Relevance and Issues of IFRS on Regulatory Cost Modelling · Retail Minus Used to determine prices for wholesaleservices. The retail minus methodology begins with the retail price

Relevance and Issues of IFRS

on Regulatory Cost Modelling14 November 2018

Version 1.0

Funded by the European Union

2

Agenda

01 IFRS Framework

02 General IFRS Issues for Telcos

03Relevance of IFRS on Price

Regulation

04Specific Issues for Telco Price

Regulation

IAS 16 — Property, Plant and

Equipment

IAS 38 — Intangible Assets

IFRS 16 — Leases

05 Q&A

3

IFRS support harmonization of external reporting over the globe becoming vital with globalization.

IFRS Framework – General Conceptualization

IFRS

IAS

Interpretations

The Framework for Preparation and Presentation of Financial Statements – IASB* Framework

International Financial Reporting

Standards (IFRS) consist of:

*International Accounting Standards Board

A common global language for business

affairs so that company financial statements

are understandable and comparable across

boundaries

Particularly important and helpful for

companies with subsidiaries in several

countries

Progressively replacing different national

accounting standards

EU- Listed companies must comply with

IAS/IFRS by 2005

Stock exchange-national listing rules to be complied, IAS/IFRS based reporting frequently

covered in the rules

National laws – still take precedence over IAS/IFRS

Framework

4

The key objective of financial statements (and IFRS / IAS) is to help to predict sustainability of financial performance.

IFRS Framework – Key objective of IFRS/ IAS

IASB Framework Key Elements of IFRS

Balance sheet (B/S)

Profit and Loss statement (P/L)

Cash flow statement (C/F)

Statement of changes of equity

Footnotes

“Users of F/S”-> primarily the investors/ owners, regulators

“Management”- agent hired by owners (=principals)

The objective of financial statements (F/S) is to provide information

about :

financial position

financial performance and,

cash flows of an entity

that is useful to a wide range of users in making economic

decisions. F/S show the results of the management's stewardship of

the resources entrusted.

IFRS/IAS shall enable and support:

Presentation of the information about the past

Maximization of its predictive value for users (= for the future)

5

IFRS Framework - Complete Set of Financial Statements.

The complete set of F/S provide a framework, guidelines and rules across all industries to present “financials” and make them public.

COMPLETE SET OF FINANCIAL STATEMENTS

Statement of changes in

equity

Statement of cash flows

NotesComparative information

Statement of financial position (Balance Sheet)

Statement of profit & loss and other comprehensive

income

All changes in

equity

Summary of major

cash inflows and

outflows

Significant accounting

policies and other

explanatory notes

Figures for

preceding period for

all amounts reported

Assets

Liabilities

Equity

Income (including gains) and

Expenses (including losses)

6

Agenda

01 IFRS Framework

02 IFRS Issues for Telcos


Regulation

04 Specific Cases


Equipment


IFRS 16 — Leases

05 Q&A

7

Important accounting issues for Telcos when being compliant to IFRS rely on the characteristics of telecom business.

IFRS Issues for Telcos - Top Ten Accounting Issues for Telco (1/2)

Revenue recognition IAS (18) and 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 FASB** and IASB also may change the revenue landscape in the future.

Capacity transactions Indefeasible rights of use (IRU) – contracts that entitle telecoms to buy/sell capacity or network.

Accounting for IRU can be complex and vary based on the facts and circumstances of

individual contracts.

Intangible assets Spectrum or wireless licenses, 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.

Property, plant and

equipment

Telecoms are faced with the challenging task of reviewing capitalization 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.

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 value. Consideration of the time value of money (i.e.,

discounting) is required.

*IFRIC is the interpretative body of the IASB; **Financial Accounting Standards Board

8

Lease accounting and provisions and contingencies are gaining attention among other items due to the transformation of the sector.

IFRS Issues for Telcos - Top Ten Accounting Issues for Telco (2/2)

Leases Considering the operating costs required by telecoms and the changing face of sector, lease

accounting is gaining attention.

