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Telkom Integrated Report 2017
2 Basis of preparation and accounting policies
(continued)
2.2 Correction of prior period errors and change in accounting policy
Correction of prior period errors
The condensed consolidated annual financial statements provide comparative information in respect of the previous period. In addition,
the group presents an additional statement of financial position at the beginning of the preceding period when there is a retrospective
application of an accounting policy and a retrospective restatement. An additional statement of financial position as at
31 March 2015 is presented in these condensed consolidated annual financial statements due to the retrospective correction of a prior
period error.
2.2.1TelkomRetirement Fund
During the 31 March 2016 reporting period, the group reported the restatement of the balances as a “Reassessment of theTelkom
Retirement Fund (TRF) Defined Benefit Plan”. For classification purposes, it should be noted that the reassessment of the TRF constituted
an error and not a change in accounting policy as previously stated. All relevant IAS 8 disclosures (nature, correction amounts and the
amount of correction at the beginning of the year) regarding the error were appropriately disclosed in the FY2016 Financial Statements.
2.2.2 Fair value hierarchy
During the previous reporting periods, the group reported the fair value hierarchy of the TL20 bonds as level 1 instead of level 2 based on
the fact that it could access the quoted price of the bonds. According to IFRS 13, bonds can only be level 1 if they are quoted on an active
market. The TL20 bonds are quoted on the market, however their transactions are not frequent enough for the market to be regarded as
liquid.
The group has corrected this disclosure by changing the TL20 fair value hierarchy from level 1 to level 2. The group has assessed that
there has been no impact on the fair value of the TL20 bonds in the prior year as the quoted price is an adjusted market price, for
perceived changes in risk as well as the time value of money. The group will continue to assess if the quoted price of the listed
TL20 bonds is considered to be a level 1 or level 2 price and if further adjustment might be required.
2.2.3 Fraud - Trudon
During the current financial year, the group uncovered fraud at one of its subsidiaries, Trudon, resulting in the termination of the services
of the general manager, IT.
An internal investigation into the fraud was launched, which identified invoicing and accounting irregularities which led to the incorrect
recognition and subsequent measurement of intangible assets over a period of several years. The investigation also identified the past
practice of irregularly capitalising operating expenditure as intangible assets. The nature of the errors identified included:
> Intangible assets capitalised for which there was no evidence of a valid asset or expense as a result of the above fraud
> Expenses capitalised to intangible assets which on re-evaluation of the nature of expense, based on the invoice detail, was deemed to
not meet the recognition criteria of IAS 38 at date of capitalisation
> Identification of intangible assets which were no longer in use and which had been decommissioned in earlier periods but not
de-recognised at time of decommissioning
> Income tax implications in relation to expenses and wear and tear allowances deducted in prior periods relating to invoices associated
with financial irregularities which based on senior counsel opinion should not have been deducted for tax purposes.
These issues identified constituted material prior period errors and have been corrected by restating each of the affected line items for
the prior period as shown in the table 2.3 and 2.4 below.
2.2.4 Change in accounting policies
Cost of sales
The group has previously included all the expenses that can be directly linked to revenue received for services provided and goods sold
to customers in the definition of cost of sales.
Following the sale of the Enterprise business to BCX in November 2016, the group elected to change its accounting policy for cost of
sales to only include expenses directly tied to revenue from the sale of goods. This decision to change the accounting policy in the view
of management will provide more reliable and relevant information to ensure consistent presentation across the group following the sale
of Enterprise to BCX.
The new group accounting policy now applies that cost of sales determined as:
> Cost of goods sold relating to the sale of goods net of supplier rebates and discounts including:
• Commission costs paid to external parties for the sale of goods sold
• Logistics and delivery expenses relating to the goods sold
All other costs are disclosed by nature with the following being the key categories:
> Employee expenses
> Selling, general and administrative expenses
> Service fees
> Operating leases
> Depreciation and amortisation
This change in policy has resulted in the re-classification of these line items in the comparative statement of profit or loss and other
comprehensive income. Refer to note 2.3.