Impact of IFRS Telecoms

I N F O R MA T I O N , C OMMU N I CATIONS
& E N T E R T A I N ME N T
Impact of
IFRS:
Telecoms
K P MG I N T E R N A T I O N A L
Contents
Overview of the IFRS conversion process 1
Accounting and reporting issues 2
Revenue recognition 3
Capacity transactions 5
Intangible assets 6
Property, plant and equipment 7
Impairment of non-financial assets 8
Leases 10
Financial instruments 11
Provisions and contingencies 12
First-time adoption of IFRS 13
Presentation of financial statements 14
Information technology and systems considerations 15
From accounting gaps to information sources 15
How to identify the impact on information systems 16
Telecom accounting differences and

respective system issues 17
Parallel reporting: Timing the changeover

from local GAAP to IFRS reporting 18
Harmonisation of internal and external reporting 20
People: Knowledge transfer and change management 21
Business and reporting 22
Stakeholder analysis and communications 22
Audit Committee and Board of Directors considerations 22
Monitoring peer group 23
Other areas of IFRS risks to mitigate 23
Benefits of IFRS 23
KPMG: An Experienced Team, a Global Network 25
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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, you’re 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. It’s 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 sub-
ledger 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 knowl-
edge 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 Peter Greenwood

Global Chair of the Telecoms sector Advisory Partner – Telecoms sector
KPMG in Singapore KPMG in Canada
IMPACT OF IFRS: TELECOMS 1
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 stake-
holders 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 Systems and Processes

• Identify GAAP differences • Identify information “gaps”
• Quantification of differences How to link? for conversion
• Identify IFRS disclosure • Tools • Assess impact on internal
requirements • Templates controls/processes
• Select and adopt accounting • Identify current system
policies and procedures functionality/suitability, related
new information technology (IT)
• Assess impact on legal entity
system needs and period-end
reporting
contingency plans
close co
• Tailor financial reporting templates
mplates
chart of accounts considering
• Tailor ch
• Revise and/or design and imple-
mple- acc
IFRS accounting needs
thering
ment templates for data gathering g
How to link? How to link?

• Communication • Process changes
• Training
Business P
People
• Develop communication plans ans for • Develop and execute training plans:
all stakeholders including: – IFRS technical
te topics
– Regulator – New ac
accounting policies and
– Audit Committee reporting procedures
– Senior Management – Changes in processes and controls
– Investors • Revise performance evaluation
– External Auditors targets and measures
• Assess internal reporting and key • Communication plans
performance indicators
How to link? • Consider impact on incentive
• Assess impact on general business compensation programs
issues such as contractual terms, • Change
Management • Focus on key functions that will
treasury practices, risk management
undergo change (e.g., Research &
practices, etc.
Development group)
2 IMPACT OF IFRS: TELECOMS
ACCOUNTING AND REPORTING ISSUES
Accounting and reporting issues

The first and key area to tackle in the holistic approach is the accounting and report-
ing 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 Revenue recognition
2 Capacity transactions
3 Intangible assets
4 Property, plant and equipment
5 Impairment of non-financial assets
6 Leases
7 Financial instruments
8 Provisions and contingencies
9 First-time adoption of IFRS
10 Presentation of financial statements
We recommend that you refer to KPMG’s publication Accounting under IFRS:

Telecoms for greater detail on the issues raised in this document.
In our experience, these Top Ten issues are significant to telecoms as:
• issues may be pervasive across the sector and will require significant time and
cost to evaluate and implement, for example, accounting for property, plant
and equipment
• issues may have significant impact to information systems, accounting processes
and systems, for example, if revenue accounting causes booked revenue to
require adjustments to billings systems revenue
• issues may require careful consideration of contract terms, for example, those
terms outlined in capacity transactions
• issues may result in significant accounting policy decisions that impact future
results.
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.
1 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 principle-
based 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, broad-
band connectivity and television and installation fees, telecoms reporting under
IFRS must assess whether the risks and rewards of ownership have been trans-
ferred 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 broad-
band installation or mobile activation fees be separated from the ongoing network
provision? Such examples require a careful analysis of the entire revenue arrange-
ment, 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 today’s 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 prin-
cipal (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 customer’s 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?
2 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, focus-
ing 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 stan-
dards. 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 rev-
enues 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 differ-
ence 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 operat-
ing 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 equip-
ment and intangible assets received in exchange for non-monetary assets are mea-
sured 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 mea-
surable. 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 combina-
tion, 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 amor-
tisation, 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 con-
sistent with management’s 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