Financial instruments Telecoms generally have financial instrument accounting issues owing to the treasury structures

used to assist material network infrastructure build.

Provisions and

contingencies

The standard requires the recognition of a present obligation as a provision based on the probability

of occurrence of outflow of resources. This may result in the recognition of additional amounts, as

compared to the existing standards currently applied by telecoms.

First-time adoption of IFRS Selecting accounting policies at the time of preparing the opening statement of financial position not

only affects the first IFRS financial statement but also the financial statements for subsequent

periods.

Presentation of financial

statements

Under IAS 1 entities present “complete” financial statements along with comparatives: Statement

of financial position, Statement of comprehensive income, Statement of changes in equity,

Statement of cash flows and notes.

9

Agenda

01 IFRS Framework



Regulation


Regulation


Equipment


IFRS 16 — Leases

05 Q&A

10

Price regulation uses predefined remedies and tools to determine prices. Cost models, ERT and price/margin squeeze tests are influenced by IFRS.

Relevance of IFRS on Price Regulation - Generic Tariff Regulation Framework Outline

Obligations of all Market Players Imposed by NRAs*

Market Players with SMP Market Players w/o SMP

Ex ante Process (predefined remedies/tools)

Benchmarking

Price Cap

Cost Model

Retail Minus

Approval Required

But…

No Approval Required

Ex post Assessment (at any time)Margin Squeeze

Ove

rall

Whole

sale

Regula

tion

Fra

mew

ork

(R

efe

rence O

ffer)

Ta

riff

Re

gu

lati

on

Fra

me

wo

rk

Benchmarking

Economic Replicability Test (ERT)

11

Top down cost modelling is the remedy which presents more relevance to IFRS implementation as well as margin/price squeeze tests.

Relevance of IFRS on Price Regulation - Description of Retail and Wholesale Tariffs Regulation Measures

Cost Model Based on specific operator´s costing information from accounting and financial records (top-

down approach) or on an hypothetical efficient new entrant cost structure (bottom-up approach) to

determine unit costs per service at wholesale and/or retail levels.

Price Cap Price cap regulation uses a formula to determine the maximum allowable price increases for a

pre-defined basket of services for a specified period. It permits the recovery of unavoidable cost

increases (e.g. inflation – CPI*, tax increases, etc.) through price increases.

Retail Minus Used to determine prices for wholesale services. The retail minus methodology begins with the retail

price and deducts the calculated retail costs (the minus), resulting in a price for the wholesale

service.

Benchmarking Comparable international prices for pre-defined services or basket of services are collected and a

'price corridor' is determined. Regulated wholesale and/or retail prices fall within this determined

'price corridor‘.

Margin/Price Squeeze Test A margin/price squeeze occurs when a single dominant wholesaler sells services to a retailer at a

price too high for the retailer to make any significant profit. This anti-competitive behavior can

be detected through a series of tests.

*Note: Consumer Price Index

12

Relevance of IFRS on Price Regulation – Top-Down and Bottom-Up Approaches; FAC/FDC vs. LRIC

Out of the two main modelling approaches, the top down approach has more touch points with IFRS by definition, however it is not fully compliant.

FAC/FDC

LRIC

As accounting approach, the FAC/FDC methodology is based on the expenses incurred by the operator and allocates them to each service in

accordance with the cost causation principle.

As an economic approach, the LRIC methodology considers that the cost of a service is equal to the change in total cost resul ting from a

discrete variation in output in the long run (that is when all inputs are variable).

Bottom-up

Calculation of Opex per netw ork element, depreciation

and cost of capital

Pricing of modelled netw ork assets at current or historical

prices

Creation of a netw ork model based on actual or hypothetical

structures

Allocation of total costs to services by means of service routing factors and mark-ups

Top-down

Derivation of operating costs and depreciation from actual

accounting records

Calculation of cost of capital by applying pre-tax WACC

on average capital employed

Allocation of total costs to services by means of service routing factors (element based

costing)

Direct reference toaccounting records

Direct reference toactual or hypothetical

network structures

IFRS

13

CCA Approach

HCA Approach

Relevance of IFRS on Price Regulation - HCA vs. CCA

A preferred cost valuation methodology in price regulation is CCA/FL which differs in some extent from IFRS which uses normally HCA.

