Impact IFRS Telecoms

i n f o r M a t i o n , c o M M u n i cations & entertainMent
Impact of IFRS: Telecoms

KPMG international
Contents
Overview of the IFRS conversion process Accounting and reporting issues revenue recognition capacity transactions intangible assets Property, plant and equipment impairment of non-financial assets leases financial instruments Provisions and contingencies first-time adoption of ifrs Presentation of financial statements Information technology and systems considerations from accounting gaps to information sources How to identify the impact on information systems telecom accounting differences and respective system issues Parallel reporting: timing the changeover from local GaaP to ifrs reporting Harmonisation of internal and external reporting People: Knowledge transfer and change management Business and reporting stakeholder analysis and communications audit committee and Board of Directors considerations Monitoring peer group other areas of ifrs risks to mitigate Benefits of ifrs KPMG: An Experienced Team, a Global Network 1 2 3 5 6 7 8 10 11 12 13 14 15 15 16 17 18 20 21 22 22 22 23 23 23 25
2010 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis--vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
Foreword
International Financial Reporting Standards (IFRS) are a bit like the rain in Manchester, England or Portland, Oregon. If you are not currently dealing with it, youre preparing for it to arrive. Many countries have converted to IFRS in 2005 and conversions are imminent for other countries such as Brazil, Canada, India, Mexico and South Korea in 2011 and 2012. Additionally, Japan is permitting the early adoption of IFRS by listed companies for years beginning 1 April, 2009 and is requiring adoption for such companies from 2016, and the U.S. is debating on the merits of conversion to IFRS. Its clear that IFRS is high on the accounting agenda across the globe. Since the first major wave of adoption in Europe and Australia there is a mass of information available for individuals to sift through over 161,000 hits for IFRS in telecommunications alone on some internet search engines. Any one piece of thought leadership therefore is not going to be sufficient to meet all needs across all industries. The purpose of this document therefore is to focus on the telecoms sector. In this publication we cover the topics below so as to help the key players in your telecommunication finance function better understand the implications of IFRS: Overview of the IFRS conversion process. We look at how the conversion management needs to take a holistic view of the different aspects of the accounting for IFRS and its impact across the entity. Top Ten IFRS telecommunication accounting and reporting issues. Giving guidance on the key areas of focus which likely will be the cornerstone of the project. Information technology and systems considerations. We discuss how telecoms will need to bridge the gap between the IFRS accounting requirements and the general ledger and subledger systems so as to deal with parallel reporting (i.e., local generally accepted accounting principles and IFRS reporting at the same time) and internal versus external reporting. People: Knowledge transfer and change management. Ways to drive training and knowledge management into the teams dealing with the changes required. Business and reporting. The issues around operational performance and measurement that need to reflect the impact of IFRS and how to communicate this to different groups of stakeholders. While the main audience of this publication are those contemplating IFRS conversion rather than those already standing under the umbrella, we hope there is something stimulating and thought-provoking for all those dealing with IFRS.
Sean Collins
Global Chair of the Telecoms sector KPMG in Singapore
Peter Greenwood
Advisory Partner Telecoms sector KPMG in Canada
I mpact of I F R S : T e l ecoms
Overview of the IFRS conversion process

All IFRS conversions have consistent themes and milestones to them. The key is to tailor the conversion specifically to your own issues, your internal policies and procedures, the structure of your group reporting, the engagement of your stakeholders and the requirements of your corporate governance. Whilst telecoms may be similar in many respects there always will be differences in the corporate DNA that makes one telecom project different to the next. The IFRS Conversion Management Overview diagram below presents a holistic approach to planning and implementing an IFRS conversion by helping ensure that all linkages and dependencies are established between accounting and reporting, systems and processes, people and the business. The conversion should address proactively the challenges and opportunities of adopting IFRS to all aspects of your business. This includes, for example, consideration of the impact of IFRS transition on the regulatory aspect of your operations, which may vary depending on state, federal, product, reporting or competitive requirements.
Accounting and Reporting

Identify GAAP differences Quantification of differences Identify IFRS disclosure requirements Select and adopt accounting policies and procedures Assess impact on legal entity reporting Tailor financial reporting templates mplates Revise and/or design and implemplethering g ment templates for data gathering How to link? Tools Templates
Systems and Processes

Identify information gaps for conversion Assess impact on internal controls/processes Identify current system functionality/suitability, related new information technology (IT) system needs and period-end contingency plans close co chart of accounts considering Tailor ch acc IFRS accounting needs
How to link? Communication
How to link? Process changes Training
Business
Develop communication plans ans for all stakeholders including:
Regulator Audit Committee Senior Management Investors External Auditors
P People
Develop and execute training plans:
IFRS te technical topics New ac accounting policies and reporting procedures Changes in processes and controls
Assess internal reporting and key performance indicators Assess impact on general business issues such as contractual terms, treasury practices, risk management practices, etc.
How to link? Change Management
Revise performance evaluation targets and measures Communication plans Consider impact on incentive compensation programs Focus on key functions that will undergo change (e.g., Research & Development group)
I mpact of I F R S : T e l ecoms A ccounting and reporting issues
Accounting and reporting issues

The first and key area to tackle in the holistic approach is the accounting and reporting section. This diagnostic and in-depth analysis of the differences between your local Generally Accepted Accounting Principles (GAAP) and IFRS will flow from the project requirements around which any organisational change must be managed. Getting this upfront and accurate assessment of the impact of IFRS and ensuring the Gap analysis is correct are critical steps to a successful transition. It is essential that this is undertaken for your respective entity, regardless of whether the sector issues are deemed to be similar. Based on our experience of IFRS conversions, we outline below the Top Ten list of accounting issues for telecoms to consider when converting to IFRS and provide a glimpse of the issues to be considered. This is not meant to be a comprehensive list; indeed it does not cover many areas that telecoms need to consider. Owing to their generic and non-telecom specific nature, there are material accounting topics (such as defined benefit pension scheme accounting, share-based payments and joint ventures) that we have not considered in this publication.
Top Ten issues:

1
While we do not discuss in detail the number of changing IFRS to be issued in the future, the following is a sample of projects that are currently under review by the International Accounting Standards Board (IASB). The IFRS are in flux and may significantly impact the accounting for entities in the telecoms sector: Revenue recognition: The IASB and the Financial Accounting Standards Board (FASB) are jointly working on an exposure draft that is expected to be issued in the second quarter of 2010. Fair value measurements: An exposure draft on fair value measurements intends to replace the fair value measurement guidance contained in individual IFRS with a single, unified definition of fair value, as well as provide further authorative guidance on the application of fair value measurement in inactive markets. A new standard is expected in the third quarter of 2010. Joint ventures: The IASB is working on a short-term convergence project with the FASB to remove some of the main differences between the two GAAPs. A final standard is expected in the first quarter of 2010. Leases: A joint exposure draft between the IASB and the FASB is expected in the second quarter of 2010 which is likely to change the way the lessee and lessor would account for operating leases in an arrangement. Provisions and contingencies: The IASB plans to issue a revised standard in the third quarter of 2010.
Revenue recognition
Telecoms face challenges when applying the revenue recognition requirements under IFRS. International Accounting Standard (IAS) 18 Revenue and related International Financial Reporting Interpretations Committee (IFRIC) interpretations are principlebased rather than sector-specific, which has resulted in a degree of inconsistency in the recognition of revenues by telecoms. A joint revenue recognition project between the FASB and the IASB also may change the revenue landscape in the future.
When faced with arrangements such as bundled products, free handsets, broadband connectivity and television and installation fees, telecoms reporting under IFRS must assess whether the risks and rewards of ownership have been transferred in order to determine when to recognise revenue. Accordingly, the individual facts and circumstances always will need careful consideration as they may vary between entities and also between different contracts within the same entity.
Separating arrangements into the underlying multiple deliverables, including customer loyalty programmes
Are you able to separate equipment sales from service arrangements? Can broadband installation or mobile activation fees be separated from the ongoing network provision? Such examples require a careful analysis of the entire revenue arrangement, rather than the constituent parts of the contract. Under IAS 18, two or more transactions are considered a single arrangement when they are linked in such a way that the commercial effect cannot be understood without reference to the
series of transactions as a whole. This will usually revolve around the nature of the components of the transaction and the stand-alone value of those components. In todays era of fierce competition and bundled pricing, free products, such as free handsets, modems or set-top boxes, are offered to customers by telecoms on subscribing to their wireless or fixed-line services. In basic terms, if it is determined that (1) the component has stand-alone value to the customer and (2) its fair value can be measured reliably, then the component should be accounted for separately. We would expect large numbers of these transactions to be separated into individual components under IFRS, with only the attributable revenue recognised as each component is delivered. The separation guidance equally applies to customer loyalty programmes, which are required to be accounted for as separate revenue-generating deliverables rather than as cost deferrals. In our experience, the accounting for customer loyalty programmes will be a significant change for many telecoms.
Gross revenue reporting versus net revenue reporting

IFRS have specific guidance on determining whether an entity is acting as principal (indicative of reporting a transaction on a gross basis) or agent (indicative of reporting a transaction on a net basis) in a transaction. The issue is of particular importance to telecoms when it comes to mobile content downloads, premium rate services and call transmission such as international calls.
Mobile content downloads and premium rate services

Consideration received by telecoms from customers relating to mobile content downloads and premium rate services generally can be recorded on a gross basis only if the telecom has acquired the content rights and sells them to the users. In such cases, the telecom has the risks and rewards of the ownership rights. If the telecom merely passes the consideration received to the content owner after taking its share, then it may be appropriate that the consideration received by the telecom be recorded on a net basis reflective of its commission. However, telecoms need to exercise judgement when determining whether a transaction should be recorded on a gross or net basis. For example, in some cases the customers credit risk for amounts receivable resides with the telecom but control over the content and price resides with the content provider.
Call transmission
Telecoms will need to consider various contractual rights and obligations before arriving at the decision that revenues from international calls are recorded on a net or gross basis, as facts and circumstances likely will be different in each case. Some of the questions to consider include the following: Does the telecom control decisions on the routing of traffic? Is the telecom involved in determining the scope of services provided? Do end customers have claim over the telecom for service interruption or poor quality of transmission?
Capacity transactions: Indefeasible rights of use is it a lease?
Indefeasible rights of use (IRU) are contracts that entitle telecoms to buy and/or sell capacity on networks. Accounting for IRUs can be complex and vary based on the facts and circumstances of individual contracts. IFRS conversion will drive a review of these IRU contracts.
The first step in any contract review is to establish whether the IRU is a lease, a service contract or a sale of goods. IFRIC 4 Determining whether an Arrangement contains a Lease, is used to analyse whether the IRU is or contains a lease, focusing on whether a specific asset is being used and the right of use of that asset. Generally, it is not difficult to determine whether a right to use is being conveyed under the contract. However, difficulties arise in identifying whether a specific asset is being used. If an IRU is determined to be a lease, then the appropriate accounting is determined in accordance with IAS 17 Leases. Many IRU arrangements contain both lease and non-lease elements. IAS 17 is applied only to the lease element of the arrangement; other elements, such as the operating and maintenance costs, are accounted for in accordance with other standards. Accordingly, for IRUs that include the operating and maintenance costs, we would expect payments to be separated at inception of the agreement into the IRU and operating and maintenance components, based on relative fair values. If the contract does not meet the criteria to be accounted for as a lease, then a telecom that is selling capacity will have to determine how the contract should be accounted for in accordance with IAS 18 Revenue. Consideration needs to be given as to whether the arrangement constitutes the sale of goods (inventory or property, plant and equipment) or the rendering of services, or potentially both. Generally these non-lease arrangements satisfy the requirements of a service contract and revenues from the IRU transaction typically would be recognised on a straight-line basis over the term of the arrangement. It may also be possible to recognise the service income using another systematic basis if that is more representative of the pattern in which the telecom satisfies its performance obligations under the arrangement.
Accounting for an IRU as a lease

If an IRU is determined to be a lease, then there is a material accounting difference depending of whether the capacity arrangement is a finance lease or an operating lease. IAS 17 includes indicators that need to be evaluated in order to assess whether the arrangement would be accounted for as a finance or operating lease for example, whether the lease term is for a major part of the economic life of the asset. As discussed in this publication, the IASB is currently reviewing the accounting for leases as part of a joint project with the FASB. For the capacity seller, revenue is recognised upfront if it is determined that the arrangement is a finance lease. For an IRU transaction that satisfies the requirement of being accounted for as an operating lease, the lessor continues to recognise the asset and recognises rental income from the lessee on a straight-line basis over the term of the lease. Similarly, the lessee recognises rental expense to the lessor generally on a straight-line basis over the term of the lease.
Other capacity issues

