Telecom Italia S.p.A. – Annual report – 31 December 2016
NOTE 1 FORM, CONTENT AND OTHER GENERAL INFORMATION (extract)
FORM AND CONTENT
Telecom Italia S.p.A. (the “Parent”), also known in short as “TIM S.p.A.”, and its subsidiaries form the “TIM Group” or the “Group”.
TIM is a joint-stock company (S.p.A.) organized under the laws of the Republic of Italy.
The registered offices of the Parent, TIM, are located in Milan, Italy at Via Gaetano Negri 1.
The duration of TIM S.p.A., as stated in the company’s bylaws, extends until December 31, 2100.
The TIM Group operates mainly in Europe, the Mediterranean Basin and South America.
The Group is engaged principally in the communications sector and, particularly, the fixed and mobile national and international telecommunications sector.
The TIM Group consolidated financial statements at December 31, 2016 have been prepared on a going concern basis (for further details see Note “Accounting policies”) and in accordance with the International Financial Reporting Standards issued by the International Accounting Standards Board and endorsed by the European Union (designated as “IFRS”), as well as the laws and regulations in force in Italy (particularly the measures enacted implementing Article 9 of Italian Legislative Decree 38 of February 28, 2005).
In 2016, the Group has applied the accounting policies on a basis consistent with those of the previous years, except for the new standards and interpretations adopted since January 1, 2016 and described below.
The consolidated financial statements have been prepared under the historical cost convention, except for available-for-sale financial assets, financial assets held for trading and derivative financial instruments which have been measured at fair value. The carrying amounts of hedged assets and liabilities have been adjusted to reflect the changes in fair value of the hedged risks (fair value hedge).
In accordance with IAS 1 (Presentation of Financial Statements) comparative information included in the consolidated financial statements is, unless otherwise indicated, that of the preceding years.
At the end of 2016, following the introduction of a new procedure that refined the methods for the recognition of prepaid expenses and deferred income for the deferral of various revenues and costs by more precisely identifying the expiry dates of the individual contracts, TIM S.p.A. for 2015, reclassified 319 million euros from “Trade and miscellaneous payables and other current liabilities” to “Miscellaneous payables and other non-current liabilities” and 26 million euros from “Trade and miscellaneous receivables and other current assets” to “Miscellaneous receivables and other non-current assets”. These refinements did not have any impact on the income statement.
The TIM Group consolidated financial statements at December 31, 2016 are expressed in euro (rounded to the nearest million unless otherwise indicated).
Publication of the TIM Group consolidated financial statements for the year ended December 31, 2016 was approved by resolution of the Board of Directors’ meeting held on March 23, 2017.
THE CORRECTION OF ERRORS
Within the Brazil Business Unit, Tim Brasil’s Management identified that incorrect accounting entries were made in prior years in connection with the recognition of service revenues from the sale of prepaid traffic.
Such incorrect accounting entries, which were attributable to the business model used in Brazil for recognizing prepaid traffic revenues in non-recent years, resulted in the early recognition of revenues and consequently the underestimation of deferred revenue liabilities for prepaid traffic not yet consumed. The incorrect accounting entries did not have any impact neither in terms of net financial position nor on cash and cash equivalents.
In assessing the level of significance of the error for the purposes of the related financial statement presentation in accordance with IAS 8 (Accounting Policies, Changes in Accounting Estimates and Errors), Management also considered US accounting standards and related guidance.
In particular, this analysis indicated that the impact of the error was not material with respect to consolidated results of operations for each of the years ended December 31, 2015, 2014, 2013 and 2012, but the correction of the cumulative error as of December 31, 2015 would have a material impact on full-year consolidated results of operations for 2016, if entirely recognized at charge of such year.
In light of the above, in the Consolidated Financial Statements of the TIM Group for the year ended December 31, 2016, the comparative financial information as of December 31, 2015 has been revised, including the segment reporting. In accordance with IAS 1 and IAS 8, a revised consolidated statement of financial position as of January 1, 2015 is also presented.
The adjustments resulting from the correction of the errors applied to the consolidated statements of financial position at December 31, 2015, 2014, 2013 and 2012 are broken down as follows:
The item “Consolidated Statements of Financial Position – Historical” includes the effects of the reclassifications between current and non-current assets and liabilities that refers to prepaid expenses and deferred income as described in paragraph “Form and content”.
The increase in the item “Trade and miscellaneous payables and other current liabilities” was mainly attributable to the higher liability for prepaid traffic not yet used recorded to correct the error resulting from the early recognition of that traffic within revenues. In addition, the related changes in indirect and direct taxes have been taken into account and costs for commissions and associated liabilities have also been recalculated.
The adjustments resulting from the correction of the errors applied to the separate consolidated income statements for the years 2015, 2014, 2013 and 2012 are broken down as follows:
Earnings per share
The adjustments resulting from the correction of the errors applied to the separate consolidated income statements for the years 2015, 2014, 2013 and 2012 did not have any impact on the earnings per share (basic and diluted) for those years.
The adjustments resulting from the correction of the errors made to the consolidated statement of comprehensive income for the year 2015 are broken down as follows:
Consolidated Statements of Cash Flows
The correction of the figures for the year 2015 presented for comparison did not have any impact on the “Aggregate cash flows” of the Consolidated Statements of Cash Flows for the TIM Group for the year 2015 and, in particular, on the “Cash flows from (used in) operating activities”.