HCA Approach HCA relies on what was built in the previous years to estimate what should be built for the coming

years.

CCA Approach CCA estimates the number of assets for a given year without taking into account what was

previously built.

Pros Cons

Depends heavily on the availability and

accuracy of extensive and detailed historical

data.

Reflect more closely the history of the

deployments corrected for potential

inefficiencies.

May not reflect the historical structure.

Could be difficult to achieve the level of

efficiencies in the case of significant drop in traffic.

Sends a more efficient signal on how much to

invest each year.

With an economic approach, it gives the same results as the historical approach except if

traffic is decreasing which is rarely the case for

telecommunications network.

14

Relevance of IFRS on Price Regulation - The Two Approaches Side by Side

CCA involves major adjustments of financial accounts if applied in the context of cost models. Assets need to be revalued at CCA / FL costs.

Historical Cost Accounting (HCA) vs. Current Cost Accounting (CCA)

Usually exogenous variable (based on taxation rules, industry standards, etc.) Asset life

Might be endogenous, calculated by solving commercial optimization problem

Assetvaluation

Based on historic equipment purchasing prices Based on current replacement value / market value of equipment

Depreciationmethod

Tends to use financial accounting depreciation (straight-line, accelerated)

Tends to use economic depreciation methods

Tends to result in higher telecom asset values; neglects price trends

Meaning

Tends to result in lower telecomasset values; depreciation might be higher due to

price erosion

Not suitable for mimicking a competitive market place

Costingtheory

Suitable for simulating the cost of an efficient late entrant who is free to chose technology

15

Regulatory pricing often requires to reevaluate assets using CCA and MEA methods that are more suitable for economic costing than for accounting.

Relevance of IFRS on Price Regulation - Problem of Asset Valuation

Asset Valuation Methods

HCA and CCA is about the price tag we put on assets employed. HCA is based on historical purchasing prices, whereas CCA refers to

current prices or MEA values.

Historical values

Current values

Modern equivalent assets (MEA)

Value of modern assets an operator would deploy today to create specific network capacities (switching, transmission, etc.)

Assets are revalued to reflect current cost of modern, but stable technology to provide a similar level of functionality and capacity

Different effects on different network elements: costs of labour intensive assets (cable/ducts) will usually be higher, costs of

technology intensive elements (switches, transmission) will be lower

Advantage: General agreement that MEA more suitable for economic costing

Disadvantage: MEA costs can be difficult to determine

16

Relevance of IFRS on Price Regulation - Problems of Current Cost Accounting in IFRS Environment

Under CCA, depreciation is the reduction in market value of an asset. While CCA is the theoretically soundest approach its, implementation is difficult.

Problem of Deriving Current Market Values

What is the current market value of an asset?Key question

Problems

No working secondary market for used telecom

assets

No current market prices available

How to estimate the current value?

Solutions(examples)

Revaluation of existing asset by applying correction factor

for MEA

Cash Flow Models(Economic Depreciation)

1 2

17

An approach for asset revaluation to account for MEA prices requires the collection of MEA prices and input about the installed capacity.

