Telecoms2007 KPMGReport.pdf

8/10/2019 Telecoms2007 KPMGReport.pdf

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COMMUNICATIONS

IFRS Accounting in theTelecommunications Industry

INFORMATION, COMMUNICATIONS & ENTERTAINMENT


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1 Introduction

2 Revenue recognition

2.1 Introduction2.2 Mobile related issues

2.3 Fixed line related issues

2.4 Capacity sales

2.5 Other revenue recognition related issues

3 Cost of sales and operating expenditure

3.1 Income statement presentation

3.2 Cost recognition

3.3 Other issues

4 Intangible assets

4.1 Introduction

4.2 Capitalization of intangible assets

4.3 Amortization of intangibles

4.4 Joint development type arrangements

4.5 Joint build type arrangements

5 Property, plant and equipment

5.1 Network amortization

5.2 Basic accounting principles

5.3 Dismantling and removal costs

5.4 Useful lives

6 Impairment

6.1 Impairment indicators

6.2 Impairment calculations

6.3 Recoverability of license costs

6.4 Cash generating units

6.5 Transition from old technologies to new

technologies

6.6 Sensitivity to key assumptions

6.7 Impairment reversals

7 I t

Contents


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2 Discussion of IFRS accounting in the Telecommunications Industry

Telecoms accounting has never been more challen

telecoms sector still have to deal with continued s

in light of past accounting failures. Further change introduction of IFRS.

Where GAAP is clear, few in the industry are willin

what is considered best practice for their sector. H

evident that applying GAAP to telecoms businesse

Alternative treatments may often be possible.

Revenue recognition remains a hot topic for the telrecognition follows closely behind particularly the

should be expensed, capitalized or deferred to futu

a specific revenue recognition standard, guidance r

areas. What is more, no additional IFRS guidance is

standards become mandatory for EU-listed compan

Accounting practice continues to vary among telec

however, companies are taking note of U.S. GAAP, is not prescriptive or permits alternative treatments

number of revenue recognition areas and companie

they should use U.S. GAAP where no IFRS guidanc

may consider defaulting to U.S. GAAP except whe

Given the move to IFRS by EU-listed companies, th

limited, at this stage, to the discussion of IFRS trea

the predominance of U.S. companies in the telecompublication will be broadened, in due course, to inc

With continual changes in telecoms accounting, eit

changes by the standard setters or shifts in the inv

what is appropriate, leaders and managers in the te

t d t ith ti d l t

1. Introduction

Revenue recognition

remains a hot topic for

the telecoms industry,

although cost recognition

follows closely behind.


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Discussion of IFRS accounting in

2.1 Introduction

IFRS has a specific revenue recognition standard in

standard, last revised in 1993, it is being challenged IAS 18 provides limited guidance in a number of ar

multiple element arrangements. Furthermore, the r

expected from the joint Financial Accounting Stand

International Advisory Standards Board (IASB) reve

the end of 2004, now looks likely to be delayed. No

in the near future.

As a consequence, when companies move to IFRSrevenue recognition policies across the telecoms s

significantly reduced. This may be especially true w

retain, as far as possible, their existing policies.

IFRS states that where its standards do not cover

should consider:

The guidance and requirements in standards and similar and related issues; and

The conceptual framework of the IASB, Framewo

Presentation of Financial Statements (the Framew

The company may also consider pronouncements

bodies (e.g. the U.S. Financial Accounting Standard

industry practice, to the extent that they do not co

interpretations and the Framework referred to abo

In this respect, the revenue recognition section of

treatments that might be considered acceptable un

policies which are typically adopted.

2. Revenue recognition

...when companies

move to IFRS, existing

divergence in revenue

recognition policies

across the telecoms

sector is unlikely to be

significantly reduced.


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Alternatively, a handset that can only be used on o

country of residence, may be compatible with netw

the handset may technically have some value, in prsufficient to establish a standalone fair value.

Handset sales via distributors

The example above assumes that the operator prov

ongoing service to the end customer. However, in

common for distributors or retail outlets to sell the

connect them to a specific operator.

Where the operator has neither sourced nor provid

recognition accounting should be straightforward. H

becomes more complex where the operator also p

original handsets.

IAS18 states that revenue is generally recognized w

ownership have transferred but stipulates that whe

as an agent, the sale is treated as a consignment s

Accordingly, in the case of sales to distributors, the

handset sales may depend on whether the distribu

principal (see section 2.3.1). If the distributor acts a

is that handset sales will be accounted for on deliv

arrangement is likely to show that revenue is recog

been sold on to the end user. The result is two sim

timing of revenue recognition may differ because oretailer and the other through the operators own d

Subsidies

Operators increasingly subsidize the cost of mobile

customers to sign up. The issue is whether these s



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Timing of consideration

As already considered, it is often appropriate to rec

delivery rather than over the period of the subsequ

Is this appropriate where the consideration is not r

spread over the period of the subsequent service?

the customer signs a contract which states a price

for subsequent services. There is no upfront consid

customer is charged monthly installments for the p

say, two years.

Assuming the contracts are enforced and payment

appropriate to recognize the full amount of the con

on delivery, even though payment is deferred?

From an accounting perspective the timing of rece

not impact the revenue recognition policy. As long

above) in respect of handset sales are satisfied (i.e

value, reliable fair value can be determined and recthen upfront recognition on delivery may still be ap

However, it should be noted that deferred paymen

whether the criteria has been met. Where material

consideration to be discounted when determining w

be recognized.

2.2.3 Connection revenuesActivation fees are becomingly increasingly uncom

competition in many major mobile markets. Howev

continue to be charged when customers connect t

Although not usually significant, costs are incurred

t t k (f i t di t th SIM


From an accounting

perspective the timing of

receipt of consideration

should not impact the

revenue recognition policy.


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Where connection costs and revenue are consider

of mobile packages (although clearly often not incide

and services), the question then arises as to whethhandset sale (and should be recognized in line with

handset sales) or to the provision of the future serv

While handsets may be used on other networks, a

specific to the network in question. Accordingly, it

activation fee should relate to the future service. H

same time as the handset purchase, there is also a

activation fees cannot be separated from payment

Finally, IFRS also cites entrance and membership f

services or products are paid for separately, at fair

identified as revenue where there is no significant

collectability. Consequently, so long as activation fe

charged for the ongoing service, for which fair valu

appropriate to recognize them upfront under IFRS

activation fee).

2.2.4 Pre-paid revenues

In many markets, pre-paid mobile packages are in

as gifts, as there is no on-going commitment.

