Analysis of Etisalat Accounting Policies - Example

Analysis of Etisalat Accounting Policies Student’s Name Institutional Affiliation Etisalat: Company Profile Etisalat is a multinational Company based in the UAE founded in 1976 in Abu Dhabi. It is engaged in the provision of telecommunication services in more than 18 countries distributed within the larger Asiatic region; the Middle East and Africa as well (Etisalat, 2016). Presently, the firm holds position 13th in relation to the underlying distribution network operator and, it was also listed by Forbes Magazine as the most powerful entity in UAE. Currently, it enjoys a market capitalization of more than $44.9B and only competes with Emirates Integrated Telecommunications Company (Etisalat, 2016). It is considered to be one of the most sought after internet providers in the Middle East given that it avails intensive connection to other telecommunication operators within the region. Subsequently, it is also noted to be the largest voice carrier of international voice traffic within the Middle East and parts of African (Etisalat, 2016). In addition to telecommunication service provision and carrier of units; the firm further incorporates a significant number of additional non-telecom business segments under the Etisalat Services Holding Group (Etisalat, 2016). The focus of this diversification strategy lies in them supporting the company’s overall operations while still ensuring to avail services to additional operators and organizations that include; Etisalat Academy; Ebtikar, which is engaged with SIM/Smart card manufacturing and payment solutions; and Emirates Internet Exchange, which provides peering/voice and data transmission services (Etisalat, 2016). Etisalat Financial Statements Significant Accounting Practices New and Amended Standards Adopted by the Group The notes to the financial statements indicate that the underlying accounting policies that are adhered in the course of preparing and consolidating all of the financial statements are all consistent with ones that are adhered to in the Group’s overall annul consolidated financial statements for the prior operational years except for some new or amended accounting frameworks as well as any new standards and interpretations that is deemed to be effective as at January 2015. These revised IFRs that have been effectively adopted in the preparation of the financial statement are discussed in detail although it is indicated that their immediate application has not resulted to any possible impact on the overall amounts that is disclosed for both the current and prior operational periods but it is expected to affect future accounting transactions. In the period between 2010 and 2012, the firm ensured to improve on IFRs adoption to include such IFRS updates; 13, 16, and 24. In 2011 and 2013, it adopted improved IFRSs 1, 3 and 40 and in currently, it is focused on adopting the existing amendments made to IAS 19, which relates to Employee Benefits in order to clarify any stipulations related to the contributions made by the existing employees or even third parties and are connected to the service must be associated with the periods of service. The figure below presents the IFRS standards, amendments and interpretations that are still not effective and have not been adopted by the company either; Etisalat Management however; indicates that even with the application of these standards and interpretation in future operational years will still not result to any possible material impact on the overall consolidated financial statements of the entire Group for the periods for which initial adoption is required with only the exception of IFRS 15 that focuses on revenues from contracts and customers; IFRS 9, which deals with financial instruments; and IFRS 16 that focuses on leases, which the management is still accessing. A. Inventory Etisalat ascertains that it measures its inventories at the lower of the cost and net realizable value. It continues to note that these costs are made up of direct materials and in other specific circumstances labor and overhead costs, which have been incurred by the firm, while making efforts to move these inventories to their present locations and situation. The firm further provides for an allowance, in the most appropriate situations, for purposes of deterioration and obsolesces. Certainly, clear, the level of costs incurred are established in adherence to the weighted average cost method while the net realizable value portrays the estimated selling prices minus any possible estimated costs of completion and, also costs incurred while engaging in such activities as marketing, selling and distribution services. Depreciation In relation to the numerous investment properties, depreciation is imposed on these properties that are withheld in order to earn income provisions like rentals and, also for purposes of capital appreciation. Depreciation is stated at their respective costs and it is encompassed in a separate manner under the non-current assets within the overall consolidated statements of financial position. . It is important to add that investment properties are also depreciated on a straight line technique over the lesser of 20 years and the period related to the lease at hand. As opposed to land, which is never depreciated, the overall costs incurred in acquiring property, plant and equipment are subjected to a depreciation model of