Relevance of IFRS on Price Regulation - Elaborating Current Market Values - Asset Revaluation with MEA can Deviate from IFRS

MEA Calculation Example Two Steps:

Replacement cost of existing asset

Accumulated depreciation

150,000

-60,000

Net Book Value existing asset 90,000

Cost of MEA 220,000

Output of existing asset

Output of MEA

20,000 units

40,000 units

MEA cost (for same output as existing asset):

220,000 x (20,000 / 40,000)

110,000

Replacement cost of existing asset becomes 110,000 reduction of

40,000 from present accounting replacement cost of 150,000

Accumulated depreciation needs to be reduced in same proportion: (110 /

150) x 60,000 = 44,000, hence

Revised replacement cost of existing asset

Revised accumulated depreciation

110,000

-44,000

Revised NBV of existing asset 66,000

1. Revaluation of assets:

Estimates of current value of all fixed assets on a

replacement cost or modern equivalent asset

(MEA) basis

Difficulty increases with age and complexity of

network

Generally the newer the network the better and

more up to date is the information about

equipment;

2. Depreciation adjustments:

Real asset lives are applied to the current MEA

values

Accounting entries are adjusted in depreciation in

regard of any holding gain and loss generated by

asset price changes

18

Due to the capability of transforming historical FAC models into LRIC and LRIC standards, it is possible to reconcile with IFRS financial statements.

Relevance of IFRS on Price Regulation – Reconciliation Possibilities

Reconciliation Possibilities with Regulatory Cost Modelling

Historical

FAC

Common

costs

adjustment

Economic

l i fetime

adjustment

Efficiency

adjustment

Historic

LRIC

(top-down)

Current

cost

adjustment

Current

LRIC

(bottom-up)

Increment-

related fixed

costs

LRIC

LRIC Adjustment HCA to CCAAdjustment

LRICAdjustment

Top-Down modeling Bottom-Up modeling

LRIC-Cost Model

Remarks

To enhance the robustness (of by nature imperfect)

Bottom-Up LRIC models it is possible to reconcile

and cross-check the results with Top-Down models

based on accounting records (IFRS).

Usually the implementation of Accounting

Separation procedures are carried out in a Top-

Down manner.

Assumptions of both models should be also

compared.

Integration of Top-Down and Bottom-Up

approaches in a single costing model (excel based)

is favorable for an efficient achievement of cost

modelling goals.

Note: Under CCA revaluation, could happen that

the revalued assets have a higher value than their

calculated value under HCA valuation (e.g. copper

networks) leading to higher unit costs in LRIC

models.

Accounting Separation

Input

IFRS

19

Agenda

01 IFRS Framework



Regulation


Regulation


Equipment


IFRS 16 — Leases

05 Q&A

20

Out of a long list of major accounting issues for telecoms, three IFRS main areas are identified to be relevant for price regulation.

Specific Issues for Telco Price Regulation – Short List

Specific Issues for Telco Price Regulation

Intangible assets

In-House developed software

Telecommunication licenses

Acquisitions

Leases

Indefeasible rights of use and capacity arrangements

Impairment of assets

Inventories

Inventory and marketing costs

Property plant and equipment

Revenue recognition

Bundled (or multi-element) arrangements

Prepaid sales and revenue

Customer loyalty programs

Content-providing arrangements

Interconnection arrangements

Activation cost and subscription fees

Information technology considerations and parallel reporting

IAS 16 — Property, Plant and Equipment IAS 38 — Intangible Assets IFRS 16 — Leases

Source: KPMG (2010), PWC (2008), PWC (2009a), PWC (2009b), Ernest & Young (2009), Detecon analysis

21

Agenda

01 IFRS Framework



Regulation


Regulation


Equipment


IFRS 16 — Leases

05 Q&A

22

IAS 16 Property, Plant and Equipment (PPE) outlines the accounting treatment for property, plant and equipment.

Specific Issues for Telco Price Regulation: IAS 16- Property Plan and Equipment (Tangible Assets)

The objective is to prescribe the accounting treatment for property, plant, and equipment.

The principal issues are the recognition of assets, the determination of their carrying amounts, and the depreciation charges and

impairment losses to be recognised in relation to them.

IAS 16 applies to the accounting for property, plant and equipment, except where another standard requires or permits differing

accounting treatments, such as: assets classified as held for sale (IFRS 5); biological assets related to agricultural activity (IAS 41);

exploration and evaluation assets (IFRS 6); mineral rights and mineral reserves such as oil, natural gas and similar non-regenerative

resources.