Customers typically pay for on-going services by pu

that entitle them to a set amount of minutes. Incre

topped up online or by phone. Irrespective of the accounting issue is when to recognize revenue in r

in advance.

From an accounting perspective, revenue should fo

the timing of payment for that performance. This m


...revenue should be

recognized when calls are

made. Simple in theory, it

presents significant

practical difficulties where

telecoms companies

cannot readily track card

usage.


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2.2.6 Modems with ISP services / set top bo

cable services

As with many new services or products, companieany initial capital cost to encourage customers to s

and establish a critical customer base.

Different operators adopt different marketing strate

recover the cost of equipment from the sale of fut

cover their costs on the initial sale.

To the extent that any cost represents a customer is whether that cost should be expensed or deferre

of the future services (see section 3.2.2). From a re

the main issue is whether any proceeds in respect

(for example a modem or set top box) should be ac

upfront or deferred in some way.

As in the case of handset sales with subsequent s

identifying the transaction and whether the arrangeseparate components or not. While not specifically

expected that the sale of equipment is accounted f

standalone value to the customer.

This is typically the case when modems are provid

apply to the provision of set top boxes. IFRS gives

allows more latitude in acceptable policies than eith

in the absence of specific guidance, companies wipronouncements of other standard-setting bodies a

IFRS requires that when the selling price of a prod

amount for subsequent servicing, that amount is d

revenue over the period during which the service is



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2.2.7 Sales of products or services over han

The mobile phone is increasingly used for much mo

receiving calls, texts or even video messages.

Already common in Japan, and being introduced in

can now be used to pay for a range of services from

meals in restaurants. It is necessary to consider th

assumed by each party in such arrangements to de

inflows should be recorded as revenue by the mob

Where the role of the operator is limited to collecti

rather than taking any part in the actual service prorarely be sufficient to justify gross revenue recogni

For example, where a mobile operator acquires con

highlights) and sells them on to its users, gross rev

However, where the operator does not control the

the revenue received, gross recognition is only app

exposed to the gross risks of the transaction and is

service (e.g. transmits the highlights over its netwoinstance, the gross risks may include:

Business risk (e.g. the risk that sales are insuffici

in the content rights)

Non-performance penalties in excess of net incom

Operator performs essential part of the service

Operator involvement in determining terms of se

Caller has claim over operator for poor performan

Credit risk.

In most cases, exposure to credit risk alone will not

operator to recognize gross revenue. For example, p

mobile would not be accounted for gross even if the


Where the role of the

operator is limited to

collecting and remitting

monies due, rather than

taking any part in the actual

service provided, the credit

risk alone will rarely be

sufficient to justify grossrevenue recognition.


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IAS 18 states that revenue includes only the gross

received and receivable by the enterprise on its ow

on behalf of third parties are not economic benefitsand do not result in increases in equity. In an agen

inflows of economic benefits include amounts colle

and which do not result in increases in equity for th

collected on behalf of the principal are not revenue

amount of commission.

IFRS gives no guidance on how to determine whet

principal or agent in any given transaction. Howevewhether the gross inflows result in increases in eq

whether they represent amounts collected on beh

principal). Although not specifically set out in IFRS,

agent will usually depend on whether it takes on th

the transaction or has only a net interest. Other fac

practice and whether the seller discloses that it is

are also important.

Credit risk is still one of the determinants in consid

book a transaction gross or net, although other facto

Key factors to consider in the telecoms sector inclu

Does the entity have the ability to set the selling

Does the entity have control over how it complet

(e.g. can it choose how to route traffic to its dest

What is established industry practice and would a

potentially misleading to readers of its accounts?

Does the entity disclose that it is acting as agent

Discussion of IFRS accounting in t

Historically, the

communications

industry has

accounted for traffic

flows on a gross

basis.


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Net settlement

Industry practice is that interconnect revenues are

that the carriers are exposed to the gross risks of t

Interconnect agreements usually allow carriers to s

does not normally change the appropriateness of re

even if periodic cash settlement may be made on a

For example, an operator may bear the gross credit

obliged to make payments under interconnect arra

level of reciprocal revenues due. Close attention necircumstances of each arrangement.

Legal right of offset

Custom and practice is for operators to typically se

some operators may seek to further reduce their e

entering into agreements that give them the legal r

due from the counter party against balances due to

Mitigating the settlement risk of the transaction is

objective. One would not normally expect this to in

recognizing the gross transaction in the first place.

consideration will be needed to ensure that the po

becomes inappropriate.

A carrier may be able to manage the use of its netw

by managing traffic flows so that services provided

particular carrier are broadly balanced. This will nor

practice from a cash flow management perspective

consider whether the transaction is a normal interc

exchange transaction which, under certain circums

revenue under IFRS (see section 2.4.9).


Industry practice is that

interconnect revenues are

booked gross on the basis

that the carriers are

exposed to the gross risks

of the transaction.


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2.3.4 Revenue sharing arrangements

Revenue sharing arrangements are increasingly com

especially where a number of different operators arlarger end-to-end transaction. Some examples of th

arrangements are discussed below.

Premium rate services

Premium rate services, where the caller pays a pre

to access additional services are increasingly comm

directory enquiry services, chat lines, other informa

vote for a particular person on a television game shhow to account for the share of the gross revenues

In a simple case there may be three parties involve

operator and the end service provider. The operator

end user a set rate per minute or per call and pass

service provider (i.e. the call centre providing the in

The question is whether it is appropriate for the oppremium rate service at the gross amount it recei

net amount retained (in effect as commission earne

payments due to the service provider.


Peering arrangements are

not usually recognized as

revenue even though a

service is provided and

value transferred between

operators in much the

same way as under

traditional interconnectarrangements.

Diagram 1. Premium rate sevices - one operator


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Does the operator have the ability to determine t

Does the operator contribute to the quality of the

perceived as a delivery mechanism?

Does the operator hold itself out as principal or a

Is the operator party involved in establishing the

What is industry practice?

Is the treatment consistent with the treatment of

Is the operator exposed to the gross credit risk?

As discussed earlier, IFRS provides little guidance t

is acting as a principal or an agent in an arrangeme

therefore, relevant when determining appropriate a

varies under existing local GAAPs and, while the ch

an immediate switch to consistent policies across t

which practice is likely to develop.