A common issue facing telecoms is the accounting for exchange of capacities or sometimes referred to as swaps. The biggest challenge with respect to these exchange transactions is to ensure that there is a reasonable commercial basis for the transaction and that fair values are determinable. All property, plant and equipment and intangible assets received in exchange for non-monetary assets are measured at fair value unless the exchange transaction lacks commercial substance or the fair value of neither the asset received nor the asset given up is reliably measurable. Comparative transactions may provide the best evidence of fair values; however, for capacity sales, finding comparability is a formidable challenge.
3 Intangible assets
Spectrum or wireless licences, software (both acquired and internally developed) and goodwill are significant to the statement of financial position of telecoms and to the decision maker in any acquisition.
Spectrum licences are either acquired through government auctions or as part of an acquisition of another telecom, i.e., a business combination. The measurement of cost when purchased as part of a government auction includes the purchase price and any directly attributable costs such as borrowing costs, legal and professional fees. Alternatively, when such licences are acquired as part of a business combination, they are measured at fair value. An internally generated intangible asset, such as billing software, is measured based on the direct costs incurred in preparing the asset for its intended use. Internal costs relating to the research phase of research and development (R&D) are generally expensed. However, development costs are capitalised if certain criteria are met. This requirement for an entity to define the criteria for research separately from development may affect telecoms who define R&D by reference to the criteria of other GAAPs, in particular U.S. GAAP, under which all R&D costs are expensed.
Amortisation of intangible assets

Intangible assets are classified into those with a finite life, which are subject to amortisation, and those with an indefinite life including goodwill, which are not amortised but are subject to annual impairment testing. The method of amortisation for an intangible asset with a finite useful life should reflect the pattern of consumption of the economic benefits. This should be consistent with managements assumptions in their budgeting, with amortisation beginning at the earliest point at which economic benefits are received from the intangible asset. Under IFRS, difficulties in determining useful life do not imply that an intangible asset has an indefinite useful life. This may cause issues for example, with spectrum licences in which it is likely that technology will eventually render a licence obsolete.
4 Property, plant and equipment

Costs eligible for capitalisation
Telecoms are faced with the challenging task of reviewing capitalisation policies, detailed asset tracking and component depreciation. The nature of any telecoms Mass Asset accounting will come under close scrutiny as part of the adoption of IFRS.
All costs such as material costs, labour and related benefits, installation costs, cost relating to network testing activities, site preparatory costs, among others, that are directly attributable to bringing an asset to the present condition and location necessary for intended use are eligible for capitalisation. However, all non-directly attributable costs such as allocations of general overhead including training costs may not be capitalised under IFRS. Telecoms, on conversion to IFRS, therefore will need to carefully review their asset capitalisation policies.
Component and depreciation methods

A telecom is required to allocate the initial amount relating to an item of property, plant and equipment into its significant parts or components and depreciate each part separately. This may involve significant judgement on part of the telecom. When an item of property, plant and equipment comprises significant individual components for which different depreciation methods or rates are appropriate, each component is depreciated separately. A separate component may be either a physical component or a non-physical component that represents a major inspection or overhaul. An item of property, plant and equipment should be separated into components when those parts are significant in relation to the total cost of the item. Component accounting is compulsory when it would be applicable. However, this does not mean that an entity should split its assets into an infinite number of components if the effect on the financial statements would be immaterial. Certain telecoms, often in North America, follow a policy called the Mass Asset accounting policy whereby assets of a similar nature, often referred to as equal life groups, are grouped together and depreciated over the average useful life within the group. Whilst there is no such concept under IFRS, the standard does allow entities to group and depreciate components within the same asset class together, provided they have the same useful life and depreciation method. As such, judgement will be required to develop an appropriate depreciation policy for homogenous assets. IFRS do not specify one particular method of depreciation as preferable. Telecoms have the option to use the straight-line method, the diminishing or reducing balance method or the units-of-production method, as long as it reflects the pattern in which the economic benefits associated with the asset are consumed.
Asset retirement obligations or decommissioning liabilities under IFRS contractual and constructive
Under IAS 37 Provisions, Contingent Liabilities and Contingent Assets, telecoms recognise obligations, both contractual and constructive, as part of the carrying amount of an asset. However, there are often differences in practice relating to recognition where rectification obligations may exist but they are not enforced. For example, obligations in respect of cables laid in international waters on the seabed or on coastal landing stations may be unclear and inconsistently accounted for between telecoms. Some telecoms may consider that removing the original cables may cause more environmental damage than leaving them in place. In our experience, judgment is required in the area of recognition and measurement of such provisions.
5 Impairment of non-financial assets

Long-lived assets other than goodwill
A one-step approach requiring impairment losses to be recorded in the event the carrying amount of an asset exceeds its recoverable value1. Consideration of the time value of money (i.e., discounting) is required.
Under IAS 36 Impairment of Assets, entities assess at the end of each reporting period whether there are any indicators, external or internal, that an asset is impaired. An impairment loss is recognised and measured for an individual asset, other than goodwill, at an amount by which its carrying amount exceeds its recoverable amount. If the recoverable amount cannot be determined for the individual asset, because the asset does not generate independent cash inflows separate from those of other assets, then the impairment loss is recognised and measured based on the cash-generating unit (CGU) to which the asset belongs.
Cash-generating units
A CGU is defined as the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows from other assets or group of assets of the telecom. Identifying CGUs can become more complex in the telecoms sector because of multiple products across different networks, especially if a telecom has operations in various countries. Further, certain telecoms may have their operating segments based on type of customers (e.g., residential or commercial), or type of network (e.g., fixed-line or wireless). Telecoms are also faced with the challenge of allocating revenues from bundled products and services to the various networks in the current environment. This may be difficult when a customer is typically offered fixed-line calls, wireless, broadband and TV bundled as one service, while individual products are declining or rising in volume (e.g., fixed-line calls versus broadband line rentals).
Recoverable amount defined as higher of (1) fair value less cost to sell and (2) value in use (i.e., present value of future cash flows in use and upon ultimate disposal).
Indicators of impairment
Some examples of indicators of impairment are outlined below: Market value has declined significantly or the entity has operating or cash losses. For example, the migration of customers from fixed-line to wireless services may result in operating cash losses in the fixed-line business and result in a trigger for impairment. Technological obsolescence. For example, the technology shift from copperbased network to fibre-based network may be an indicator of impairment for the copper-based network. Competition. For example, the saturation of the mobile market intensifies competition for customers, which may reduce revenues and operating profits, thereby indicating potential impairment. Market capitalisation. For example, the carrying amount of the telecoms net assets exceeds its market capitalisation. Significant regulatory changes. For example, regulation of roaming charges in the European Union. Physical damage to the asset. Significant adverse effect on the entity that will change the way the asset is used or expected to be used. For example, the impact of sharing networks with other telecoms or exchanging network capacity, which may lead to stranded network assets that may be impaired.
Goodwill
Under IFRS, telecoms are required to test goodwill (and intangible assets with indefinite lives) for the purposes of impairment at least annually irrespective of whether indicators of impairment exist and more frequently at interim periods if impairment indicators are present. Goodwill by itself does not generate cash inflows independently of other assets or group of assets and therefore is not tested for the impairment separately. Instead, it should be allocated to the acquirers CGUs that are expected to benefit from the synergies of the business combination from which goodwill arose, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Goodwill is allocated to a CGU which represents (1) the lowest level within the entity at which the goodwill is monitored for internal management purposes and (2) cannot be larger than an operating segment as defined in IFRS 8 Operating Segments. An impairment loss is recognised and measured at an amount by which the CGUs carrying amount, including goodwill, exceeds its recoverable amount.
Impairment reversals
Impairment losses related to goodwill cannot be reversed. However, other impairment losses are reversed, subject to certain restrictions, if the recoverable amount has increased. However, as networks become more sophisticated, such a reversal of value in the assets used in legacy technology areas is perhaps unlikely in the telecoms sector.
10
6 Leases
Considering the operating costs required by telecoms and the changing face of the sector, lease accounting is gaining attention.
lease accounting under IFRS has fewer bright-line rules than other GAAP, noticeably U.S. GAAP. IAS 17 Leases instead looks to the substance of the transaction to determine which party has the risks and rewards of ownership of a leased asset. This may affect those telecoms who adjust accounting models to come close to the bright-line benchmarks that keep assets off-balance sheet as operating leases, when the substance of the arrangement is that the telecom obtains substantially all of the risks and rewards incidental to ownership of the asset. Furthermore, the IASB (discussion paper released in March 2009) is reviewing the accounting for leases. For lessees, the discussion paper proposes to eliminate the requirement to classify a lease contract as an operating or finance lease, and instead requires a single accounting model for all leases. Additionally, the lessee would be required to recognise in its financial statements a right-of-use asset representing its right to use the leased asset, and a liability representing its obligation to pay lease rentals.
Land and building leases

