Will the new accounting standards come to haunt Indian telecom companies?

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MUMBAI: Even as telecom majors fight the tariff wars the industry could see a lot of write downs– a reduction in the estimated or nominal value of an asset—of their investments, thanks to the new accounting standards—Ind-AS, say experts.

Most Indian companies have moved from old accounting standards (Indian GAAP) to the new accounting standards—Ind-AS. Experts point out that under the new standards some of the investments that have been made by the telecom companies for expanding their market share may just be considered irrecoverable and hence some of these investments may face the pressure of write downs.

Unlike the new accounting standards, Ind-AS also takes a note of market dynamics. And current investment in a project is measured based on its future viability. And companies will have to state, given by today’s revenue standards, how long will it take them to recover the costs. The companies and their accountants will have to state the recoverable value of an investment made in an area, say in 4G services. If tariffs are not in line with the recoverable value over say 10-20 years, these companies would be staring at write-downs.

Most of the telecom companies have pumped in billions with the hope of recovering them later. However, the rates charged from customers still remain low. Accounting experts point out that many telecom companies will start feeling the pressure in the fourth quarter of the financial year when the consolidated results as per the new accounting standards are to be released.

In many cases some of the assets will have to be written off completely. As the telecom sector witnesses consolidation, some of the assets—licenses in certain circles—will have to be surrendered to the government. These would also be treated as write-offs.

So if you are invested in or are looking to invest in telecom stocks, you may want to wait till companies declare their March quarter results