PTA Drafts 2024 Accounting Separation Rules for Telecom Operators

The Pakistan Telecommunication Authority (PTA) recently drafted the “Accounting Separation (1st Amendment) Regulations, 2024.” These new regulations will require telecom license holders, both in the fixed and mobile sectors, to maintain separate accounts for each category of their licenses. The draft aims to bring clarity and transparency to telecom operators’ financial activities by enforcing clear separations of accounts for various business units.

Key Requirements of the Draft Regulations

Under the proposed regulations, licensees will be required to prepare annual Separated Accounts for the following business units:

1. Network related to the licensed system.
2. Retail related to licensed services.
3. Telecom region-wise separation.
4. License-wise segregation.
5. Non-licensed activities as a separate category.

For fixed network operators, further disaggregation is required between the Access Network and the Core Network. Retail activities associated with licensed services must also have their own accounts, while any non-licensed activities can be reported as “Retail – Remaining Activities.” An example might include separating retail-level activities from wholesale services such as those provided to a Mobile Virtual Network Operator (MVNO).

PTA Drafts 2024 Accounting Separation Rules for Telecom Operators

These accounts will need to reflect the costs associated with various services and activities, ensuring that there is no overlap or confusion between different business units.

Importance of Accounting Separation

The introduction of these regulations is aimed at ensuring greater transparency in the financial dealings of telecom operators. By separating accounts for each business activity, the PTA hopes to prevent cross-subsidization between services and ensure fair competition in the market. The Separated Accounts will also help in identifying and attributing costs, revenues, assets, and liabilities to the correct service or business unit, ensuring that each area of the business is accounted for independently.PTA Drafts 2024 Accounting Separation Rules for Telecom Operators

Operators deemed to be Significant Market Players (SMP) will have to maintain more detailed cost accounting systems. These systems are expected to comply with the existing guidelines on “Cost Accounting Methodologies for Accounting Separation Purposes, 2007.” The aim is to ensure that SMP operators meet their regulatory obligations. Also, that their financial reports are clear and accurate.

Accounting Principles and Conventions

The regulations specify several key accounting principles that must be followed by telecom operators:

1. Cost Causality: Revenues, costs, assets, and liabilities must be attributed to the business units responsible for generating them. Where direct attribution is not possible, costs should be allocated in a way that fairly represents the business activity’s financial situation.
2. Materiality: Operators are not required to use specific allocation bases if the allocation effect is immaterial. However, if costs impact the product or service significantly, the most appropriate activity-related cost allocation basis must be used.
3. Transfer Charges: All internal transactions between different business units of a telecom operator must be recorded as transfer charges. These should also be disclosed along with equivalent transactions between competing licensees. This ensures that internal dealings are transparent and that the costs associated with internal services are fairly represented.
4. International Accounting Standards: The Separated Accounts must adhere to International Accounting Standards unless regulatory accounting principles override these standards.

Reporting and Disclosures

Telecom operators will be required to provide the PTA with detailed reports on their financial activities, including:

• Profit and Loss Statements: These must disclose revenues and operating costs for each business unit. Profit must be shown before interest and tax, and any transfer charges must also be indicated.
• Balance Sheets: These should provide a breakdown of fixed assets, current assets, and liabilities, and the figures must represent average values for the reporting period.
• Supporting Notes: Additional information explaining significant changes in accounts, such as the effects of prior year restatements, must be provided.

The Separated Accounts will also have to include comparative information from the previous year to provide a clearer financial picture and allow for better financial monitoring and analysis.

Final Verdict:

The “Accounting Separation (1st Amendment) Regulations, 2024” represent an important step toward enhancing transparency and accountability in Pakistan’s telecommunications sector. By enforcing the separation of accounts for different business units, these regulations aim to ensure fair competition and prevent cross-subsidization. Telecom operators will be required to maintain detailed financial records, following both national regulatory guidelines and international accounting standards. This will allow PTA to better monitor the market and ensure that operators are adhering to their financial and regulatory obligations.

See Also: PTA Confirms VPNs Are Not Blocked in Pakistan, Dispels Rumours