In many cases there will be more than one operato

of whether gross or net revenue recognition is app

significantly different


Diagram 2. Premium rate services - two operato

Source: KPMG LLP (UK) 2004


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A variation on the scenarios explored above is whe

rents a range of international numbers to a service

on a fixed fee to the service provider for each call m

In some cases the operator may earn a fixed fee p

provider when settlement has been received from

call and may even route the traffic so that it is neve

operators own network. Prima-facie one would no

recognition, although the terms of separate arrange

carefully evaluated against the criteria discussed ab

Internet service providers

A similar position may arise where ISPs provide th

operators network. If the arrangement is based on

user may pay its network provider for the calls mad

then pass on a percentage of the money received

However, where the arrangement is based on a fla

the ISP directly, and the ISP may be billed by the n

to the ISP. Where the network provider receives a g

amount to the ISP, it may end up recognizing highe

received the net amount from the ISP. However, th

extent that it matches the credit and other exposur

Again, the position may be further complicated wh

involved. Depending on the cash flows and credit r

result in different revenues being recognized by tho

little guidance on how to address such complexitie

and full disclosure will remain critical until further g

2.3.5 Bundled services

As the range of value-added services offered by te

i f b i bl d h t t f



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2.3.6 Installation fees

A common feature of telecom services is that they

connection, installation or other costs to be incurrecan be provided.

The work required can be as little as sending a sign

to installing equipment at a customers premises, t

Where significant, operators may seek to recover c

connection or installation fees. The issue is whethe

out and account for such revenues separately.

IAS 18 specifically addresses the issue of installatio

Installation fees are recognized as revenue by refe

completion of the installation, unless they are incid

in which case they are recognized when the goods

Where consideration has been received or is separ

the installation, IFRS could allow revenue to be rec

of completion of the installation. In practice, as inst

long and consideration may not be payable until co

record installation revenues on completion of the in

An additional issue in respect of installation fees is

Often the fee is included in the subsequent month

be appropriate to separate installation fees, and rec

the installation, where the installation is separable

another party) and a reliable fair value can be estab

2.4 Capacity sales

2.4.1 Background

Following the filing for bankruptcy of a number of t

and the sharp decline in telecoms stocks, accounti

i l i f i d i



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In the telecoms industry, entities often buy and sel

networks. While the capacity provider may retain o

assets, some contracts convey IRUs to the buyer f

contracts convey the right to use identifiable physic

physical components of larger infrastructure assets

use a specified amount of capacity, defined in term

than the right to use a specific physical item.

The purchase, sale and exchange of capacity is a le

It has been a feature of the industry for many years

between 1995 and 2001 as carriers sought to exte

The commercial rationale reflected a number of fac

constructing a network, the desire for a secure glo

modern cables are capable of carrying far more tra

generate. Few carriers can independently fund the

network and, in order to achieve the desired geogr

to use other carriers networks are typical. The adv

purchasers perspective, is that it provides security

For the seller, an IRU represents a way of funding t

2.4.2 Basic accounting principles

Some of the main issues to consider when accoun

Can revenue be recognized upfront (as an asset s

recognized over the term of the IRU (as provision

How should transactions be accounted for wherefor cash (or the right to receive cash), an entity ex

network for capacity on another entitys network

2.4.3 Accounting for an IRU as a lease

When determining the appropriate accounting for I


The purchase, sale

and exchange of capacity

is a legitimate commercial

practice. It has been a

feature of the industry

for many years.


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In its simplest form, lit fiber merely represents dar

either end, which may be separable (for example d

functionality and complexity of the electronics invo

as to what is actually sold become somewhat blurr

when considering whether the buyer has exclusive

assumes all the risks and rewards of the asset iden

portability on behalf of the purchaser, or the sellers

capacity, would typically prevent sales type account

Payments for time available rather than actual u

With the exception of any ongoing operating and m

consideration for an IRU will usually be fixed and no

of the capacity.

2.4.4 Scope of IFRIC Draft Interpretation D3

Any particular capacity sale by a carrier may repres

the total capacity available on any specific route an

and rewards of the remainder.

D3 explains that in some arrangements, the supplie

item that is a component or portion of a larger item

percent of the capacity of a pipeline). D3 states tha

when a right to use a component of a larger item s

lease is not dealt with in the draft interpretation. It

some cases it may be appropriate to treat a right t

as a lease in a manner consistent with the draft int

Accordingly, it is reasonable for entities to account represent only part of a larger asset, in accordance

capacity subject to the IRU is separately identifiabl

2.4.5 Accounting for IRUs in accordance wi

Assuming IAS 17 is considered applicable the key i



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Most IRUs are for a period that exceeds the major

the asset. Typically there will be negligible residual

of the lease with the amount paid for upfront for th

value of the underlying asset.

2.4.6 Other implications of IAS 17 and D3

While IAS 17 may result in upfront recognition of c

meet the definition of a finance lease, other implica

in accordance with IAS 17 need to be considered.

Disclosure

In addition to meeting the requirements of IAS 32

includes comprehensive disclosure requirements fo

leases. Many of these relate to future payments du

reason, if the IRU has been paid in full on acceptan

but a general description of the lessees material le

be required.

Operating and maintenance services (O&M)

D3 states that IAS 17 should only be applied to the

elements should be separated out. Payments unde

separate and based on relative fair values, recogniz

need to make estimations.

For IRUs which include O&Ms, either priced separa

price, payments should be separated into those for

ongoing O&M services based on their relative fair v

(e.g. a fixed percentage of the overall cable mainte

value should not be an issue. Where O&M paymen

more complex.

2.4.7 Accounting for an IRU which is not a

A di d b IRU th t i t id d

Discussion of IFRS accounting in th


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2.4.8 Existing IFRS guidance and UK guida

IFRS guidance is yet to be finalized as the IFRIC Int

Accordingly it is appropriate to refer to specific guid

UK GAAP specifically addresses accounting for cap

Force (UITF) Abstract 36). This lists examples of ris

by the seller, indicate that the seller should continu

entirety. These include:

(a) Risk of changes in asset value

(b) Risk of obsolescence or changes in technology

(c) Risk of damage

(d) Risk of unsatisfactory performance (arising, for

from performance guarantees)

(e) Risks relating to the sellers obligations to prov

operating and maintaining the assets (arising, fo

costs that cannot be recovered from the buyer

While it may often be clear that the seller retains so

be more difficult to determine whether, for those t

significant in terms of the overall transaction. This n

case-by-case basis.

The provision of ongoing operating and maintenanc

case in point. O&M will be invariably included, as it

prohibitively expensive for the purchaser to arrange

long as sufficient revenue is deferred to cover the

O&M, any exposure to future costs may not neces

2.4.9 Exchange transactions

One of the most contentious aspects of capacity sa

of capacity. Sometimes referred to in the press as

l i d i h i i i i h d



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One of the biggest issues in respect of exchange t

there is a sound commercial basis for the transacti

appropriate fair value at which to record the transac

commercial rationale for the transactions or if they

artificial, no accounting recognition should be given

Assuming this is not the case, the two main accou

Can the fair value of the capacity being exchange

Is the exchange of similar or dissimilar assets?