Under IFRS, IAS 17 requires telecoms to assess the lease classification of land and building separately in the case of a combined lease of property, unless the value of the land is considered to be immaterial. As telecoms often have material property portfolios of specialised buildings owing to telephone exchange or mobile network structures, if such items include property lease arrangements, then this may be a significant issue under IFRS. While not the sole deciding factor for operating versus finance lease classification, the minimum lease payments need to be allocated into the two components of land and buildings in proportion to the relative fair value of the leasehold interest as opposed to the relative fair values of the assets themselves. If the allocation cannot be done reliably, then the entire lease is classified as a finance lease, unless it is clear that both elements qualify as operating leases.
11
7Financial instruments
Significant changes in accounting for financial instruments.

Telecoms generally have financial instrument accounting issues owing to the treasury structures used to assist material network infrastructure build. As it currently stands, IAS 39 Financial Instruments: Recognition and Measurement requires financial assets to be classified into one of four categories (financial assets at fair value through profit and loss, loans and receivables, held-to-maturity or available-for-sale) and financial liabilities are categorised as either financial liabilities at fair value through profit and loss or other liabilities. Financial assets and financial liabilities are initially measured at fair value. After initial recognition, loans and receivables and held-to-maturity investments are measured at amortised cost. All derivative instruments are measured at fair value with gains and losses recorded in profit and loss except when they qualify as hedging instruments in a cash flow hedge. A financial asset is derecognised only when the contractual rights to cash flows from that particular asset expire or when substantially all risk and rewards of ownership of the asset are transferred. A financial liability is derecognised when it is extinguished or when the terms are modified substantially. As part of its comprehensive review of financial instruments accounting, the IASB issued IFRS 9 Financial Instruments, in November 2009. IFRS 9 is intended to replace IAS 39, once the remaining stages of the project are completed by the end of 2010. IFRS 9 currently deals with classification and measurement of financial assets only. The IASB decided to remove financial liabilities from the scope of this first installment of the replacement standard in order to be able to consider further the issue of including changes in own credit risk in the remeasurement of financial liabilities. The IASB plans to include final requirements for financial liabilities in IFRS 9 in 2010. Also in November 2009 the IASB issued exposure draft Financial Instruments: Amortised Cost and Impairment, which proposes to replace the incurred loss approach with an approach based on expected losses (i.e., expected cash flow approach). The expected cash flow approach uses forward-looking cash flows that incorporate expected future credit losses throughout the term of a financial asset (e.g., a loan). In contrast to the existing incurred loss approach, the expected cash flow approach would not require identification of impairment indicators or triggering events and would result in earlier recognition of credit losses. Finally, an exposure draft on hedge accounting is expected in the first quarter of 2010. These amendments will give the current standard on financial instruments a new face.
12
8 Provisions and contingencies
IFRS generally will result in earlier recognition of provisions.

