unit Costs ........................................................................................................................................ 26 6.1.4 Choice and application of indices for Indexation Method ................................................................. 26 6.1.5 Depreciation .................................................................................................................................... 27 6.1.6 Disposals, write-outs and write-offs ............................................................................................... 27 6.2 DETAILED VALUATION METHODOLOGY ........................................................................................................... 27 6.2.1 Introduction .................................................................................................................................... 27 6.2.2 Land & Buildings ............................................................................................................................. 27 6.2.3 Access – Copper ............................................................................................................................... 28 6.2.4 Access – Fibre .................................................................................................................................. 28 2 6.2.5 Duct ................................................................................................................................................ 29 6.2.6 Switch ............................................................................................................................................. 30 6.2.7 Transmission ................................................................................................................................... 31 6.2.8 Other ............................................................................................................................................... 33 7. ATTRIBUTION METHODS ....................................................................................................................... 34 7.1 INTRODUCTION .......................................................................................................................................... 34 7.2 CONCEPTS OF ATTRIBUTION .......................................................................................................................... 34 7.3 GROSS ADJUSTED COSTS ............................................................................................................................. 35 7.4 CONCEPTUAL MODEL .................................................................................................................................. 36 7.4.1 Attribution of GL/F8/OUCs (directly or via base/OUC methodologies) ............................................. 36 7.4.2 Attribution of Activity Groups ......................................................................................................... 36 7.4.3 Attribution of Plant Groups ............................................................................................................. 36 7.4.5 Attribution of Network Components ............................................................................................... 37 7.4.6 Retail Products and Markets ............................................................................................................ 37 8. LINE OF BUSINESS ORGANISATIONAL UNIT CODES ............................................................................... 38 8.1 LINE OF BUSINESS ORGANISATIONAL UNIT CODES ............................................................................................ 38 9. USE OF SYSTEM GENERATED BASES ..................................................................................................... 40 9.1 INTRODUCTION TO SYSTEM GENERATED BASES .................................................................................................. 40 9.2 BASES APPORTIONED TO SPECIFIC COST POOLS ON THE BASIS OF PREVIOUSLY APPORTIONED COSTS PAN-DIVISIONALLY .... 40 9.3 BASES APPORTIONED ON THE BASIS OF PAY COSTS ............................................................................................. 41 10. BASE METHODOLOGIES – OUC DRIVEN BASES ...................................................................................... 43 10.1 INTRODUCTION TO OUC DRIVEN BASES ........................................................................................................... 43 10.2 BASE METHODOLOGY DICTIONARY – OUC DRIVEN BASES ................................................................................... 44 11. BASE METHODOLOGIES – OTHER BASES