IAS 18 specifically states that where goods or serv

swapped for goods or services which are of a simil

exchange is not regarded as a transaction which ge

However, aside from the example of commodities

to fulfill demand in different locations, IFRS does n

further guidance on what is considered similar. W

the view, for local GAAP purposes, that capacity be

dissimilar from transatlantic capacity because it is a

recognize the transaction because, prima facie, the

The examples given by IAS 18 concern the exchan

or milk. Here suppliers exchange or swap inventori

particular locations. This is broadly analogous to the

capacity in one location is exchanged for capacity e

IAS 18 does not currently permit the recognition of

exchanges of similar assets. However, in its revisio

and Equipment, the IASB removed the distinction

exchanges of similar assets from dissimilar assets

all transactions to be recorded at fair value.


24 Di i f IFRS ti i th T l i ti I d t


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On the question of fair value, IFRS provides little pr

to explain that fair value is the amount for which an

or a liability settled, between knowledgeable, willin

length transaction.

Clearly, comparative transactions provide some of

values. However, for capacity sales, these are not a

trend that is increasing given the significant fall in I

the industry was making moves towards bandwidt

standardized terms for trading capacity, in practice

2.4.10 Capacity purchases

Companies that have never sold capacity may cons

developments in this area have no impact on them

Companies that have ever bought capacity will nee

their balance sheets where the terms of an IRU ha

Many companies that acquire IRUs (indefeasible rig

capital expenditure and include any purchased IRUs

position may not be so straightforward.

While capacity prices have plummeted and supply

in many markets original sellers of capacity are incr

customers the opportunity to exchange the existing

purchased for other routes. Sometimes, for operati

more capacity on alternative routes so that they no

unprofitable routes.

By offering to change the terms of the original contr

will have to revisit their accounting. For example, on

exchanged for the right to access capacity on a num

purchasers will need to consider whether the nature

h d Sh ld it l b l ifi d fi d


If there is no proper

commercial rationale for

the transactions or if they

are in any way considered

artificial, no accounting

recognition should

be given to

the transaction.



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2.5 Other revenue recognition related issue

2.5.1 Probability of receipt

Often the marginal cost of providing telecoms serv

As a consequence, compared with other industries

to discontinue services where the customer is beh

Consequently, there may be a number of instances

to provide a service where the likelihood of payme

prevalent in the co-location sector where space has

long-term arrangements, some of whom have subs

financial difficulty.

Where there is no alternative customer for the spa

may continue to invoice for the provision of the spa

unlikely. From an accounting perspective, is it appr

recognize revenue and provide for it when conside

revenue not be recognized in the first instance?

IAS18 states that revenue should only be recognize

the economic benefits associated with the transact

Accordingly, irrespective of whether a service is pr

performing its duty, revenue should not be recogni

probable that payment will be received. Payment d

there does need to be a realistic expectation that it


...historical IRU purchases

will need to be re-visited if

changes in the terms of

the IRU are made.



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IFRS, through IAS 1, offers considerable freedom fo

income statement. Indeed less analysis will be requ

in the improvement statement, is applied as there

show the results of operating activities as a separa

3.1 Income statement presentation

Further analysis is required either on the face or in t

statement. Here IFRS offers a choice between the

function of expense methodologies as illustrated b

Some telecom companies currently use a hybrid of

cost of sales and gross profit (function of expense m

the nature of expense method for disclosing other

This has the benefit of making both gross margin a

interest, tax, depreciation & amortization) readily as

t t t H it i t i t t ith th


3. Cost of salesand operating expend

In practice there

has been a great

deal of diversity of

classification between

operators.

Function o

Revenue

Cost of Sal

Gross Profi

Other incom

Distribution

Administrit

Other expe

Profit

Nature of expense method

Revenue X

Other Income X

Changes in inventories of finished X

goods and work in progress

Raw materials & consumables used X

Employee benefits costs X

Depreciation & amortisation XOther expenses X

Total expenses X

Profit X



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3.1.1 Comparability

For companies that follow either the hybrid approa

method, the question arises as to what should be

There is no direct guidance in IFRS on how to alloc

statement captions. However, some guidance on c

from IAS 2 Inventories. It states that inventory co

purchase, conversion and other costs in bringing th

location and condition, including attributable overhe

So, for a typical fixed line operator one might expec

included within cost of sales:


For customer acquisition

costs to be deferred

(capitalized), they must

meet both the definition

and recognition criteria

for an asset.

Costs involved in a sale

Customer/Call specific costs

Interconnect charges

Customer tail circuits

Customer specific maintenance and installation costs

Selling Costs

Reseller and agents commisions

Core network costs

Outsourced maintenance costs including O&M charges on fibre leas

Network maintenance including related staff costs

Network operations centre costs

Fibre operating leases

Depreciation

Charge in respect of any of the above costs capitalised



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In other industries usage variances are readily iden

for a telecoms company. It is perhaps understanda

avoid potentially arbitrary allocations between cost

whole of the cost to a single heading. Therefore, n

allocated to costs of sales / stock, and abnormal one

The current state of affairs is unsatisfactory in that

are far from comparable. It remains to be seen wh

within IFRS is enough to resolve these differences

treatment of both costs and revenues (see section

the value of gross margin comparisons and project

3.2 Cost recognition

The IAS Framework requires that expenses are rec

statement when a decrease in future economic be

in an asset or an increase of a liability, has arisen a

As there is normally a direct association between t

of income and the costs incurred, the matching pri

Accordingly, the revenue recognition consideration

dictate the recognition of related costs in the incom

This is not always the case. The application of the

allow for the recognition of items in the balance sh

definition of assets or liabilities. The following exam

where the matching principle does and does not ap

3.2.1 Handset salesHandsets are normally sold as part of a larger pack

to the handset accounted for as revenue upon deliv

standalone value to the customer). In this case, the

expensed in the income statement upon delivery a

g y



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The issue therefore, is whether the operator has th

future revenue streams (say under an enforceable

cost of the subsidy can be reliably measured. If the

the customer acquisition costs are more akin to a m

be expensed as incurred rather than capitalized and

life. For example if a customer contract was not sig

otherwise legally enforceable, it may not be approp

customer acquisition cost.