Various types of provisions that affect telecoms include, but are not limited to warranties, environmental liabilities, decommissioning liabilities, disputes and legal claims which are covered under IAS 37 Provisions, Contingent Liabilities and Contingent Assets. The standard requires the recognition of a present obligation as a provision based on the probability of occurrence of outflow of resources, in which probable is defined as more likely than not. This may result in the recognition of additional amounts or earlier recognition of such amounts in the financial statements, as compared to the existing standards currently applied by telecoms. Management is required to recognise a provision for its best estimate of the expenditure to be incurred at the end of the reporting period. The time value of money is considered, if material. For single obligations (e.g., lawsuits) a provision may be measured based on the most likely outcome. For a large population of possible amounts (e.g., product warranties), a provision is measured at its expected value which is a probability-weighted approach. In the event there is a continuous range of possible outcomes and no one amount is considered to be equally likely, then management is required to consider the mid-point of the range as an estimate of the amount of provision. The current standard is under review by the IASB. A new IFRS replacing IAS 37 is not expected earlier than the third quarter of 2010. Significant changes to current practice are expected to arise from the replacement IFRS. The main effect of the proposed amendments is to remove the probability of outflow recognition threshold and to require an entity to recognise all items that meet the definition of a liability, unless they cannot be measured reliably. This would mean that certain items, which are present obligations but currently are treated as contingent liabilities and not recognised because they are not expected to result in an outflow of resources, would require recognition. Uncertainty about the amount or timing of the outflows related to liabilities would be reflected in the measurement of that liability. The proposed amendments to the measurement requirements would result in all liabilities, including legal obligations, being measured using the expected cash flow technique. In addition, obligations related to services (e.g., decommissioning liabilities), would be measured at the amount at which such services can be purchased on a market (i.e., including a profit margin). This will need careful review to ensure that changes to requirements are properly reflected in the provision models currently in use. The above proposed amendments were included in the exposure draft issued in 2005, Proposed Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets and IAS 19 Employee Benefits (the 2005 ED) as well as in the exposure draft issued in 2010 Measurement of Liabilities in IAS 37 Proposed Amendments to IAS 37 (the 2010 ED). The 2010 ED is a limited re-exposure focused only on certain aspects of proposed measurement requirements for liabilities.
13
9 First-time adoption of IFRS
Early understanding of the numerous mandatory and optional exemptions from retrospective application of IFRS, and interpretations that are available to first-time adopters of IFRS, is paramount for successful transition to IFRS.
Selecting accounting policies at the time of preparing the opening statement of financial position not only affects the first IFRS financial statements but also the financial statements for subsequent periods. IFRS 1 First-time Adoption of IFRS allows an entity converting to IFRS a number of reliefs from the requirements that otherwise would apply if IFRS was adopted as if they had always been applied by the entity. Without any relief, an entity would be required to retrospectively implement IFRS from the start of its corporate history. As such, the standard ensures that an entitys first IFRS financial statements contain high-quality information that is transparent for users and comparable over all periods presented. Furthermore, the guidance in IFRS 1 provides a suitable starting point for subsequent accounting under IFRS that can be generated at a cost that does not exceed the benefits. IFRS 1 is not sector-specific. As such there are no telecom-specific provisions in the standard on first-time adoption that would not be considered by other sectors. Telecoms will need to go through each of the available options in IFRS 1 and decide which are the most appropriate for them based on the corporate profile they have. We note a couple of examples to consider below. One of the most commonly used mandatory and elective IFRS 1 exemptions for telecoms includes the choice not to restate pre-IFRS business combinations. Here, acquisitive telecoms will not wish to revisit previous acquisition accounting under prior GAAP, unless there is a significant benefit, such as a downward adjustment to goodwill on IFRS transition so as to avoid impairment write-offs to profit or loss in the future. A second exemption choice that all telecoms review but do not always take, is the deemed cost election under IFRS 1, whereby fair values of historic cost assets can be brought onto the telecoms first IFRS statement of financial position. Here, the carrying amount of an item of property, plant and equipment may be measured at the date of transition based on a deemed cost. The exemption applies to individual items of property, plant and equipment, investment property and intangible assets, subject to meeting certain criteria. Deemed cost may be (1) fair value at the date of transition, or (2) a previous GAAP revaluation broadly similar to fair value under IFRS, or cost or a depreciated cost measure under IFRS adjusted to reflect changes in a general or specific price index, or (3) an eventdriven fair value. Unlike other optional exemptions, the event-driven fair value exemption under IFRS may be applied selectively to the assets and liabilities of a first-time adopter if specific criteria are met, i.e., the exemption is not limited to a particular asset or liability. For more information on the relief available upon the adoption of IFRS, we recommend that you refer to KPMGs publication IFRS Handbook: First-time Adoption of IFRS.
14
10 Presentation of financial statements
Regardless of accounting gaps that emerge from the assessment of accounting policies, telecoms need to review the presentation of their financial statements prepared under IFRS.
IAS 1 Presentation of Financial Statements does not prescribe specific formats to be followed. Instead it provides the minimum requirements for the presentation of financial statements, including its content and guidelines for their structure. In our experience, telecoms consider the presentation adopted by other telecoms in the sector. Under IAS 1 entities present complete financial statements along with comparatives, which comprise: Statement of financial position Statement of comprehensive income presented either in a single statement of comprehensive income that includes all components of profit or loss and other comprehensive income; or in the form of two statements, one being the income statement and the other the statement of comprehensive income, which begins with the profit and loss as reported in the income statement and displays separately the various components of other comprehensive income. Statement of changes in equity Statement of cash flows Notes comprising of the summary of significant accounting policies and other explanatory information. In addition, a first-time adopter is required to present the statement of financial position at the start of its earliest comparative period. Subsequent to the adoption of IFRS this third statement of financial position is presented only in certain circumstances. Probably the most sensitive of these financial statements is the statement of comprehensive income. Here, IFRS stipulates required line items, but calls for management to select the method of presentation that is most reliable and relevant. The standard provides entities the option to present an analysis of expenses either on the basis of nature (e.g., depreciation, purchases of material, transport costs, advertising costs, etc.) or based on function (e.g., selling costs, administrative costs, research and development, cost of sales). However, a telecom that discloses information based on function is still required to disclose in the notes to the financial statements, expenses by nature including depreciation and employee benefits expense. Within these parameters, the actual format of telecoms statements is quite varied.
I mpact of I F R S : T e l ecoms I nformation techno l og y and s y stems considerations
15
Information technology and systems considerations

A major effect of converting to IFRS will be the increased burden throughout the telecom organisation to capture, analyse, and report new data to comply with IFRS requirements. Making strategic and tactical decisions relating to information systems and supporting processes early in the project helps limit unnecessary costs and risks arising from possible duplication of effort or changes in approach at a later stage. Much depends on factors such as: the type of enterprise system and whether the vendor offers IFRS specific solutions whether the system has been kept current older versions first may need updating the level of customisation the more customised the system, the more effort and planning the conversion process will likely take.
From accounting gaps to information sources

The foundation of the project, as described earlier, is to understand the IFRS to local GAAP accounting differences and the effects of those differences. That initial analysis must be followed by determining the effect of those accounting gaps on internal information systems and internal controls. What telecoms must determine is which systems will need to change and translate accounting differences into technical system specifications. One of the difficulties telecoms may face in creating technical specifications is to understand the detailed end-to-end flow of information from the source systems, such as billing and capital assets sub-ledgers (including work-around models) to the general ledger and further to the consolidation and reporting systems. The simplified diagram below outlines a process that organisations can adopt to identify the impact on information systems.
Process for Identifying the Effects of IFRS on Information Systems
Accounting and Disclosure Gaps
General ledger
Identify the general ledger accounts to which the gaps relate.
Data warehouse
Source systems
Trace the general ledger transactions back to their source: directly to source systems through the data warehouse(s).
Front-end applications
Trace the transactions back to the front-end application, where appropriate.
16
How to identify the impact on information systems

