Axiata Group Berhad - Annual Report 2016

FINANCIAL STATEMENTS

Axiata Group Berhad | Annual Report 2016

151

CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgements are continually evaluated by the Directors and are based on historical experience and other factors, including expectations

of future events that are believed to be reasonable under the circumstances.

(a) Critical judgements in applying the Group’s and Company’s accounting policies

In determining and applying accounting policies, judgement is often required in respect of items where the choice of specific policy could

materially affect the reported results and financial position of the Group and the Company. The following accounting policies require subjective

judgements, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Intangible assets – Acquired telecommunication licenses with allocated spectrum rights

The Group has applied judgement in determining the treatment of the annual fees payable over ten (10) years in respect of a 3G spectrum

license granted to a foreign subsidiary. The annual fee is charged to the profit or loss when incurred based on management’s judgement that

future annual fees will no longer be payable upon the decision by the subsidiary to return the license. The Group considers the prepaid annual

payment to be usage fees based on interpretation of the license conditions, written confirmation from the Directorate General of Post and

Telecommunication, Indonesia and current financial year assessment of 3G operations. The prepaid annual fees are therefore not considered

part of the acquisition cost of the license.

Should the regulations and conditions with regards to the payment of the annual fees be amended in the future with the consequence that

payment of the remaining outstanding annual fees cannot be avoided upon the subsidiary surrendering the license, the Group will recognise

an intangible asset and a corresponding liability at the present value of the remaining annual fees at that point in time.

Intangible assets – Estimated useful life of telecommunication licenses with allocated spectrum rights

The telecommunication licenses with allocated spectrum rights acquired by a subsidiary via business combination are not subject to

amortisation and are tested annually for impairment as the Group in the opinion that the licenses can be renewed in perpetuity at negligible

cost and the associated spectrum rights, similar to land, have an indefinite economic useful life. The estimated indefinite economic useful life

reflects the Group’s expectation of the period over which the Group will continuously recover the benefits from the licenses.

(b) Critical accounting estimates and assumptions

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the

related actual results. The Group, and to a large extent the activities, are governed by the legal, regulatory and business environment in the

countries which the Group operates in and which the Group has investments in. The business of the Group is subject to a number of risks, many

of which are beyond the Group’s control.

The main risks relating to the Group’s business are as follows:

Increasing competition in the countries the Group operates in

Challenges in expanding business in certain emerging markets

Political, regulatory and social developments in the region the Group operates in

Significant expansion of capital investments required

Increasing substitution for traditional voice and data market

To enhance the information content of the estimates, certain key variables that are anticipated to have material impact to the Group’s results

and financial position are tested for sensitivity to changes in the underlying parameters. The estimates and assumptions that have a significant

risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next year are mentioned below.

(i) Impairment assessment of goodwill

The Group tests goodwill for impairment annually in accordance with its accounting policy and whenever events or change in

circumstances indicate that this is necessary within the financial year. Recoverable amount is measured at the higher of the FVLCS for

that asset and its VIU.