IAS 16 – Objective and Scope

PPE are tangible assets (they have physical substance) that are held for use in the production or supply of goods and services,

for rental to others, or for administrative purposes and are expected to be utilized in more than one period.

e.g. Backbone, Fibre Optic, Cable Infrastructure, etc

23

Initial measurement is at cost including the purchase price and all costs necessary to bring the asset to working condition for its intended use.


Recognition (reporting in B/S) - the cost of an item of PPE is recognized as an asset if

the item satisfies the definition of an asset, and

the cost can be measured reliably

Initial measurement – at cost including the purchase price and all costs necessary to bring the asset to working condition for its intended

use, i.e. costs of site preparation, delivery and handling, installation, related professional fees for architects and engineers, estimated

cost of dismantling

Recognition and Initial Measurement

Illustration:An entity is constructing a new production facility. The cost of the materials used was €20,000, consultancy fees were €1,000 and site preparation costs were €2,000. All of these are direct costs which should be included as part of the cost of the asset.The production facility will require dismantling in five years time at a cost of €800. This cost should be included as part of the cost. If the effect of time value of money is significant, the cost of dismantling the facility should be recognized as its present value.Operating losses of €350 were incurred in the start-up period between the asset becoming ready for use and full production commencing. The start-up period losses cannot be capitalized.

24

Normally recommended depreciation method in IFRS environment is the straight line method and units of production method.

Specific Issues for Telco Price Regulation: IAS 16 - Property Plan and Equipment (Tangible Assets)

Subsequent measurement:

Cost model. Asset is carried at cost less accumulated depreciation and impairment.

Revaluation model. Asset is carried at a revalued amount, being its fair value at the date of revaluation less subsequent depreciation

and impairment.

Depreciation begins when asset is available for use and continues until derecognition:

The depreciable amount (cost less residual value) should be allocated on a systematic basis over the asset's useful life

The depreciation method used should reflect the pattern in which the asset's economic benefits are consumed by the entity

Subsequent Measurement and Depreciation

Straight-line method

Straight-line method

Units-of-productionmethod

• Annual Depreciation = (Cost of PPE- RV) / Useful life (yrs)

• Annual Depreciation= (Cost of PPE- RV) / estimated production * Actual production

• Annual Depreciation = (Cost of PPE - RV) x Rate%

25

Telecoms face challenging task of reviewing capitalisation policies, detailed asset tracking and component depreciation.


Mass asset:

the nature of any telecom’s accounting will come under close scrutiny as part of the adoption of IFRS.

Component accounting:

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 judgment on part of the telecom.

Depreciation methods:

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.

Telecoms have the option to use one of the depreciation methods as long as it reflects the pattern in which the economic benefits

associated with the asset are consumed.

Relevance for Telecoms

26

Cost recovery are calculated using different depreciation methods. They differ in whether they account for costs of capital and price trends.

Specific Issues for Telco Price Regulation: Depreciation Methods Generally Implemented in Regulatory Cost Modelling (1 of 2 )

Excl. costs of

capital

Incl. costs of

capital

Excluding price trends Including price trends

Annuity

Viable approximation where price stays constant or

no resale is possible

Constant over lifetime of asset, hence the age of

the asset becomes irrelevant

Depreciation is generally underestimated in the

early years of investment

Straight line depreciation

Viable approximation where price stays constant or

no resale is possible

Costs of capital have to be accounted for

separately

Tilted straight-line depreciation

Often better approximation than straight line

depreciation since prices tend to fall over lifetime

Costs of capital have to be accounted for

separately

Tilted annuity

Often better approximation than annuity since

prices tend to fall over lifetime

Depreciation is generally underrepresented in the

early years of investment

27

Specific Issues for Telco Price Regulation: Depreciation Methods Generally Implemented in Regulatory Cost Modelling (2 of 2 )

Economic depreciation reflects the periodic change in market value of an asset defined as the discounted future cash flows generated by the asset.