There are many ways information systems may be affected, from the initiation of transactions through to the generation of financial reports. The following table shows some areas where information systems change might be required under IFRS depending upon facts and circumstances.
Change
New data requirements New accounting disclosure and recognition requirements may result in more detailed information, new types of data, and new fields, and information may need to be calculated on a different basis. Changes to the chart of accounts There will almost always be a change to the chart of accounts due to reclassifications and additional reporting criteria. Reconfiguration of existing systems Existing systems may have built-in capabilities for specific IFRS changes, particularly the larger enterprise resource planning (ERP) systems and high-end general ledger packages. Modifications to existing systems New reports and calculations are required to accommodate IFRS. Spreadsheets and models used by management as an integral part of the financial reporting process should be included when considering the required systems modifications. New systems interface and mapping changes Where previous financial reporting standards did not require the use of a system or where the existing system is inadequate for IFRS reporting, it may be necessary to implement new software. When introducing new source systems and decommissioning old systems, interfaces may need to be changed or developed and there may be changes to existing mapping tables to the financial system. Where separate reporting tools are used to generate the financial statements, mapping these tools will require updating to reflect changes in the chart of accounts. Consolidation of entities Under IFRS, there is the potential for changes to the number and type of entities that need to be included in the group consolidated financial statements. For example, the application of the concept of control may be different under IFRS. Reporting packages Reporting packages may need to be modified to: (1) gather additional disclosures in the information from branches or subsidiaries operating on a standard general ledger package or (2) collect information from subsidiaries that use different financial accounting packages. Financial reporting tools Reporting tools can be used to: (1) perform the consolidation and the financial statements based on data transferred from the general ledger or (2) prepare only the financial statements based on receipt of consolidated information from the general ledger.
Action
Modify: general ledger and other reporting systems to capture new or changed data work procedure documents. Create new accounts and delete accounts that are no longer required.
Reconfigure existing software to enable accounting under IFRS (and parallel local GAAP, if required).
Make amendments such as: new or changed calculations new or changed reports new models.
Implement software in the form of a new software development project or select a package solution. Interfaces may be affected by: modifications made to existing systems the need to collect new data the timing and frequency of data transfer requirements.
Update consolidation systems and models to account for changes in consolidated entities.
Modify reporting packages and the accounting systems used by subsidiaries and branches to provide financial information.
Modify: reporting tools used by subsidiaries and branches to provide financial information mappings and interfaces from the general ledger the consolidation systems used to report consolidated financial statements based on additional requirements such as segment reporting.
17
Telecom accounting differences and respective system issues

The following table outlines some of the salient accounting differences that we have noted earlier, together with potential system impacts.
Accounting differences
Revenue recognition
Potential systems and process impact

Clear identification of a sales contract component (e.g., handset versus ongoing service or bundle product) in the sales and distribution sub-system (which triggers the different automated revenue recognition postings) will need to be reassessed under IFRS. Billing systems will need to identify gross amounts to customers. However, the general ledger needs to be flexible to show net or gross revenues depending on the ownership of risk and rewards in regards to mobile downloads or premium rate services.
Capacity transactions
Clear identification in the sales and distribution sub-system for the different treatment of IRU contracts (e.g., leases, upfront recognition and provision of service). The alternate accounting treatments will lead to system and process changes of both the fixed assets sub-ledger as well as the general ledger.
Capital projects and R&D
Impact on R&D sub-process and interface with the accounting systems to clearly indentify milestones and allocations of amounts to research (expense) and development (capitalise). Impact on master data settings and structure of projects and internal orders for R&D capitalisation policies. Impact on general capitalisation process and system settings based on differences in eligible costs for capitalisation (e.g., overhead, interest during construction).
Property, plant, and equipment
Impact on depreciation methods, useful lives and posting specifications of the fixed assets sub-system. Impact on master data settings and structure based on differences in the components approach to asset depreciation. Impact on transition to IFRS of data conversion.
18
Parallel reporting: Timing the changeover from local GAAP to IFRS reporting
Conversion from local GAAP to IFRS will require parallel accounting for a certain period of time. At a minimum, this will happen for one year as local GAAP continues to be reported, but IFRS comparatives are prepared prior to the go-live date of IFRS. Parallel reporting may be created either in real-time collection of information through the accounting source systems to the general ledger or through topside adjustments posted as an overlay to the local GAAP reporting system. The manner and timing of processing information for the comparative periods in realtime or through top-side adjustments will be based on a number of considerations:
Parallel accounting option in comparative year

Parallel accounting through top-side adjustments
Effect
Considerations
No real-time adjustments to systems and processes will be required for comparative period. local GAAP reporting will flow through sub-systems to the general ledger (i.e., business as usual). Comparative period will need to be recast in accordance with IFRS, but can be achieved off-line. Migration of local GAAP to IFRS happens on first day of the year in which IFRS reporting commences.
less risky for on-going local GAAP reporting requirements in comparative year. Available for all, but more typical where there are less volume of transactions to consider. More applicable to small/ less complex organisations or where few changes are required.
Real-time parallel accounting
Consideration needed for leading ledger in comparative year being local GAAP or IFRS (i.e., which GAAP will management use to run the business). If leading ledger is IFRS in comparative year, conversion back to local standards are necessary for the usual reporting timetable and requirements. Changes to systems and information may continue to be needed in the comparative year if the IFRS accounting options have not been fully established. Migration to IFRS ledgers needed prior to first day of the year in which IFRS reporting commences.
Real time reporting of two GAAPs in comparative year has benefits, but puts more stress on the finance group. Typically used when tracking two sets of numbers for large volume of transactions will make systemisation of comparative year essential. More applicable for large/ complex organisations with many changes. Strict control on system changes will need to be maintained over this phased changeover process.
19
Most major ERP systems (e.g., SAP, Oracle, Peoplesoft) are able to handle parallel accounting in their accounting systems. The two common solutions implemented are the Account solution or the ledger solution. Depending on the release of the respective ERP systems one or both options are available for the general ledger solution.
Account solution Ledger solution
General Ledger
Only IFRS
Only Local
IFRS
Common Accounts Local GAAP
Only IFRS posting
IFRS = Local GAAP
Only Local GAAP posting
Features
Accounting general ledger balances with no differences between IFRS and local GAAP will be posted only once on a common account Define additional accounts for only IFRS and only local GAAP where there are accounting differences IFRS and local GAAP will be posted on different accounts Delta differences between IFRS and local GAAP accounts or full re-posting into both IFRS and local GAAP will need consideration.
Features
One common chart of accounts for IFRS and local GAAP Two separate ledgers Differences between IFRS and local GAAP will be posted to the different ledgers on the same accounts (postings 1 and 3) Accounting postings with no differences between IFRS and local GAAP will be posted only once and transferred to both ledgers on the same accounts (posting 2).
20
Harmonisation of internal and external reporting

Telecoms should consider the impact of IFRS changes on data warehouses and relevant aspects of internal reporting. In many entities, internal reporting is performed on a basis similar to external reporting, using the same data and systems, which will therefore need to change to align with IFRS. The following diagram represents the possible internal reporting areas that may be affected by changing systems to accommodate the new IFRS reporting requirements.
External reporting
IFRS Stand-alone financial reporting per local GAAP Tax reporting Regulatory reporting
Management reporting
Business key performance indicators Business-unit reporting Product/service reporting Cost accounting
Compliance Performance improvement

Shareholder value reporting
Economic value-added (EVA) Cash value-added Management incentives Stock compensation plans
Planning and budgeting

Annual budget Rolling forecast Operational forecast Strategic plans Closing preview forecast
The process of aligning internal and external reporting typically will involve the following: Where mappings have changed from the source systems to the general ledger, mappings to the management reporting systems and the data warehouses also should be changed. Where data has been extracted from the source systems and manipulated by models to create IFRS adjustments that are processed manually through the general ledger, the impact of these adjustments on internal reporting should be carefully considered. Alterations to calculations and the addition of new data in source systems as well as new timing of data feeds could have an effect on key ratios and percentages in internal reports which may need to be redeveloped to accommodate them.
I mpact of I F R S : T e l ecoms P eop l e : K now l edge transfer and change management
21
People: Knowledge transfer and change management