Historically some entities may have deferred custo

the expected customer life, calculated according to

churn rates. Where historical experience shows tha

not stay for the full contracted period, the shorter p

However, where this period is significantly less, it c

question (either because an entity is practically una

becomes debatable whether any costs should be c

rates indicate that customers are loyal beyond cont

should only extend to the contracted period beyo

no control over the future benefits that may arise f

considered probable that they will be achieved.

3.2.3 Activation costs

For small sales such as handsets and related servic

and will normally be expensed in the period in whic

relatively unusual to bill a separate activation fee in

activation fee is recovered via installments paid ove

instance, revenues from activation are deferred wh

period of the activation.

In the case of customer-specific construction and a

activities and completing the last mile for fixed lin

incidental and are normally charged to the custome

th ti ti f h ll b i d



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The deprecation term of this asset will usually be t

to impairment reviews, where circumstances indica

be recoverable.

3.2.4 Subscription fees and network cost

Aside from variable fees based on usage, telecoms

fees for services that are independent of usage by

with variable fees or separately). A common examp

for data carriage services.

The costs associated with these services are large

predominantly to the cost of the network itself. As

allocated to specific customers or products, costs

upgrades and maintenance) are capitalized and dep

useful life. This is much longer than the average cu

should not be longer than the period over which an

current and future customers in a profitable manne

Because of the lack of a direct relationship betwee

largely fixed) and the revenues from subscription fe

number of subscribers), capitalization criteria and d

rather than matching determine the accounting trea

costs.

3.2.5 Leased lines

Many operators have short-term (i.e. operating) lea

other operators. Leased lines may generally be view

enterprises network, but can also relate to a specif

In both cases, it is common for periodic (monthly)

supplier. These costs are expensed as incurred whe

network or individual customers.



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3.3 Other issues

3.3.1 O&M costs

Particular judgment is required in respect of O&M

costs incurred under capacity contracts. A separate

part of a fiber IRU agreement, as the vendor seeks

share of the ongoing costs of maintaining and oper

An accounting judgment is required to ensure the c

sale has not resulted in any disproportionate comp

selling price and the agreed contribution towards O

The distinction is an important one. For the potenti

reductions in O&M mean a saving on operating exp

more attractive than reductions in finance lease ch

depreciation expenses and do not, therefore, impa

In practice the parties often agree a sale that is bas

value of the aggregate (lease and O&M) payments

costs should be characterized under the contract. I

needs to be given to whether the legal form of the

substance of what has been negotiated. As discus

2.4.4), assuming that the IRU agreement is consid

will require costs to be allocated between the lease

to relative fair values.

For larger telecoms companies with experience of

contracts, there may be objective evidence of the r

the assessment may be more difficult. In any even

to avoid the issue by allocating the entire cost to th

To ignore maintenance costs would be inconsisten

lease as a fixed asset.

An accounting judgment

is required to ensure the

commercial

negotiation for

the sale has not resulted in

any disproportionate

compromises between the

capacity selling price and

the agreed contribution

towards O&M.


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4.2.2 The identification of appropriate costs

Like tangible fixed assets, the basic principle is tha

asset comprises its purchase price and any directly

prepare the asset for its intended use.

For separate acquisitions this should be straightfor

there may be associated legal and professional fee

general overheads should not be capitalized. What

requirement under IFRS, once expensed, costs mu

should be evident from the time that costs are first

appropriate criteria for capitalization.

If acquired as part of an acquisition, the cost is bas

acquisition. If this cannot be measured with sufficie

fail to meet one of the two essential criteria for rec

asset. For telecoms companies making acquisitions

license (for instance) may not prove a meaningful in

ready market for the asset, a benchmark may not b

Some telecom companies have acquired licenses f

free of charge or at values substantially below wha

pay in separately regulated markets. In such circum

Account for the intangible asset and the equivale

or

Recognize the asset initially at its nominal amoun

attributable expenditure.

The IASB is currently considering revisions to IAS 2

recognized as income when any conditions are me

before the end of 2004.

4.2.3 Treatment of borrowing costs

The IASB is currently

considering revisions

to IAS 20 to require grants

to be recognized asincome when any

conditions are met.


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To date this has not been a significant issue for the

have been relatively simple and delivered largely ov

change as networks become more intelligent, as so

in their development and as more sophisticated pro

with customers other IT assets. This is an area to

Customer acquisition costs

As discussed in section 3.2.2, it is appropriate, in c

customer acquisition costs. Such costs, if capitalize

intangible assets in the balance sheet and will be s

subsequent impairment reviews.

4.3 Amortization of intangibles

While there have been many casualties from the re

bust, one area that has fared better than many is th

However, not even the mobile sector is immune to

valuations, starkly illustrated by the billions invested

most part, have still to prove themselves. Although

introduction of 3G services across Europe is now d

interesting questions about how to amortize the sig

Following the revision of IAS 38 Intangible Assets

intangibles with indefinite lives are not amortized. F

example many telecoms licenses), amortization is,

be significantly changed as there are few differenc

of IFRS and other major GAAPs.

UK GAAP, for instance, requires that the method of

the expected pattern of depletion. And IAS 38 stat

in which the assets economic benefits are consum

respect, consistency across the industry might be e

b f diff th t i i ti



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However, IAS 38 goes on to state that unless that

determined, a straight-line method should be used

based on actual usage or the number of subscriber

although the current position is known, any future

below the necessary reliability threshold due to the

Additionally most would argue that the potential be

expected to be consumed in the course of time a

affected by the level of benefits achieved. For exam

on a network. Some companies adopt a sum of th

accordance with their local country GAAP but this

under IFRS.

4.3.2 When to start amortization

Amortization reflects the consumption of economic

entity begin to consume an economic benefit from

Companies will usually argue that the license gives

service is launched. Accordingly, they will start to a

launch or the commencement of services. This dat

in practice, a full service may not be available from

launch may be restricted to either a particular geog

of users (reflecting the current scarcity of handsets

Once the service is generally available to customer

amortization should start. However, some compan

up the amortization charge during the start-up perio

straight-line basis from launch. Conversely, others mperiod of the license, irrespective of when the netw

the entity in a position to obtain the full benefit fro

Indeed, IFRS specifically states that amortization s

t i il bl f i ti f h th

Amortization reflects

the consumption of

economic benefits,but when does an entity

begin to consume an

economic benefit from

3G or any other licenses?


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4.5 Joint build type arrangements

It is common practice for operators to seek to shar

associated with major network build projects. Ofte

up, made up of either the lead operator or a consor

will manage the project, deal with suppliers, meas

milestones and allocate costs incurred to the variou

In many cases the lead operator pays the full costs

operators contributing. Whether the lead operator r

costs as income or nets it off against the cost of th

exposure to risks and rewards of ownership.

