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3-min read

OPINION | Telco Auditors Should Have Insisted on Making Provisions for AGR Instead of Burying Their Heads in Sand

If the telcos are guilty of brushing the crushing, mounting liabilities under the carpet and keeping their shareholders in the dark, once again it is the auditors who have to be blamed more for abdicating their advisory and whistleblowing role.

S Murlidharan |

Updated:November 1, 2019, 6:00 PM IST
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OPINION | Telco Auditors Should Have Insisted on Making Provisions for AGR Instead of Burying Their Heads in Sand
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Airtel and Vodafone-Idea, the worst-hit among the telcos, are making no bones about their displeasure with the Supreme Court interpretation of what constitutes adjusted gross revenue of the telecom companies.

The Supreme Court vide its judgment of October 24 upset their applecart by ruling that apart from termination fee and roaming charges, all other revenue, including non-operational, was to be included in the AGR that forms the basis of revenue sharing with the government.

Ironically, the industry, peeved with the one-time license fee regime that ruled the roost till 1999, is not satisfied with the strict implementation of the revenue sharing regime either.

The court has rightly reinforced the legal maxim that the law should be interpreted strictly as per its letter. The telcos have been guilty of agreeing to the strict and arguably rigid definition of AGR, perhaps flush with excitement at the immediate reprieve from the backbreaking one-time fee and perhaps in the smug realisation that they can, in the meanwhile, buy time.

Telecom companies pay around 3%-5% and 8% of the AGR as spectrum usage charges and licence fees, respectively, to Department of Telecommunications (DoT) since the revenue sharing regime kicked in. When revenue has to be shared, there is always a temptation to understate the revenue.

The industry is, however, guilty of not negotiating hard enough while signing the license agreements in the blasé belief that they can cross the bridge when they come to it. This ostrich-like approach has cost them dear.

If the telcos are guilty of brushing the crushing, mounting liabilities under the carpet and keeping their shareholders in the dark, once again it is the auditors who have to be blamed more for abdicating their advisory and whistleblowing role.

Conservatism is the basic accounting tenet accountants and accounting standards swear by. All liabilities that stare at you have to be provided for in the profit and loss account. And if some of them or all of them are debatable or legally contestable, at least they should have been to that extent disclosed as contingent liabilities as a footnote to the balance sheet so that at least the discerning among the readers of financial accounts read the ‘fine print’ and take the profits with a pinch of salt.

Auditors, however, should have put their foot down and insisted on a provision being made for the possible claim from the government for suppression of AGR and not settled for a wishy-washy footnote by way of contingent liabilities. It is another matter that they haven’t even done this.

The government’s auditor, Comptroller and Auditor General of India (CAG), had in 2017 tabled a report in Parliament that said six private telecom players understated their revenues by over Rs 61,000 crore, causing a loss of Rs 7,697.62 crore to the exchequer. At least this should have been a wake-up call to the smug telcos who also should have, in any case, heeded the 2011 Supreme Court rejection of their claims noting that “parties understood right from the beginning that the gross revenue does not exclude discounts, commissions, rebate, etc.”.

The apex court has given the telcos three months to comply with the order to pay up a whopping Rs 92,000 crore to the government towards additional revenue share that they had tried to wriggle out of through clever, half interpretation of what AGR meant. The total dues amount to Rs 92,641 crore (the disputed actual demand is Rs 23,189 crore, levy of interest of Rs 41,650 crore, penalty of Rs 10,923 crore and the interest on penalty of Rs 16,878 crore).

It is apparent that the telcos are paying a heavy price for their brazenness, bordering on contempt for the rule of law and its strict interpretation and implementation.

It is for the government to show magnanimity and grace to the industry reeling under a debt overhang of a whopping Rs 7 lakh crore, to waive off the interest on penalty and thereby mitigate the crushing burden although the industry doesn’t deserve it.

(The author is a senior columnist. Views are personal.)

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