straight line method over the given approximates of the entire useful lives f the assets as can be shown in the figure below; B. Revenue Recognition Etisalat measures revenues at its fair value of the consideration received or receivable in the future. It portrays the overall amounts receivable for telecommunication-related products as well as services that is availed in the day-to-day operations of the business as a whole. Revenues recognition is stated at their net of sale taxes, discounts and rebates and also, when there is a significant likelihood that the economic benefits attributed to a given transaction will flow to the Group. It is important to note that the flow of these revenues and costs incurred in the process should be easily measured. Consequently, any amounts related to the telecommunication services should encompass all levels of amounts that are charged to the customers in regards to monthly access charges, airtime consumption, messaging services, the provision of other notable telecommunication services that further includes data services as well as information provision. It should further be able to portray the fees paid in order to connect users to the internet grid or fixed lines as well as possible mobile networks. It is noted that all access charges and airtime consumed by contractual customers are immediately invoiced and thereafter recorded as a section of the periodic billing cycle. It is further recognized as imminent revenues ascertained to a related access operational year with possible unbilled revenues emanating from services that are deemed to have already been availed from the resultant billing cycle date at the end of each operation year. These revenues are usually accrued and unearned from certain services that are availed in operational periods after possible deference. Notably, all revenues that are a result of prepaid credit is indeed recognized on the underlying actual utilisation of the prepaid credit and is subsequently deferred and posted as deferred income till a period when the customer manages to consume the airtime or whenever the credit attains it expiry dates. It is important to note that revenues that are gotten from data services and information provision are indeed recognized whenever the business managed to conduct the underlying service while still depending on the overall nature of this service. In fact, it is recognized either at the resultant gross amounts that are later billed to the end consumer or even when the amounts received by the Group is deemed to be a form of commission for fostering the underlying service. Possible modes of incentives are availed to the end consumer in different forms and, for most cases it is provided immediately after the signing of a new agreement or when it falls as a section of the promotional offering or placement for that matter. In the event that these incentives are availed in regards to the connection related to a given customer or the upgrade of the existing consumer, the total revenues that portrays the imminent fair value of the incentive and it is deemed to linked to the other forms of variables that are also availed to the customer as part and parcel of the similar agreement, is entirely deferred and later recognized in accordance with the Group’s performance of its immediate commitments that closely links to the incentive at hand. For those revenue agreements that involve additional deliverables that are deemed to be having value to a customer on standalone basis, the contractual consideration is apportioned to each of the underlying deliverables while still focusing on the imminent relative fair values for their respective distinctive elements. It is important to note that the Group basically establishes the fair value of respective elements basing on their prices for which the deliverable is certainly resold at a standalone bases. Recognition of contract-based revenues is undertaken by implementation of the percentage completion model, which recognizes profits derived from contracts whenever the overall outcome of the contract is reliably estimated. The provision for this technique is allowed for possible foreseeable future losses that have been estimated to complete contracts. Revenues related to the interconnection of voice and data traffic with other telecommunication providers is recognized at the exact time the entire service is conducted while still basing it on the actual recorded traffic if possible. In essence, interest income is basically accrued on a timely-basis by referring it to the principal outstanding and at the effective interest rates that are deemed to be applicable within the time. The rate is used to discount estimations of future cash receipts through an expected entire life period relating to certain financial assets to the overall asset’s net carrying amounts. C. Fixed Assets Property, Plant & Equipment These fixed assets are measured at their immediate cost less any possible accumulated depreciation and any form of impairment. It is important to note that the cost is made up of the immediate cost incurred in purchasing equipment and materials that further includes freight and insurance, possible charges from contractors for purposes of installation and building works, labor-related costs as well as an approximate of the entire costs linked to the dismantling and elimination of the equipment and thereafter reparation of the site for which it