EconomicDepreciation Input Factors

Economic Depreciation = Loss of Asset’s Market Value in period

= MVt+1 – MVt

Market Value MVt = Sum of discounted Free Cash Flows

=

Free Cash Flow Calculation

tn

1t

Out

t )WACC1(xFCF

Cash inflows (excl. interest) in period t

- Cash outflows (excl. interest) in period t

- Taxes, which decrease residual income from asset

- Capex for replacement and expansion + increases in WC

= Free Cash Flow (before interests, dividends and credit

repayments)

In

tCF

Out

tCF

tTax

tInvest

tFCF

Discount rate (weighted average cost of capital)

MEA asset prices over time

Operating costs over time

Utilization profile of the asset

…

Factors determine the economic life of an asset

28

The Regulatory Legacy Civil Engineering Assets (RLCEA) based on the EU Recommendation of 2013 defines a Regulatory Asset Base (RAB).

Specific Issues for Telco Price Regulation: Regulatory Legacy Civil Engineering Treatment (1 of 3)

Regulatory Legacy Civil Engineering Assets (RLCEA) and Regulatory Asset Base (RAB)

MEA: Modern Regulatory Assets

CEA: Civil Engineering Assets

FAR: Fixed Asset Register

Total Network CAPEX in Year 0 of Analysis

Reusable CEA

CEA-MEA based

(new investments

Fully depreciated CEA

Non reusable CEA

Not considered

Extracted from FAR

Annualization (calculation of

depreciation charge and cost of

capital)

Extracted from BoQ

Indexation Method

29

The RLCEA based on the EU Recommendation of 2013 implements the indexation only to the reusable CEA.







Reusable CEA

CEA-MEA based

(new investments)

Extracted from FAR



capital)

Extracted from BoQ

Indexation Method

30

Cost models can consider alternatively a fully MEA approach to calculate the RLCEA based on the technical modeling, differing from IFRS.







Reusable CEA

CEA-MEA based

(new investments)

Technical modeling



capital)

Extracted from BoQ

31

Agenda

01 IFRS Framework



Regulation


Regulation


Equipment


IFRS 16 — Leases

05 Q&A

32

IAS 38 specifies when and how intangible assets should be recognized, measured, amortized and tested for impairment.

Specific Issues for Telco Price Regulation: IAS 38- Intangible Assets Principles & Interpretation

Underlying principles of IAS 38 Interpretation

Definition Identifiable (separately) non-monetary asset without physical substance

Recognition

Tests to be applied:

Probable future economic benefits (therefore some costs directly expensed- start-up

costs, training, advertising)

Cost can be measured reliably (those internally generated not recognized- eg. brands,

customer lists, internally generated goodwill)

“PIRATE” criteria testing

Amortization

For those with definite useful life-> Review useful time and method at least each

fin.year; amortization till 0 residual value

For those with indefinite useful life-> Review assumption each fin. year

Impairment Impairment tests at least annually

Measurement at / after acquisition At cost (directly attributable)/ afterwards following cost model or revaluation model

33

Intangible assets related investment represent important category, eating up substantial part of Capex budget.

Specific Issues for Telco Price Regulation: IAS 38- Intangible Assets- Relevance for Telco

Beside network related investments (reflected in tangible assets), intangible assets and related investment represent second most

important category – proportion even increasing, especially for established operators

For many Telcos , some key Intangible assets are:

ERP systems / licenses

Tendering for new licences / spectrum

R&D

R&D costs normally are reported in the P&L account as Opex, however they can be treated as intangible assets if it can be proved that

R&D have probable future economic benefits

Relevance for Telcos

34

In some real-life situations, there is only thin demarcation line between expense and intangible asset.

Specific Issues for Telco Price Regulation: IAS 38- Intangible Asset s- PIRATE

Research Development

Criteria for Decision (PIRATE)

Investigation with prospect of obtaining of knowledge and

understanding.

To be expensed when occurred. (P/L)

Application of findings/ knowledge to plan/design/ production of

new/ substantially improved products (…future economic

benefits)

To be capitalised (recognised as intagible asset) and amortised.