For example, where the lead operator controls the

contributors simply obtain the right to use it, it wou

for the gross cost of the asset and any contribution

prepayment for future services or as an asset sale

circumstances). However if the lead operator and t

the resulting asset, under an asset sharing arrange

the lead operator to account for contributions rece

the asset.

IAS 31 provides guidance on the accounting and di

different types of joint venture arrangements join

jointly controlled assets and jointly controlled entiti

As regulations in the marketplace are relaxed, incre

as networks / sites / masts is expected. Again the a

these assets will depend on the commercial subst



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5.1 Network amortization

Capitalization of fixed assets can be a subjective ar

significant differences under international GAAP ab

the problem is more usually around interpretation a

Industry practice came under increased scrutiny du

when the press put the spotlight on capitalization p

Capitalization of labor is not unusual. Among UK te

about UK 1bn of staff costs were not counted as

down as capital expenditures.

The issue is acute in the telecoms industry as the b

intensive. Extensive network build goes on during p

are deferred over long periods of use. In addition, th

dictates that a considerable proportion of a compan

capital projects during periods of growth. As a cons

large proportion of a companys total labor costs ma

Telecoms is not the only industry to have this capit

or network-based industries such as gas or water a

distinguished the telecoms industry was the perce

Internet boom, that growth in and demand for tele

be exponential.

This caused the market and shareholders to consid

virtue in itself. It was assumed that the companies

coverage would be best positioned to capitalize ondemand.

The focus for evaluating share prices switched from

measurement indicators such as EPS and cash flow

d i i d i i (EBITDA) C i

5. Property, plant and e

Though there are few

significant differences

under international GAAPabout what should be

capitalized, the problem

is more usually around

interpretation and

industry practice.



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5.2 Basic accounting principles

One of the main issues regarding capitalization of c

be capitalized.

What constitutes a fixed asset, and consequentl

considered to be directly attributable to such asse

What practical implications arise from these polic

any, can lead to the incorrect fixed asset account

5.2.1 Determining which assets can be capi

The basic principle underlying fixed asset accountinexpense to be capitalized it should contribute to pro

benefits to the entity.

The costs capitalized should meet the recognition c

eligible for capitalization under specific accounting

insufficient basis on which to justify deferring costs

be able to establish control first and then determin

economic benefits will flow to the entity while help

be measured reliably. Under IFRS, the benefits do

specifically contracted) but do need to be probable

5.2.2 The identification of directly attributab

Under IFRS, assets should be measured, whether

cost (amount paid or fair value of other consideratio

that are directly attributable to bringing the asset in

intended use.

IFRS gives examples of directly attributable costs,

Cost of site preparation

Initial delivery and handling costs

The basic principle

underlying fixed asset

accounting isstraightforward:

for any expense to be

capitalized it should

contribute to providing

future economic benefits

to the entity.


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5.2.5 Capitalization of other costs

An important question is what other type of netwo

The theory is relatively straightforward and relates

In practice there are a number of costs where the

capitalization, is unclear and may depend on entitie

Some of the more common scenarios are consider

Mobile network

Site selection costs:

Under IFRS, start-up and similar pre-production cos

of an asset unless necessary to bring the asset to iissue with site selection costs is that until it is clea

the probability of future economic benefit from any

be determined. However, once virtually certain tha

capitalization will usually be appropriate.

Operating costs:

When constructing a network, significant operation

before it actually becomes operational. These may

station site costs or network lease circuit costs. Th

costs are directly attributable and necessary to brin

condition, say, as part of testing or commissioning

that costs of testing whether the asset is functioni

attributable costs.

Training costs:

Training costs should not be capitalized on the basi

be incurred as part of the entity's on-going activitie

relationship between the expenditure and any futu

be derived from it is usually not sufficiently certain.

staff training, in respect of doing business in a new

of customer, as an example of costs which should



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Identifying AROs

One main issue with AROs is that it may not be ev

The contract may be unclear or silent on restoratio

the contracted period.

In many cases, it is unclear what rectification work

entities need to make their best estimate based o

also be cases where rectification obligations exist b

practice. For instance, obligations in respect of cab

on the seabed or on coastal landing stations may

enforced. Some consider that removing the origina

environmental damage than leaving them in place.

Similar issues exist where operators have been giv

telephone boxes in certain public places. The increa

rates, has made many of these sites redundant, bu

requirement to remove them.

Recognition of asset retirement obligations

For an ARO to be recognized, it should meet the deIAS 37. Under the terms of a lease, a contractual ob

instate land or premises. Alternatively, an entity ma

and regulations to remove assets at the end of the

of a contractual obligation, a constructive obligation

established pattern of past practice or published po

removing assets.

IAS 37 contains requirements on how to measure and similar liabilities. However, it does not provide

for changes in those liabilities. This issue is current

which has issued a draft interpretation.

K ti



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5.4 Useful lives

Obtaining an accurate picture of companies deprec

information is a relatively fruitless task. Most comp

for very wide ranging asset categories and typically

lives. However, what is increasingly clear, is that w

need to be regularly reviewed to help ensure they

estimated useful life of the assets in question.

IFRS requires that the residual value and useful life

least at each financial year-end. If expectations diffe

depreciation charge for the current and future perio

For many telecoms companies, reviews into the es

typically result in a downgrading. This reflects the i

change, as well as changes within the business.

Where the change in asset life is significant, this m

impairment rather than a revision to the onward de

the other end of the scale, it should be noted that

contributing to the generation of future cash flows,depreciation charge going forward will rarely be ap

impairment, followed by a reduction in the remainin

appropriate approach.

One issue that many mobile operators may face is

assets are held on sites leased from third parties (e

depreciation should be limited to the period of the

When determining the appropriate useful life for an

be made of what is most likely to be the economic

take into account what is expected to happen in pr

certainty that the lease term may be extended, and

i h i h i

If expectations differ

from previous estimates,

the depreciation chargefor the current and future

periods should be

adjusted.



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In the main, the valuation of telecoms goodwill, int

based on the companys discounted cash flow proj

sensitive nature of cash flow projections, and the u

typically represent one of the most important judgwhen preparing their accounts.

6.1 Impairment indicators

Under IFRS, acquired goodwill, intangibles with ind

intangibles not yet available for use need to be test

annually. Otherwise there first needs to be an indic

impairment review is required.