When your company reports for the first time under IFRS, the preparation of those financial statements will require IFRS knowledge to have been successfully transferred to the financial reporting team. Timely and effective knowledge transfer is an essential part of a successful and efficient IFRS conversion project.
People impacts of IFRS range from an accounts payable clerk coding invoices differently under IFRS to an audit committee approval of disclosures for IFRS reporting. There is a broad spectrum of people-related issues; all of which require an estimation of the changes that are needed under the IFRS reporting regime. The success of the project will depend on the people involved. There needs to be an emphasis on communications, engagement, training, support, and senior sponsorship; all of which are part of change management. Training should not be underestimated and entities often dont fully appreciate levels of investment and resource involved in training. Although most conversions are driven by a central team, you ultimately need to ensure the conversion project is not dependent on key individuals and is sustainable into the long-term across the whole organisation. Distinguishing between different audiences and the nature of the content is key to successful training. Some useful knowledge transfer pointers are as follows: Training tends to be more successful when tailored to the specific needs of the entity. Few entities claim significant benefit from external non-tailored training courses. Geographically disparate companies are considering web-based training as a cost and time-efficient method of disseminating knowledge. More complex areas such as revenue recognition or R&D classifications tend to be best conveyed through workshop training approaches where entity specific issues can be tackled. Many entities manage their training through a series of site visits typically partnerships of one member of the core central team along with a second technical expert, often an external advisor. Some entities use training as an opportunity to share their data collection process for group reporting at the same time. Even with the best planning and training possible, it is critical that an appropriate support structure is in place so that the business units implement the desired conversion plans properly. IFRS knowledge only really becomes embedded in the business when the stakeholders have the opportunity to actually prepare and work with real data on an IFRS basis. We recommend building dry runs into the conversion process at key milestones to test the level of understanding among finance staff.
22
I mpact of I F R S : T e l ecoms B usiness and reporting
Business and reporting

One of the challenges of IFRS convergence stems from the number of stakeholders that have a vested interest in the financial performance of the organisation. your project will have to deal with a large number of internal and external stakeholders so as to manage one fundamental issue the operational performance stays the same but the scoreboard of the financial statements gives a different result under IFRS.
Measurement of operational performance cuts across all parts of an organisation and effects the internal business drivers and external perceptions of the entity. The assessment of who those affected groups are and when the appropriate time for communications will be, is a key component of an IFRS conversion project.
Stakeholder analysis and communications

A thorough review of the internal and external stakeholders is an essential first step. Certain less obvious internal stakeholder groups may be engaged only in the conversion process at a late stage but the awareness of when to engage those groups is necessary. For example, most telecoms have union representatives that will need to be involved for changes to compensation schemes if, for example, bonuses are based on earnings per share measures that will alter under IFRS. However there is little point bringing the unions or human resource (HR) groups into detailed accounting discussions early on in the conversion process. In a similar context, external stakeholders should be properly identified and communicated with throughout the IFRS conversion. Examples include groups such as the tax authorities, regulators, industry analysts and the financial media. Every identified group must be factored into the timing of when and how to present changes in operational reporting because of IFRS. Furthermore, for internal stakeholders, project related deliverables need to be incorporated into the IFRS projects objectives to help ensure their successful achievement. A common failure of all industries is the lack of a communications strategy through which companies ensure all key stakeholder groups are fully informed of the projects progress. At a minimum this includes the quarterly and annual disclosures in the financial reports, but may need a much broader ranging communications strategy.
Audit Committee and Board of Directors considerations

Audit Committee and Board of Directors should be actively informed and included in the process so that they are appropriately engaged in the conversion process and do not become a bottleneck for certain key decisions. All IFRS conversions should ensure that Board and Audit Committee meetings are acknowledged on the project plan as these meetings can drive key deliverables and provide incentive for timely delivery. Senior management groups (as well as Audit Committee and Board) also need to have tailored and periodic training to suit their knowledge requirements so as to not overwhelm them with accounting theory on IFRS. Clearly there is a balance to be struck between the accounting understanding required and the responsibilities of the group undergoing the training.
I mpact of I F R S : T e l ecoms B usiness and reporting
23
Monitoring peer group

The telecom community is usually close-knit (perhaps without being friendly!) and often use industry benchmarks and peer group comparisons. As such, most telecoms in a given geography will want to know what their peers are doing as it relates to IFRS and what choices and options are being taken by others. Investors and analysts may also want to be able to look across telecoms and be aware of the differences, so as to factor those differences into their various buy / sell / hold recommendations. Management will need to assess its telecom peer group, but the manner in which this is achieved may vary depending on the working relationship with its peers. Past practice has seen telecom sector groups form that informally share updates on the accounting interpretations, practical issues and choices being made throughout the IFRS conversion projects.
Other areas of IFRS risks to mitigate

A quality IFRS conversion must enable an accounting process involving change management and complexity to be as risk-free as possible. It is essential that a telecom does not miss deadlines, or issue reports including errors. As such, the stakes are high when it comes to IFRS conversions and telecoms are no different in this regard. There are a number of areas to consider but two main ones are around the use of the external auditor and the internal control certification requirements. The close co-operation and use of the telecoms auditors should be an integral part of the IFRS governance process of the project. There needs to be explicit acknowledgement on the part of the entity for frequent auditor involvement. Clear expectations should be set around all key deliverables, including timely IFRS technical partner involvement. The Audit Committee also needs to ensure the external audit teams have reviewed changes to accounting policies alongside the approval by Audit Committee. Proper planning for new and enhanced internal controls and certification process as part of your IFRS conversion should be considered. Assessment of internal control design for accounting policy management as well as financial close processes are integral and companies need to be cognisant of the impact of any manual work-arounds used. Documentation of new policies, procedures and the underlying internal controls will all need to be reflected as part of the IFRS process.
Benefits of IFRS
While the majority of this paper has focused on the micro-based risks and issues associated with IFRS and IFRS conversions, senior management should not lose sight of the macro-based benefits to IFRS conversion. IFRS may offer more global transparency and ease access to foreign capital markets and investments, and that may help facilitate cross-border acquisitions, ventures, and spin-offs. For example, and as a final thought, by converting to IFRS, telecoms should be able to present their financial reports to a wider capital community. If this lowers the lending rate to that entity by, say, a quarter of a percentage point for the annuity of the telecom, then the benefits are clearly measurable despite the short-term pain of the finance group through the IFRS conversion process.
25
KPMG: An Experienced Team, a Global Network

