Share with your friends

Telcos – Implementing IFRS 16

Telcos – Implementing IFRS 16

Insight and analysis on the impact of the new leases standard


Related content

Woman with tablet

We consider how IFRS 16 will affect companies in this sector.

Telecommunication companies should not underestimate the potential impact of the new leases standard that applies from 1 January 2019.

The new leases standard will require companies to bring most leases on-balance sheet from 2019. For telcos, getting a complete list of leases will be a real challenge and a number of sector-specific arrangements will be affected, including:

  • dedicated lines; and
  • transmission assets.

Dedicated lines

A dedicated line may not be a lease if a supplier has substantive substitution rights that apply throughout the rental period. Assessing whether these substitution rights are substantive is highly judgemental and will be unique to each arrangement. 

Further, if a line agreement structure is customised, then it may be difficult to determine who directs the asset’s use and, consequently, whether a lease could exist.

Transmission assets

A lease may exist for a transmission asset if it is physically distinct. However, a lease can also exist for a capacity portion of a transmission asset that is not physically distinct, as long as the customer has the right to receive substantially all of the asset’s capacity. In this case, gathering sufficient information to determine whether a lease exists could be challenging.

Transmission asset arrangements may also comprise both lease and non-lease components. For example, if a designated space on a mobile tower is shared with other providers, one component (e.g. the space on the tower) may meet the lease definition, but not another (e.g. a shared cabinet). How lease components are separated will impact a telco’s KPIs and covenant metrics directly. 

Transition options

The standard features a variety of different transition options and practical expedients. Many of them can be elected independently of each other, and some can even be elected on a lease-by-lease basis.

This means that large companies could face a large number of possible permutations, making transition particularly challenging. If you haven’t already, start this process now as the transition approach you choose will have a significant impact on the carrying amount of net assets, and on trends in profit or loss in the post-transition years.

How we can help

Read Accounting for leases is changing: What’s the impact on telecommunication companies? (PDF 561 KB) for more information on how IFRS 16 will affect telcos, and how we can help.

Visit our IFRS – Leases hot topics page for KPMG’s most recent publications on leases.

© 2020 KPMG IFRG Limited is a UK company, limited by guarantee. All rights reserved. KPMG IFRG Limited, registered in England No 5253019. Registered office: 15 Canada Square, London, E14 5GL, UK.

KPMG International Cooperative (“KPMG International”) is a Swiss entity.  Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

Connect with us


Want to do business with KPMG?


loading image Request for proposal