In practice, given the recent significant turmoil in th

impairment reviews have become an established p

There are numerous indicators of impairment. Som

telecoms sector include:

Sharp fall in asset market values

Operating losses

Underperformance compared to budget or previ

Net asset carrying value in excess of market cap

Obsolescence and technological developments

Restructuring or reorganization

Regulatory developments

New or increased competition

Significant change in business strategy or busine

The range of possible indicators is extensive. Many

some indicators except for sectors that are both g

6. Impairment

In practice, given the

recent significant turmoil

in the telecoms sector,impairment reviews have

become an established

procedure for many

companies.



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6.3 Recoverability of license costs

Given the large sums invested in 3G and other lice

assessing their recoverability independently from t

particular concern for the mobile sector.

Although the external value of licenses may have fa

cases, their value may still be supported, based on

flows generated from operating the network (value

the associated license are clearly interdependent a

cash flows, they should be reviewed as one cash g

because any allocation of underlying cash inflows b

intangible would be entirely arbitrary.

For many operators it is still early days for 3G servi

become more established and actual results comp

the number and scale of license impairments may

operators that paid significant sums for initial licens

6.4 Cash generating units

Establishing what constitutes a cash generating unpurposes is not typically straightforward but may h

the results of any impairment review.

When monitoring their businesses, some operators

basis and others on a product or even customer ba

appropriate CGU for impairment review purposes,

the lowest level at which cash inflows from an ass

largely independent from cash inflows from other aThis should take into account how management m

or how they make decisions about continuing or dis

or operations.

H li b h k i

An important point to

note is that under IFRS,

consideration needs tobe given to the

independence of cash

inflows rather than both

cash inflow and outflows.



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6.5 Transition from old technologies to new

Again, the mobile sector is a good example of the

accounting standards to practical situations.

Companies may only produce detailed formal proje

whole, whereas accounting guidance requires a pa

be followed. For example, accounting requires valu

reference to projected cash flows for those existin

account of cash flows from future enhancement ca

Splitting capital expenditure between expenditure t

and that required to maintain the existing network and can be very judgmental. For instance, many ex

long-term plans that include the impact of the trans

However, cash flow projections cannot be easily se

interdependencies between the old and new netw

when customers may transition from one service t

Furthermore, as 3G is a new technology, there will

evidence to support management assumptions. Onto be in line with those adopted by others in the m

of consistency with the result that one operator ma

license and another may consider that the cost is s

While cash flow projections in the past may have b

that were not achieved in practice, current projectio

have been revised to reflect factors such as:

Slower take up than originally envisaged

ARPU may not be not significantly above existing

Many internet applications not applicable to 3G.



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Where projections are based on budgets / forecast

states that this is justifiable if management is conf

Management must also be able to demonstrate th

over that longer period a relatively tough hurdle, esector.

A large number of discounted cash flow projection

rate selected. This should be the rate that the mark

risky investment. This is another judgmental area a

readily available for an equally risky investment. M

their own Weighted Average Cost of Capital (WAC

adjustment for the specific CGU in question. It shois the WACC of the industry / market in which the

used rather than WACC of the entity itself.

6.7 Impairment reversals

In the case of goodwill, impairments can not be rev

of impairments other than goodwill need be consid

indication that the loss no longer exists or may hav

If, since the original impairment, there has been a c

to determine the recoverable amount, the carrying

to its recoverable amount, and the impairment loss

reversal is limited to increasing the carrying amoun

by which it would have been depreciated or amorti

not occurred.



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Inventories generally do not make up a significant p

balance sheets, as they sell services rather than pr

equipment, when sold as part of a package deal, ar

from and delivered by the suppliers.

Telecoms companies, however, may have inventor

used to connect customers to the network, as wel

products that are held for resale.

7.1 Introduction and general principles

Accounting for inventories at telecoms operators ra

industry. Common classifications of inventories incsupplies, materials and finished goods (the latter m

telecoms equipment for sale).

Inventory, or work in progress, should be accounte

them, in other words, when it has the risk and rew

accordance with IAS 2, inventories are stated at th

realizable value. As technological advances in the te

significant, consideration may need to be given to tdetermining net realizable values.

Under IFRS, any write down of inventory that is no

reversed. A reduction in value that occurs after the

be recognized at the balance sheet date.

7.2 Cost elements

Inventory held for resale is stated at the lower of (arealizable value. Inventory of equipment held for us

telecoms systems will normally be stated at cost,

of labor and overheads, less provisions for deterior

F th i t i th ti i t h

7. Inventory



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The allocation of fixed overheads to the cost of inve

normal operating capacity. Variable overheads shou

the actual use of capacity although this may be har

Trade discounts, rebates and similar items and the

settlements beyond normal credit terms should be

Labor and other costs relating to sales and general

not be included either, but are recognized as expen

they are incurred.

7.2.1 Reductions of inventory and cost dete

Recognition of inventory will normally cease when asset is no longer met. For instance:

The cost of inventories is recognized as an expen

goods are sold or maintenance carried out

The cost of inventories is recognized as an expen

have become obsolete

Constructions have been finalized and related co

fixed assets.

Cost can be determined based on the average or fi

does not allow the last-in first-out (LIFO) treatment

7.3 Handsets sold at a loss

Accounting for inventories raises questions where

telecoms company, knowing that they will be sold

at less than cost. The issue is whether the costs of

expensed while held in stock or when sold to cust

The accounting depends, to a degree, on whether

considered to comprise the sale of handsets. In su

expect to determine the accounting by reference to



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Marketing cost

Where an entitys established practice is to subsid

incentive to encourage new subscribers, one migh

cost of the handset when it is actually delivered. Thaccounting for catalogue printing costs which are ty

catalogue is actually distributed rather than when it

of filming an advert are typically expensed when th

than when it is actually made.

Where mobile operators expense customer acquis

handset, the purchase of the handsets by the oper

prepayment of a marketing cost. This then be expehandset to the end user. One would not expect to

reference to its net realizable value.

For mobile operators who capitalize acquisition cos

period of the contract, as long as the net proceeds

the handset, is above cost, no impairment of the ha

necessary. This is where the overall contract is still

In this situation, the enterprise would need to demnot loss making not easy given the difficulties su

costs to contracts.

Inventory vs. marketing cost

Whilst not necessary appropriate for all operators,

mobile operators consider the sales of handsets to

business and accordingly hold them as stock. Whe

Inventories treatment discussed above would appeaccounting policy.



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Although it is a disclosure rather than an accountin

believe that segment reporting by telecoms operat

this IFRS publication.

Good segment reporting provides information to us

they are better able to understand an enterprises p

its risks and returns, and make better judgments ab

8.1 Disclosure requirements

IAS 14 requires detailed disclosures for primary se

for secondary segments.