Telecoms are faced with the challenging task of reviewing capitali-
sation policies, detailed asset tracking and component depreciation.
The nature of any telecom’s “Mass Asset” accounting will come
under close scrutiny as part of the adoption of IFRS.
Costs eligible for capitalisation

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 inspec-
tion 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 bal-
ance 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

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.
Long-lived assets other than goodwill

Under IAS 36 Impairment of Assets, entities assess at the end of each report-
ing 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).
1 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 wire-
less 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 copper-
based 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 telecom’s 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 peri-
ods 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
acquirer’s 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 CGU’s carrying amount, including goodwill, exceeds its recoverable
amount.
Impairment reversals
Impairment losses related to goodwill cannot be reversed. However, other impair-
ment 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.
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 oper-
ating 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 elimi-
nate 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 mate-
rial 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.
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 remea-
surement 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.
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 provi-
sion 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 thresh-
old 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 liabili-
ties and not recognised because they are not expected to result in an outflow
of resources, would require recognition. Uncertainty about the amount or tim-
ing 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.
9 First-time adoption of IFRS

Early understanding of the numerous mandatory and optional
exemptions from retrospective application of IFRS, and interpreta-
tions 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 entity’s first IFRS financial statements con-
tain high-quality information that is transparent for users and comparable over all
periods presented. Furthermore, the guidance in IFRS 1 provides a suitable start-
ing 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 telecom’s 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 event-
driven 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 KPMG’s publication IFRS Handbook: First-time
Adoption of IFRS.
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 com-
paratives, 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 adop-
tion 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 tele-
com 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.
INFORMATION TECHNOLOGY AND SYSTEMS CONSIDERATIONS
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 simpli-
fied 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
• Identify the general ledger accounts
ledger to which the gaps relate.
• Trace the general ledger transactions

Data Source back to their source:
warehouse systems – directly to source systems
– through the data warehouse(s).
Front-end • Trace the transactions back to the

applications front-end application, where appropriate.
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 Action
New data requirements
New accounting disclosure and recognition requirements Modify:
may result in more detailed information, new types of • general ledger and other reporting systems to capture
data, and new fields, and information may need to be new or changed data
calculated on a different basis. • work procedure documents.
Changes to the chart of accounts

There will almost always be a change to the chart of accounts Create new accounts and delete accounts that are no
due to reclassifications and additional reporting criteria. longer required.
Reconfiguration of existing systems

Existing systems may have built-in capabilities for Reconfigure existing software to enable accounting
specific IFRS changes, particularly the larger enterprise under IFRS (and parallel local GAAP, if required).
resource planning (ERP) systems and high-end general
ledger packages.
Modifications to existing systems

New reports and calculations are required to accommo- Make amendments such as:
date IFRS. • new or changed calculations
Spreadsheets and models used by management as an • new or changed reports
integral part of the financial reporting process should • new models.
be included when considering the required systems
modifications.
New systems interface and mapping changes

Where previous financial reporting standards did not Implement software in the form of a new software
require the use of a system or where the existing system development project or select a package solution.
is inadequate for IFRS reporting, it may be necessary to
Interfaces may be affected by:
implement new software.
• modifications made to existing systems
When introducing new source systems and decommis-
sioning old systems, interfaces may need to be changed • the need to collect new data
or developed and there may be changes to existing mapping • the timing and frequency of data transfer require-
tables to the financial system. Where separate reporting ments.
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 Update consolidation systems and models to account for
and type of entities that need to be included in the group changes in consolidated entities.
consolidated financial statements. For example, the applica-
tion of the concept of “control” may be different under IFRS.
Reporting packages
Reporting packages may need to be modified to: Modify reporting packages and the accounting systems
(1) gather additional disclosures in the information from used by subsidiaries and branches to provide financial
branches or subsidiaries operating on a standard information.
general ledger package or
(2) collect information from subsidiaries that use different
financial accounting packages.
Financial reporting tools

Reporting tools can be used to: Modify:
(1) perform the consolidation and the financial statements • reporting tools used by subsidiaries and branches to
based on data transferred from the general ledger or provide financial information
(2) prepare only the financial statements based on receipt • mappings and interfaces from the general ledger
of consolidated information from the general ledger. • the consolidation systems used to report consolidated
financial statements based on additional requirements
such as segment reporting.
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 Potential systems and process impact

