Eligible Revenue Information Sessions

For Auditors

Session overview

Purpose Legislative Framework carriers Which carriers are required to report? Why is eligible revenue calculated? Financial Reporting Framework Eligible Revenue Submission Tools for auditors

PURPOSE

Sessions are to assist auditors of industry participants to understand client statutory reporting requirements for conduct of audit and related engagements

Legislative framework for carriers

Set out in

Telecommunications Act 1997 (Telco Act)

Telecommunications (Consumer Protection and Service Standards) Act 1999

Telecommunications Universal Service Obligation (Eligible Revenue) Determination 2003

NEW! Telecommunications (Participating Persons) Determination 2011 (No.1) (Participating Persons Determination)

Telecommunications (Period for Providing Return of Eligible Revenue) Specification 2010

Telecommunications (Approved Auditor) Determination 2010

Which carriers are required to report?

For each eligible revenue period, a carrier is either:

a participating person - and must submit an Eligible Revenue Submission to the ACMA by 31 October

OR

a USO non-participating person – and must submit an eligible statutory declaration to the ACMA by 31 October

A participating person for an eligible revenue period is an entity that was a carrier at any time during that eligible revenue period [section 20A of the TCPSS Act].

However, the minister has determined that a person is not a participating person when the person (or “grouped carrier”) has:• initial sales revenue;• gross telecommunications sales revenue; OR• eligible revenue

of less than AUD$25 million for the eligible revenue period and the person submits an eligible statutory declaration to the ACMA by 31 October [part 4 of the Participating Persons Determination].

Regardless of a carrier earning under AUD$25mil revenue they will be a USO non participating person if they fail to provide an eligible statutory declaration to the ACMA by 31 October

Each participating person must provide a Return and supporting documentation to the ACMA by 31 October or may face penalties/other enforcement action – the Return must be compliant with the Act, i.e. substantially compliant with the form approved by the ACMA

Why is eligible revenue calculated?

Universal Service Obligation Levy (annual)

National Relay Service Levy (quarterly) Annual Carrier Licence Charge (annual variable component)

Financial Reporting Framework

Requirement Reference

Prepare an eligible revenue return and give to the ACMA

What return must set out

subsections 20(1) & (3) TCPSS Act

ACMA approved form of return

Verification by statutory declaration if required

subsection 20(2) TCPSS ActForm & Handbook on ER Portal on ACMA website

Date to provide return as specified by the ACMA (31 Oct)

subsection 20(2) TCPSS ActTelecommunications (Period for Providing Return of Eligible Revenue) Specification 2010

Provide an audit report on return with the return Section 20D TCPSS Act

Calculation of eligible revenue Telecommunications Universal Service Obligation (Eligible Revenue) Determination 2003in accordance with subsection 20B(1) TCPSS Act

Revenue from Australian telecommunications industry

Section 7 Telco Act 1997

Eligible Revenue Submission

for a participating person

Key reporting concepts

All participating persons to report

Eligible Revenue Submission on a group basis vs individual basis

Disclose revenue of Declared Related Parties (DRPs) and consolidated related parties

Key reporting concepts cont.

Evidence for revenues and deductions

Financial statements of carrier and related parties

Audit report OR Audit Waiver granted by the ACMA

Revenue Allocation Schedule – when submitting ERR Form for more than one carrier

Table 1: Gross Telecommunications Revenue allocationA   B   C

Note Ref Name of Carrier  

ABN/ACN (without spaces)

 

Gross Telecommunicatio

ns Revenue allocationin $AUD

R1  BIGTelco     22,000,000 R2

 MedTelco  

 

10,000,000 

R3   

  

  Total  $32,000,000           Total Gross Revenue  $32,000,000        

  Unallocated  $0

Revenue Allocation Schedule – when submitting ERR Form for more than one carrier

Table 2: Eligible Revenue allocation

Note Ref Name of Carrier  

ABN/ACN (without spaces)

 

Eligible Revenue

allocation in $AUD

R11 BIGTelco

 

 

$19,000,000 

R12 MedTelco

 

 

$6,000,000 R13        

 Total  $25,000,000

          Total Eligible Revenue  $25,000,000

         

 Unallocated  $0

Related Parties

Consolidated related party

an entity:

(a) that is not the participating person; and

(b) the revenue of which is included in the annual consolidated financial statements of the participating person’s ultimate Australian parent entity (whose revenues are fully accounted for in the ERR Form)

Related Parties cont.

Declared related party

Any entity that earns telecommunications sales revenue from the Australian telecommunications industry and that is not a participating person or a consolidated related party and is owned at any time during the eligible revenue period (>49%) by the owner of the carrier

Multiple Parties Schedule in ERR Form

Table 1: Ownership

   

Group Name:  

Note Ref Carrier Name  

Carrier Licence Number  

ABN/ACN (without spaces)

M1 BIGTelco    

 

M2 MedTelco      

 

M3        

 

Ultimate holding company

Bluetone

50% 50%

Carrier X

Multiple Parties Schedule in ERR Form

Table 2: Declared Related Parties

Please refer to Sections 6 and 7 of the Telecommunications Universal Service Obligation (Eligible Revenue) Determination 2003 to determine if you have any Declared Related Parties

Declared Related Party (DRP) Name  

(A)Proportion of Carrier owned

by Ultimate holding

company (participating

person interest)  