For the primary segments the following quantitativ

per segment:

Revenue, distinguishing between external custo

Results of operations (before tax)

Depreciation and non-cash expenses (unless cas

Operating, investing and financing cash flows (as

previous item)

Impairments (and reversals thereof)

The share of results and carrying amount of equ

can be allocated substantially to a single segmen

Total assets

Total liabilities

Capital expenditure.

For secondary segments, revenue (external and int

capital expenditure need to be analyzed.

8. Segmental reporting

...for many enterprises,

conversion to IFRS may

result in significantadditional disclosures.



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8.2 Determination of segments

IAS 14 determines that segmentation should be ba

and nature of an enterprises risks and returns, as w

structure. The dominant source is usually establisheorganizational and management structure and its sy

directors and the CEO.

Any component that is found to account for 10 per

revenue, operating activities or total assets is a rep

Even though IAS 14 includes some guidance on de

practice the substance of the business will define t

For broadly-based telecoms companies, offering a

services, business segments rather than geograph

often be the primary basis for segmentation. The le

requirements for secondary segments would then

areas.

Examples of (primary) business segmentation curretelecoms industry are:

Fixed line services / mobile services / other

Retail / wholesale / global services / other

Voice services / data services / IP and hosting / n

Consumer division (sub-divided into cable TV, tel

content division (programming etc.)

Companies should tailor segmentation so that it pr

The segment reporting should clearly indicate whic

continuing and which part is discontinued.

Any component that is

found to account for 10

percent or more of anenterprises revenue,

operating activities or

total assets is a

reportable segment.



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8.3 Allocations to segments

While distinguishing revenues and results from ope

be especially complex, separating assets, liabilities

flows, depreciation and impairments for the same simple.

For example, how should a fixed line operator sepa

has chosen a primary segmentation by service line

hosting, and other) yet the main fixed assets, princ

for all services?

IAS 14 determines that segmentation should be bareasonable allocations to a segment. Furthermore,

consistency where items are included in segment

So, if assets are included in a segment, depreciatio

the same segment.

In making reasonable allocations a certain amount

Enterprises are encouraged to make allocations as guidance, if necessary, from other international acc

IAS 2 Inventories, and IAS 11 Construction contra

Impairment of assets, includes an example where

to cash-generating units, but it is unclear whether t

suitable for segment reporting.

How and what costs, and assets, are allocated to s

enterprises but should be based on the objective oinformation to users of the financial statements for

returns of the enterprise as a whole. Disclosure of

important. However, assets that are jointly used by

the example above should be allocated to segme

d (i l di d i i )



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Accounting for embedded derivatives in the teleco

industries, is likely to be a complex and time-consu

9.1 Embedded derivatives and IAS 32 and 3One of the first hurdles will be the identification of

the first place. This can be exasperated where ther

decision-makers enter contracts. Once identified, i

determine whether the derivative can be separated

Finally, if separation is established, a fair value will

derivative.

9.1.1 What is an embedded derivative?Derivatives are typically stand-alone instruments, b

components embedded in a financial instrument or

IAS 39 paragraph 22 notes: Sometimes, a derivativ

hybrid (combined) financial instrument that include

host contract - with the effect that some of the cas

instrument vary in a similar way to a stand-alone de

sometimes known as 'embedded derivatives'. An esome or all of the cash flows that otherwise would

be modified based on a specified interest rate, sec

foreign exchange rate, index of prices or rates, or o

This definition would, therefore, include host contr

contracts, leases, purchase and service agreement

royalty or franchise agreements with foreign curren

clauses related to indices or contingent rentals.

9.1.2 Accounting for embedded derivatives

An embedded derivative that meets the definition

host contract and measured as a stand-alone deriv

h t i ti t l l l t d t th h t

9. Other relevant issues

Derivatives are

typically stand-alone

instruments, but theymay also be found as

components embedded

in a financial instrument

or in a non-financial

contract.


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cases, it may be impractical to estimate the benef

that a cost may no longer be economic or in line w

insufficient basis on which to make a provision.

9.3 Restructuring costs

In recent years, the disclosure of restructuring cost

scrutiny by both investors and the accounting regu

While the following guidance is not specific to the

included here as it is a topical area of interest given

industry.

9.3.1 Basic accounting principles

The main issues to consider regarding accounting f

At what point can restructuring costs be provide

What costs should be included as restructuring c

Where should these costs be disclosed in the fin

Restructuring provisions are covered in IAS 37 Pro

and Contingent Assets. The standard is very much

resulted in a move away from large, one-off restruc

are increasingly recognized over longer timescales

instance, where restructuring provides evidence of

assets, these will continue to be recognized imme

main provision itself) but profits on asset sales and

activities will fall as incurred.

To qualify as a restructuring under IFRS, the progra

either the scope of business undertaken by an ente

that business is conducted. The following are exam

under the definition of a restructuring:



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A provision should only be recognized when:

an entity has a present obligation (legal or const

a past event

it is probable that a transfer of economic benefit

settle the obligation

and

a reliable estimate can be made of the amount o

If these conditions are not met, no provision should

a constructive obligation to restructure arises when

formal plan identifying at least:

The business or part of the business concerned

The principal locations affected

The location, function, and approximate number

compensated for terminating their services

The expenditures that may be undertaken

When the plan may be implemented

Has raised a valid expectation in those affected t

restructuring by starting to implement that plan o

features to those affected by it.

For a plan to be sufficient to give rise to a construc

communicated to those affected by it, its impleme

begin as soon as possible. It must be completed in

significant changes to the plan unlikely.

Where the entity starts to implement the restructu

main features to those affected by it, after the bala

be required under IAS 10 Events after the balance


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9.3.2 Costs to be included

A restructuring provision should include only the di

from the restructuring, which are those that are bo

Necessarily entailed by the restructuring

Not associated with the ongoing activities of the

The effect of this is that a restructuring provision c

Retraining or relocating continuing staff

Marketing

Investment in new systems and distribution netw

These expenditures relate to the future conduct of

charged in the profit and loss account as incurred.

9.3.3 Redundancies

Redundancy costs are often among the most signi

restructuring. Usually it is quite clear that these co

ongoing activities, although this may not always be

costs cannot be provided for is where they may besuch as failure to win a contract renewal.

Many redundancy programs are expected to be co

the program is voluntary, provision should be made

conditions regarding plans, implementation and an

timings), are met. Recognition of the provision may

of take-up being determined such that an appropria

be assessed.

9.3.4 Disclosure of discontinued operations

Discontinued operations are defined in IFRS 5 as a

either has been disposed of or is classified as held


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Documents

Telecoms2007 KPMGReport.pdf