Revenue recognition • Clear identification of a sales contract component
(e.g., handset versus ongoing service or bundle prod-
uct) 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-sys-

tem 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 proj-
ects and internal orders for R&D capitalisation policies.
• Impact on general capitalisation process and system
settings based on differences in eligible costs for capi-
talisation (e.g., overhead, interest during construction).
Property, plant, and • Impact on depreciation methods, useful lives and post-
equipment ing 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.
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 contin-
ues 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 “top-
side” adjustments posted as an overlay to the local GAAP reporting system.
The manner and timing of processing information for the comparative periods in real-
time or through “top-side” adjustments will be based on a number of considerations:
Parallel accounting option Effect Considerations

in comparative year
Parallel accounting • No real-time adjustments • Less risky for on-going local

through top-side to systems and processes GAAP reporting require-
adjustments will be required for com- ments in comparative year.
parative period. • Available for all, but more
• Local GAAP reporting will typical where there are
flow through sub-systems less volume of transac-
to the general ledger (i.e., tions to consider.
business as usual). • More applicable to small/
• Comparative period will less complex organisations
need to be recast in accor- or where few changes are
dance with IFRS, but can required.
be achieved off-line.
• Migration of local GAAP to
IFRS happens on first day
of the year in which IFRS
reporting commences.
Real-time parallel • Consideration needed for • Real time reporting of two

accounting “leading ledger” in com- GAAPs in comparative
parative year being local year has benefits, but puts
GAAP or IFRS (i.e., which more stress on the finance
GAAP will management group.
use to run the business). • Typically used when track-
• If leading ledger is IFRS in ing two sets of numbers for
comparative year, conver- large volume of transactions
sion back to local standards will make systemisation of
are necessary for the usual comparative year essential.
reporting timetable and • More applicable for large/
requirements. complex organisations
• Changes to systems and with many changes.
information may continue • Strict control on system
to be needed in the com- changes will need to be
parative year if the IFRS maintained over this
accounting options have phased changeover
not been fully established. process.
• Migration to IFRS ledgers
needed prior to first day
of the year in which IFRS
reporting commences.
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 Only
IFRS Local
Only IFRS posting
IFRS
Common IFRS = Local GAAP

Accounts
Local
GAAP Only Local GAAP
posting
Features Features
• Accounting general ledger balances • One common chart of accounts
with no differences between IFRS and for IFRS and local GAAP
local GAAP will be posted only once on • Two separate ledgers
a common account
• Differences between IFRS and local
• Define additional accounts for only GAAP will be posted to the different
IFRS and only local GAAP where ledgers on the same accounts
there are accounting differences (postings 1 and 3)
• IFRS and local GAAP will be posted • Accounting postings with no differences
on different accounts between IFRS and local GAAP will be
• Delta differences between IFRS and posted only once and transferred to
local GAAP accounts or full re-posting both ledgers on the same accounts
into both IFRS and local GAAP will (posting 2).
need consideration.
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 per-
formed 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 Management reporting

• IFRS • Business key performance indicators
• Stand-alone financial reporting per • Business-unit reporting
local GAAP
• Tax reporting • Product/service reporting
• Regulatory reporting • Cost accounting
Compliance
Performance
improvement
Shareholder value reporting Planning and budgeting
• Economic value-added (EVA) • Annual budget

• Cash value-added • Rolling forecast
• Management incentives • Operational forecast
• Stock compensation plans • 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.
PEOPLE: KNOWLEDGE TRANSFER AND CHANGE MANAGEMENT
People: Knowledge transfer and

change management
When your company reports for the first time under IFRS, the prep-
aration 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 don’t 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.
BUSINESS AND REPORTING
Business and reporting

One of the challenges of IFRS convergence stems from the num-
ber of stakeholders that have a vested interest in the financial per-
formance of the organisation. Your project will have to deal with
a large number of internal and external stakeholders so as to man-
age 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 representa-
tives 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 com-

municated 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 stake-
holders, project related deliverables need to be incorporated into the IFRS project’s
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 project’s
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 responsibili-
ties of the group undergoing the training.
BUSINESS AND REPORTING
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 differ-
ent 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 telecom’s 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 pro-
cesses 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 tele-
com, then the benefits are clearly measurable despite the short-term pain of the
finance group through the IFRS conversion process.
KPMG: An Experienced Team, a Global Network

KPMG’s Telecommunications practice
KPMG’s Telecommunications practice is dedicated to supporting telecommunica-
tions 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 car-
riers to understand the issues and help deliver the services needed for companies
to succeed wherever they compete in the world.
KPMG’s 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.
KPMG’s 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.
Contact us
Global Telecoms Practice Global Telecoms Contacts
Global Chair Australia Japan