(B)Proportion

of DRP owned by Ultimate holding

company (party

interest)DRP Factor

(A x B)M13           0.00%

M14           0.00%

M15           0.00%

M16           0.00%

Bluetone 50% 50% 25%

Carry through to revenue and deductions sheets – example:

Table 1: Sales Revenue (per financial statements)A B    D E  

Note Ref

Name of Group/Carrier or name of DRP  

DRP factor % if applicable

(automatically applied from

"Multiple Parties" sheet)   

Total Revenue in $AUD

Carrier/Group Portion of Revenue  

R1 Bluetone       

R2      

25% $100,000 $25,000

Carrier A

Ultimate Australian Parent

Co X

Co Y

Co Y1Co Z

Co M

Co N1

Co N2

Co N3

Co N

100% 50%

Co J

Co K

90%

80%

80%

50%

50%

100%

50%

50%

90%50%

50%

Parent interest in Co N2: =(90%x100%x50%)+(90%x80%x50%)=45% + 36%=81%

Parent interest in Carrier A: =90%x80%x80%=58%

Multiple Parties Schedule in ERR Form

Table 2: Declared Related Parties

Please refer to Sections 6 and 7 of the Telecommunications Universal Service Obligation (Eligible Revenue) Determination 2003 to determine if you have any Declared Related Parties

Declared Related Party (DRP) Name  

(A)Proportion of Carrier owned

by Ultimate holding

company (participating

person interest)  

(B)Proportion

of DRP owned by Ultimate holding

company (party

interest)DRP Factor

(A x B)M13           0.00%

M14           0.00%

M15           0.00%

M16           0.00%

Co N2 58% 81% 47%

A complete Eligible Revenue Submission (ERS) is made up of two parts:

1. A Return Eligible Revenue Return Form (ERR Form) Final Financial Statements for carrier and related parties Outline of Business Structure

2. Supporting Documents Independent Audit Report Statutory Declaration – Management Certification

ERR Form

>Eight sheets (was 17 in 2008-09) and built in related party percentages>Prepare ERR Form in accordance with relevant Australian Accounting Standards>whole Australian dollars (AUD$) and English >exclusive of GST

Calculating Eligible Revenue Initial sales revenue Less Non-telco sales revenue and revenue earned whilst

not a licence holder = Gross telecommunications sales revenue Less Deductions:

- Overseas Activities and Acts in Australia for services outside Australia

- Customer equipment- Content services- Exempt base station- Infrastructure revenue- Inter-Person Input Payments

What is telecommunications revenue?

> Revenue earned from the telecommunications industry from carrying on business as a carrier or carriage service provider, or….

… supply goods or services for use in connection with the supply of a listed carriage service; supply a content service using a listed carriage service; manufacture or import customer equipment or customer cabling; or

install, maintain, operate or provide access to:

(i) a telecommunications network; or

(ii) a facility; used to supply a listed carriage service.

Audit report on return

An eligible revenue return given to the ACMA under section 20 must be accompanied by a report of an approved auditor that:

(a)is in a form approved in writing by the ACMA; …

This is the ACMA independent audit report form published for the relevant year on the:

ACMA Eligible Revenue Portal http://www.acma.gov.au/WEB /STANDARD/pc=PC_410118

Audit report on return…..

(b)states that the auditor has audited the return; and

(c)contains a determination, in the terms specified in the

form, of the auditor’s opinion; and

(d)states that the auditor has been given sufficient information

and assistance in order to audit the return; and

(e)includes all other statements and information required by the

form to be included.

Audit Report on Return - s20D TCPSS Act

The approved auditor must provide an audit opinion on all components of the Return, not only the ERR Form

Only exception is where an audit waiver or a conditional audit waiver has been granted by the ACMA.

Approved auditor

> Subsection 8F(1) of TCPSS Act – meaning of approved auditor:

A reference in this Part to an approved auditor is a reference to a person included in a class of persons specified in a written determination made by the ACMA for the purposes of this section

Approved auditor cont.

Telecommunications (Approved Auditor) Determination 2010 specifies the following as approved auditors:

1. Registered auditors under Part 9.2 of the Corporations Act 2001

2.Authorised audit companies registered under Part 9.2A of the

Corporations Act

3.Auditors-General

Check your registration as either a registered auditor or authorised audit company by using the professional registers on the ASIC website: http://www.search.asic.gov.au/pro.html

Requesting an Audit Waiver (may be a conditional audit waiver)

> Applies to only one eligible revenue period

> Request prior to lodging all other documents in an Eligible Revenue Submission

> Audit waiver is more likely to be approved where:- other sufficient and appropriate evidence is provided - when carrier did not hold the licence for the full eligible revenue

period- no significant errors in prior period returns- administrative expense is prohibitive for carrier compared to

expected revenue from telecommunications activity in Australia

Other Reports from Auditors -based on conditional audit waiver

> Limited subject matter audit reports> Agreed upon procedures reports> Review Reports> Client may need to provide methodology for revenue

recognition to the ACMA> Early contact with the ACMA Revenue Assurance

Section recommended

Tools

for auditors

Recommended: Point of Contact for Auditors

> Specific carrier representation – use ACMA contact form> Personnel nominated as point of contact for the ACMA

and the carrier for:> Notification of general issues> Discussion regarding the form of the audit report