(B/S)

• Probable future economic benefitsP

• Resources adequate to complete use/sellR

• Intention to complete and use/sellI

• Ability to use/sellA

• Technical feasibilityT

• Expenditure can be measured reliablyE

35

Agenda

01 IFRS Framework



Regulation


Regulation


Equipment


IFRS 16 — Leases

05 Q&A

36

IFRS 16 specifies how an IFRS reporter will recognise, measure, present and disclose leases.

Specific Issues for Telco Price Regulation: IFRS 16 — Leases

IFRS 16 — Leases

“IFRS 16 specifies how an IFRS reporter will recognise, measure, present and disclose leases. The standard provides

a single lessee accounting model, requiring lessees to

recognise assets and liabilities for all leases unless the lease

term is 12 months or less or the underlying asset has a low

value. Lessors continue to classify leases as operating or

finance, with IFRS 16’s approach to lessor accounting substantially unchanged from its predecessor, IAS 17”.

“IFRS 16 was issued in January 2016 and applies to annual

reporting periods beginning on or after 1 January 2019.”

Objectives

• Recognition,

measurement,

presentation and

disclosure of leases

• Ensuring that lessees and lessors provide

relevant information

that faithfully

represents those

transactions

Source: https://www.iasplus.com/en/standards/ifrs/ifrs-16

37

According to IFRS 16 leases in some cases can be shown as assets and not as liabilities.

Specific Issues for Telco Price Regulation: IAS 38- Intangible Assets- Relevance for Telco

IFRS 16 guides on how to treat leasing assets, in some cases as Capex

Capex has an impact in cost based pricing

Previous standards prescribed leasing as a sharing obligation, therefore as a liability to be reported in the BS

In IFRS 16 leasing costs can be shown as an asset, however will depend on the operational model and a yearly update (at fair value)

shall be implemented

Relevance for Telcos

38

Agenda

01 IFRS Framework



Regulation


Regulation


Equipment


IFRS 16 — Leases

05 Q&A

39

Contact Details

Edgar Bruno Cardozo Larrea

Mobile: 49 171 3367233

Email: [email protected]

BACKUP

41

IAS List # Name Issued

IAS 1 Presentation of Financial Statements 2007*

IAS 2 Inventories 2005*

IAS 3Consolidated Financial StatementsSuperseded in 1989 by IAS 27 and IAS 28

1976

IAS 4Depreciation AccountingWithdrawn in 1999

IAS 5Information to Be Disclosed in Financial StatementsSuperseded by IAS 1 effective 1 July 1998

1976

IAS 6Accounting Responses to Changing PricesSuperseded by IAS 15, which was withdrawn December 2003

IAS 7 Statement of Cash Flows 1992

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors 2003

IAS 9Accounting for Research and Development ActivitiesSuperseded by IAS 38 effective 1 July 1999

IAS 10 Events After the Reporting Period 2003

IAS 11Construction ContractsWill be superseded by IFRS 15 as of 1 January 2017

1993

IAS 12 Income Taxes 1996*

IAS 13Presentation of Current Assets and Current LiabilitiesSuperseded by IAS 1 effective 1 July 1998

IAS 14Segment ReportingSuperseded by IFRS 8 effective 1 January 2009

1997

IAS 15Information Reflecting the Effects of Changing PricesWithdrawn December 2003

2003

IAS 16 Property, Plant and Equipment 2003*

IAS 17 Leases 2003*

IAS 18RevenueWill be superseded by IFRS 15 as of 1 January 2017

1993*

IAS 19Employee Benefits (1998)Superseded by IAS 19 (2011) effective 1 January 2013