KPMGs Telecommunications practice
KPMGs Telecommunications practice is dedicated to supporting telecommunications carriers globally in understanding industry trends and business issues. Our professionals, working in member firms around the world, offer skills, insights and knowledge based on substantial experience working with telecommunications carriers to understand the issues and help deliver the services needed for companies to succeed wherever they compete in the world. KPMGs Telecommunications practice offers customised, industry-tailored Audit, Tax and Advisory services that can lead to comprehensive value-added assistance for your most pressing business requirements. KPMGs Telecommunications practice, through its global network of highly qualified professionals in the Americas, Europe, the Middle East, Africa and Asia Pacific, can help you reduce costs, mitigate risk, improve controls of a complex value chain, protect intellectual property, and meet the myriad challenges of the digital economy. For more information, visit www.kpmg.com/cm.
Your conversion to IFRS

As a global network of member firms with experience in more than 1,500 IFRS convergence projects around the world, we can help ensure that the issues are identified early, and can share leading practices to help avoid the many pitfalls of such projects. KPMG firms have extensive experience and the capabilities needed to support you through your IFRS assessment and conversion process. Our global network of specialists can advise you on your IFRS conversion process, including training company personnel and transitioning financial reporting processes. We are committed to providing a uniform approach to deliver consistent, high-quality services for clients across geographies.
26
Contact us
Global Telecoms Practice Global chair Sean Collins KPMG in singapore tel: +65 6213 7302 e-Mail: seanacollins@kpmg.com Global Telecoms Contacts australia Ken Reid KPMG in australia tel: +61 (2) 9455 9006 e-Mail: kenreid@kpmg.com.au canada Peter Greenwood KPMG in canada tel: +1 604 691 3187 e-Mail: pgreenwood@kpmg.ca france Marie Guillemot KPMG in france tel: +33 1 55687555 e-Mail: mguillemot@kpmg.com Germany John Curtis KPMG in Germany tel: +49 89 9282-1263 e-Mail: johncurtis@kpmg.com Hong Kong & china Edwin Fung KPMG in Hong Kong & china tel: +86 10 8508 7032 e-Mail: edwin.fung@kpmg.com.cn Japan Takuji Kanai KPMG in Japan tel: +81 (3) 3548 5160 e-Mail: takujikanai@kpmg.com new Zealand Brent Manning KPMG in new Zealand tel: +64 (4) 816 4513 e-Mail: bwmanning@kpmg.com switzerland Hanspeter Stocker KPMG in switzerland tel: +41 44 249 33 34 e-Mail: hstocker@kpmg.com united Kingdom John Edwards KPMG in the uK tel: +44 (0) 20 7311 2315 e-Mail: john.edwards@kpmg.co.uk united states Jerry Borowick KPMG in the u.s. tel: +1 816 802 5650 e-Mail: jborowick@kpmg.com
Other KPMG publications

We have a range of IFRS publications that can assist you further, including: Accounting under IFRS: Telecoms Insights into IFRS IFRS compared to U.S. GAAP IFRS Handbook: First-time adoption of IFRS New on the Horizon publications that discuss consultation papers First Impressions publications that discuss new pronouncements Illustrative financial statements for annual and interim periods Disclosure checklist.
Acknowledgements
We would like to acknowledge the authors of this publication, including: Peter Greenwood KPMG in Canada aditya Maheshwari KPMG International Standards Group (part of KPMG IFRG limited)
We would also like to thank the contributions made by the project review team, which included the following telecom sector partners from KPMG member firms: John edwards Brent Manning Danny Vitan United Kingdom New Zealand Israel
Jason Waldron United States
kpmg.com

Impact IFRS Telecoms

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Impact IFRS Telecoms

Uploaded by

Copyright:

Available Formats

i n f o r M a t i o n , c o M M u n i cations & entertainMent

Impact of IFRS: Telecoms

Overview of the IFRS conversion process

Accounting and Reporting

Systems and Processes

How to link? Communication

How to link? Process changes Training

How to link? Change Management

I mpact of I F R S : T e l ecoms A ccounting and reporting issues

Accounting and reporting issues

Top Ten issues:

I mpact of I F R S : T e l ecoms A ccounting and reporting issues

I mpact of I F R S : T e l ecoms A ccounting and reporting issues

Gross revenue reporting versus net revenue reporting

Mobile content downloads and premium rate services

I mpact of I F R S : T e l ecoms A ccounting and reporting issues

Capacity transactions: Indefeasible rights of use is it a lease?

Accounting for an IRU as a lease

I mpact of I F R S : T e l ecoms A ccounting and reporting issues

Other capacity issues

Amortisation of intangible assets

I mpact of I F R S : T e l ecoms A ccounting and reporting issues

4 Property, plant and equipment

Component and depreciation methods

I mpact of I F R S : T e l ecoms A ccounting and reporting issues

5 Impairment of non-financial assets

I mpact of I F R S : T e l ecoms A ccounting and reporting issues

I mpact of I F R S : T e l ecoms A ccounting and reporting issues

Land and building leases

I mpact of I F R S : T e l ecoms A ccounting and reporting issues

Significant changes in accounting for financial instruments.

I mpact of I F R S : T e l ecoms A ccounting and reporting issues

8 Provisions and contingencies

IFRS generally will result in earlier recognition of provisions.

I mpact of I F R S : T e l ecoms A ccounting and reporting issues

9 First-time adoption of IFRS

I mpact of I F R S : T e l ecoms A ccounting and reporting issues

10 Presentation of financial statements

I mpact of I F R S : T e l ecoms I nformation techno l og y and s y stems considerations

Information technology and systems considerations

From accounting gaps to information sources

Accounting and Disclosure Gaps

Identify the general ledger accounts to which the gaps relate.

Trace the transactions back to the front-end application, where appropriate.

I mpact of I F R S : T e l ecoms I nformation techno l og y and s y stems considerations

How to identify the impact on information systems

I mpact of I F R S : T e l ecoms I nformation techno l og y and s y stems considerations

Telecom accounting differences and respective system issues

Potential systems and process impact

Capital projects and R&D

Property, plant, and equipment

I mpact of I F R S : T e l ecoms I nformation techno l og y and s y stems considerations

Parallel accounting option in comparative year

Real-time parallel accounting

I mpact of I F R S : T e l ecoms I nformation techno l og y and s y stems considerations

Only IFRS posting

IFRS = Local GAAP

Only Local GAAP posting

I mpact of I F R S : T e l ecoms I nformation techno l og y and s y stems considerations

Harmonisation of internal and external reporting

Compliance Performance improvement

Planning and budgeting

I mpact of I F R S : T e l ecoms P eop l e : K now l edge transfer and change management

People: Knowledge transfer and change management