Sean Collins Ken Reid Takuji Kanai
KPMG in Singapore KPMG in Australia KPMG in Japan
Tel: +65 6213 7302 Tel: +61 (2) 9455 9006 Tel: +81 (3) 3548 5160
e-Mail: seanacollins@kpmg.com e-Mail: kenreid@kpmg.com.au e-Mail: takujikanai@kpmg.com
Canada New Zealand

Peter Greenwood Brent Manning
KPMG in Canada KPMG in New Zealand
Tel: +1 604 691 3187 Tel: +64 (4) 816 4513
e-Mail: pgreenwood@kpmg.ca e-Mail: bwmanning@kpmg.com
France Switzerland
Marie Guillemot Hanspeter Stocker
KPMG in France KPMG in Switzerland
Tel: +33 1 55687555 Tel: +41 44 249 33 34
e-Mail: mguillemot@kpmg.com e-Mail: hstocker@kpmg.com
Germany United Kingdom

John Curtis John Edwards
KPMG in Germany KPMG in the UK
Tel: +49 89 9282-1263 Tel: +44 (0) 20 7311 2315
e-Mail: johncurtis@kpmg.com e-Mail: john.edwards@kpmg.co.uk
Hong Kong & China United States

Edwin Fung Jerry Borowick
KPMG in Hong Kong & China KPMG in the U.S.
Tel: +86 10 8508 7032 Tel: +1 816 802 5650
e-Mail: edwin.fung@kpmg.com.cn 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 Aditya Maheshwari
KPMG in Canada 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 United Kingdom

Brent Manning New Zealand
Danny Vitan Israel
Jason Waldron United States
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Impact of IFRS Telecoms

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Impact of IFRS Telecoms

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I N F O R MA T I O N , C OMMU N I CATIONS

Accounting and reporting issues 2

Property, plant and equipment 7

Impairment of non-financial assets 8

Provisions and contingencies 12

First-time adoption of IFRS 13

Presentation of financial statements 14

Information technology and systems considerations 15

From accounting gaps to information sources 15

How to identify the impact on information systems 16

Telecom accounting differences and

Parallel reporting: Timing the changeover

Harmonisation of internal and external reporting 20

People: Knowledge transfer and change management 21

Business and reporting 22

Stakeholder analysis and communications 22

Audit Committee and Board of Directors considerations 22

Monitoring peer group 23

Other areas of IFRS risks to mitigate 23

KPMG: An Experienced Team, a Global Network 25

Sean Collins Peter Greenwood

Overview of the IFRS conversion process

The IFRS Conversion Management Overview diagram below presents a holistic

Accounting and Reporting Systems and Processes

How to link? How to link?

ACCOUNTING AND REPORTING ISSUES

Accounting and reporting issues

Top Ten issues:

We recommend that you refer to KPMG’s publication Accounting under IFRS:

ACCOUNTING AND REPORTING ISSUES

While we do not discuss in detail the number of changing IFRS to be issued in

Fair value measurements: An exposure draft on fair value measurements intends

Joint ventures: The IASB is working on a short-term convergence project with

Separating arrangements into the underlying multiple deliverables,

ACCOUNTING AND REPORTING ISSUES

We would expect large numbers of these transactions to be separated into individual

Gross revenue reporting versus net revenue reporting

Mobile content downloads and premium rate services

However, telecoms need to exercise judgement when determining whether a

• Does the telecom control decisions on the routing of traffic?

ACCOUNTING AND REPORTING ISSUES

Accounting for an IRU as a lease

ACCOUNTING AND REPORTING ISSUES

Other capacity issues

An internally generated intangible asset, such as billing software, is measured based

Amortisation of intangible assets

ACCOUNTING AND REPORTING ISSUES

4 Property, plant and equipment

Costs eligible for capitalisation

Component and depreciation methods

When an item of property, plant and equipment comprises significant individual

IFRS do not specify one particular method of depreciation as preferable. Telecoms

ACCOUNTING AND REPORTING ISSUES

Asset retirement obligations or “decommissioning liabilities” under

5 Impairment of non-financial assets

Long-lived assets other than goodwill

ACCOUNTING AND REPORTING ISSUES

• Market value has declined significantly or the entity has operating or

ACCOUNTING AND REPORTING ISSUES

Furthermore, the IASB (discussion paper released in March 2009) is reviewing

Land and building leases

ACCOUNTING AND REPORTING ISSUES