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Financial Reporting Solutions
What we do
FRS has extensive experience in the application of IFRS (International Financial Reporting Standards) to telecommunications assets. FRS’s has for the past 18 years conducted various IFRS related assignments for telecommunications companies (for fixed line, mobile, fibre, satellite and mixed technologies) in a variety of countries across Africa.
These include but are not limited to:
- The complete reconstruction of fixed asset registers in compliance with IFRS standards
- Asset componentisation
- The co-ordination, management, trouble shooting and quality control of the physical count
- Network assets, their valuation, capitalisation, and behaviour
- The planning, supervision, photographic recording, tagging and physical counting of network and other assets at their locations
- Detailed IFRS network asset accounting policies
- Fixed asset register design and management for network assets
- Network asset componentisation, procurement, warehousing, and work-in-progress
- Asset valuations / pricing in terms of IFRS
- Management of land and building re-valuations
- Determination of asset capitalisation dates
- Compilation of the reconstructed fixed asset register
- Reconciliation to the existing fixed asset register and general ledger
- Maintenance and updating of the new fixed asset register until it is transferred to an appropriate electronic register
- Asset roll-out projectisation to facilitate management of asset capitalisation per IFRS
- Fixed asset register design, testing, data transformation and uploading to client’s ERP system / electronic register
- Various costing and other exercises requested by telecommunications CFO’s from time to time
- Design and implementation of fixed asset analysis and reporting applicable to a variety of stakeholders
NETWORK FIXED ASSET COMPONENTISATION AND FIXED ASSET REGISTER
Network assets typically comprise 75% or more of a telco’s balance sheet.
These assets are highly technical in nature. The construction of a GSM or fixed line network platform involves switches, network sites, software, licences, support assets, strategic assets, and may include fibre or copper routes.
These assets are generally rolled out on a functional basis (e.g. voice (2G) data (3G or LTE) transported by microwave, radio, satellite or fibre. The value of a new roll-out or modernisation program depending on the size of the network can range from US$ millions to billions.
Furthermore, accounting staff generally have little or no knowledge of IFRS, network assets or their componentisation. The result is that network fixed assets are capitalised in the fixed asset register on supplier invoices / payment or procurement transaction details and comprise a diversity of data that includes:
- Bulk values – multiple assets that were procured together then separated and constructed into the network at multiple locations.
- Attributable costs / non-assets – Items such as customs duties, freight, insurance, handling and clearing costs etc. that should have been capitalised to the underlining asset are capitalised separately.
- Non IFRS allowable costs – IFRS is specific about the costs that can be capitalised to an asset on initial and subsequent recognition. Many costs that do not comply with IFRS are often included when they should be expensed. This raises difficult issues with subsequent impairment.
- No location information – The assets cannot be traced to locations and existence validated. This raises the sceptre of audit qualification;
- Incorrect application or failure to comply with IFRS – This is generally the case with depreciation where the operating company applies depreciation from date of receipt of the asset and not from date of recognition of the asset. There are many such instances that arise e.g. incorrect useful lives, asset retirement provision, exchange rates, impairments, incorrect capitalisation of costs (both costs that should not be capitalised and costs that should be capitalised). Only by implementing detailed accounting policies can this situation be resolved.
- No componentisation – Telecoms assets change at a rapid rate to respond to new technologies. Without componentisation and understanding of the behaviour of assets in question, estimates of useful life, depreciation, residual values, etc. become arbitrary and subject to audit queries that are difficult to satisfy. Furthermore, without componentisation assets cannot be uniquely identified, managed or accounted for.
- Inadequate / inappropriate / ineffective contractual arrangements – Typically contracts with major suppliers, site build contractors and landlords are structured and executed without regard to the telecoms operator’s requirements resulting in unnecessary and complicated overload of their admin systems.
- Poor or non-existent documentation across the period of construction of the network. This lack of legal and accounting evidence of construction projects is often typical for the speed with which the telco needs to generate cashflow to maintain and grow the business into a dominant force in the market place.
Whilst the focus of FRS has been on the complexity of the telcom environment the principles, policies, processes, and procedures adopted can be applied to any complex asset industry. The modus operandi is:-
- Discovery – understanding the asset base, management’s / the sponsor’s objectives, the legal and accounting frameworks and their condition (reliability) and defining the deliverables in order to structure the project accordingly.
- Setting the mandate with the management,
- Quoting the project to meet the objectives – time based or fixed quote (depends on risk, timing, deadlines, staffing etc.)
- Execution