1998

IAS 19 Employee Benefits (2011) 2011*

IAS 20 Accounting for Government Grants and Disclosure of Government Assistance 1983

http://www.iasplus.com/en/standards/ias/ias1












http://www.iasplus.com/en/standards/ias/ias19_1998



42

IAS List # Name Issued

IAS 21 The Effects of Changes in Foreign Exchange Rates 2003*

IAS 22Business CombinationsSuperseded by IFRS 3 effective 31 March 2004

1998*

IAS 23 Borrowing Costs 2007*

IAS 24 Related Party Disclosures 2009*

IAS 25Accounting for InvestmentsSuperseded by IAS 39 and IAS 40 effective 2001

IAS 26 Accounting and Reporting by Retirement Benefit Plans 1987

IAS 27 Separate Financial Statements (2011) 2011

IAS 27Consolidated and Separate Financial StatementsSuperseded by IFRS 10, IFRS 12 and IAS 27 (2011) effective 1 January 2013

2003

IAS 28 Investments in Associates and Joint Ventures (2011) 2011

IAS 28Investments in AssociatesSuperseded by IAS 28 (2011) and IFRS 12 effective 1 January 2013

2003

IAS 29 Financial Reporting in Hyperinflationary Economies 1989

IAS 30Disclosures in the Financial Statements of Banks and Similar Financial InstitutionsSuperseded by IFRS 7 effective 1 January 2007

1990

IAS 31Interests In Joint VenturesSuperseded by IFRS 11 and IFRS 12 effective 1 January 2013

2003*

IAS 32 Financial Instruments: Presentation 2003*

IAS 33 Earnings Per Share 2003*

IAS 34 Interim Financial Reporting 1998

IAS 35Discontinuing Operations Superseded by IFRS 5 effective 1 January 2005

1998

IAS 36 Impairment of Assets 2004*

IAS 37 Provisions, Contingent Liabilities and Contingent Assets 1998

IAS 38 Intangible Assets2004*

IAS 39

IAS 40IAS 41

Financial Instruments: Recognition and MeasurementSuperseded by IFRS 9 where IFRS 9 is appliedInvestment PropertyAgriculture

2003*20162014






http://www.iasplus.com/en/standards/ias/ias27-2011


http://www.iasplus.com/en/standards/ias/ias28-2011













43

IFRS List

Title Date issued Effective Date

IFRS 1 — First-time Adoption of International Financial Reporting Standards 24 Nov 2008 01 Jul 2009

IFRS 2 — Share-based Payment 19 Feb 2004 01 Jan 2005

IFRS 3 — Business Combinations 10 Jan 2008 01 Jul 2009

IFRS 4 — Insurance Contracts 31 Mar 2004 01 Jan 2005

IFRS 5 — Non-current Assets Held for Sale and Discontinued Operations 31 Mar 2004 01 Jan 2005

IFRS 6 — Exploration for and Evaluation of Mineral Resources 09 Dec 2004 01 Jan 2006

IFRS 7 — Financial Instruments: Disclosures 18 Aug 2005 01 Jan 2007

IFRS 8 — Operating Segments 30 Nov 2006 01 Jan 2009

IFRS 9 — Financial Instruments 24 Jul 2014 01 Jan 2018

IFRS 10 — Consolidated Financial Statements 12 May 2011 01 Jan 2013

IFRS 11 — Joint Arrangements 12 May 2011 01 Jan 2013

IFRS 12 — Disclosure of Interests in Other Entities 12 May 2011 01 Jan 2013

IFRS 13 — Fair Value Measurement 12 May 2011 01 Jan 2013

IFRS 14 — Regulatory Deferral Accounts 30 Jan 2014 01 Jan 2016

IFRS 15 — Revenue from Contracts with Customers 28 May 2014 01 Jan 2017

IFRS 16 - Leases 13 Jan 2016 01 Jan 2019

IFRS 17 – Insurance Contracts 18 May 2017 01 Jan 2021

Conceptual Framework

http://www.iasplus.com/en/standards/ifrs/ifrs1















http://www.ifrs.org/projects/work-plan/conceptual-framework/#published-documents

Documents

Relevance and Issues of IFRS on Regulatory Cost Modelling · Retail Minus Used to determine prices for wholesaleservices. The retail minus methodology begins with the retail price