was previously located. Assets that are still in the process of construction are immediately carried at their relative costs less any possible impairment whenever it is apparent. For this case, the costs incurred involve professional fees; while for the qualifying asset-base; borrowing costs are capitalized in adherence to the Group’s overall accounting policies. It is noted that the depreciation of these classes of assets begins whenever they are deemed to be ready for their usage. Notwithstanding, the subsequent costs are integrated within the asset’s carrying amounts or recognized as a separate class of asset, as proper as possible and only whenever there is a high likelihood that the future economic benefits attributed to the item will significantly flow to the Group while the exact of this process can be measured in a reliable way. In relation to other forms of repair and maintenance cost associated with these costs are immediately charged to the underlying consolidated statement or even profit or loss in the course of the period for which they were readily incurred. Investment Property Investment property, which refers to property held by the Group for purposes of rentals or in other cases capital appreciation, is recognized at their respective cost minus possible accumulated depreciation as well as impairment losses. D. Intangible Assets Goodwill Possible Goodwill that will arise out of the consolidation process will be represented in excess of the cost of a given acquisition over the fair value of the Group’s share of net identifiable assets of given acquired subsidiary and at the very end of the acquisition. The Group recognizes goodwill as an asset at a cost and is measured at cost less any possible accumulations of impairment losses. For the purpose of impairment testing, the group subject goodwill to an allocation process for each subsequent cash-generating unit (CGU) that is expected to benefit from the synergies of the overall combination. Notably clear, cash-generating units for which goodwill has been allocated are tested for purposes of impairment on an annual basis or on a more frequent manner whenever there is a likelihood that the unit maybe impaired. In the event that the recoverable amount related to the CGUs are deemed to be less in comparison to the carrying amounts of the unit, the impairment loss is apportioned first in order to eliminate the carrying amounts of any goodwill that is apportioned to the unit and later to the non-financial assets of the unit pro-rata on the basis of the carrying amounts of each assets located within the unit as a whole. Licenses All of the recently acquired telecommunication licenses are posted and recognized at their immediate cost on the case of a business combination at its fair value. Consequently, licenses are also armotised on a straight line basis over estimated useful lives from the very day on which networks are deemed to be available for consumption purposes. For this case, the estimated useful lives lies between 10 and 25 years and are established using the unexpired license period. Internally-Generated Intangible Assets This is recognized at their respective costs that emanate from the Group’s IT development and it is recognized at cost only whenever specific conditions are met. Indefeasible Rights of Use (IRU) The Group defines IRUs as being the underlying right to the use of a portion of a capability of a given terrestrial or submarine transmission cable that is awarded for a given fixed period of time. They are recognized at their costs as assets whenever the Group manages to secure indefeasible right to utilize an identified portion of the existing asset-base. Other Intangible Assets Such other intangible assets as customer relationships and trade names are thereby recognized at their respective fair values. Similarly, they are also subjected to amortization process on a straight line basis over their estimated useful lives. It is further noted that the useful lives of customer relationships are positioned between 3-13 years while in consequence; trade names have a useful live spread between 15-25 years. E. Pension Accounting The Group refers to this accounting item as end of service benefits. All of the payments that are set aside for purposes of providing to the different contribution schemes are immediately charged as an expense as and whenever they fall due. In essence, all of those payments that are deemed to be state-managed pensions schemes are define as contribution schemes where the entity commitments over them are similar to ones that arise from a defined contribution scheme. In this regard, the provision for employees’ end of service benefits for all UAE expatriates is conducted in adherence to the Projected Unit Cost approach that is fairly laid –out in IAS 19 Employee Benefits that put much emphasis on UAE Labor laws. In truth, the provision is indeed recognized on the underlying present value of the defines benefit commitments at hand. Crucial to note, the present value of the defined benefit commitment is computed while taking into consideration of assumptions put on average annual rates of increase in salaries and average periods of employment for all expatriates. References Etisalat. (2015). 2015 Annual Report. Retrieved from http://etisalat.com/en/system/docs/12-4-2013/Etisalat-AnnualReport2015-English.pdf Etisalat. (2016). About Us. Retrieved from http://www.etisalat.ae Read More