to download Telecom Italia Annual Report 2011 - Company Reporting

Financial statement line
item/area
Accounting estimates
Goodwill
Bad debt provision
Depreciation and
amortization expense
Provisions, contingent
liabilities and employee
benefits
Revenues
Income taxes
Derivative instruments
and equity instruments
The impairment test on goodwill is carried out by comparing the carrying amount of cashgenerating
units and their recoverable amount. The recoverable amount of a cash-generating unit
is the higher of fair value, less costs to sell, and its value in use. This complex valuation process
entails the use of methods such as the discounted cash flow method which uses assumptions to
estimate cash flows. The recoverable amount depends significantly on the discount rate used in
the discounted cash flow model as well as the expected future cash flows and the growth rate
used for the extrapolation. The key assumptions used to determine the recoverable amount for
the different cash generating units, including a sensitivity analysis, are detailed in the Note
“Goodwill”.
The recoverability of receivables is measured by considering the uncollectibility of receivables,
their age and losses on receivables recognized in the past by type of similar receivables.
Changes in the economic conditions of the markets, technology and competitive forces could
significantly affect the estimated useful lives of tangible and intangible non-current assets and
may lead to a difference in the timing and amount of depreciation and amortization expense.
As regards the provisions for restoration costs, the estimate of future costs to dismantle tangible
assets and restore the site is a complex process that requires an assessment of the liability
arising from such obligations which seldom are entirely defined by law, administrative regulations
or contract clauses and which normally are to be complied with after an interval of several years.
Provisions for legal, arbitration and fiscal disputes are the result of a complex estimation process
based upon the probability of an unfavorable outcome.
Employee benefits, especially the provision for employee severance indemnities, are calculated
using actuarial assumptions; changes in such assumptions could have a material impact on such
liabilities.
Revenue recognition is influenced by:
the expected duration of the relationship with the customer for revenues from telephone
service activations (as well as the related costs);
the estimate of the amount of discounts, allowances and returns to be recorded as a direct
deduction from revenues.
Income taxes (current and deferred) are calculated according to a prudent interpretation of the
tax laws in effect. This process sometimes involves complex estimates to determine taxable
income and deductible and taxable temporary differences between the carrying amounts and the
taxable amounts. In particular, deferred tax assets are recognized to the extent that future
taxable income will be available against which they can be utilized. The measurement of the
recoverability of deferred tax assets, recognized based on both unused tax loss carryforwards to
future years and deductible differences, takes into account the estimate of future taxable income
and is based on conservative tax planning.
The fair value of derivative instruments and equity instruments is determined on the basis of
either prices in regulated markets or quoted prices provided by financial counterparts, or using
valuation models which also take into account subjective measurements such as, for example,
cash flow estimates, expected volatility of prices, etc.
In the absence of a Standard or an Interpretation that specifically applies to a particular transaction,
management carefully considers subjective valuation techniques and uses its judgment as to the
accounting methods to adopt with a view to providing financial statements which faithfully represent the
financial position, the results of operations and the cash flows of the Company, which reflect the
economic substance of the transactions, are neutral, prepared on a prudent basis and complete in all
material respects.
New Standards and Interpretations approved by the EU in force from
January 1, 2011
As required by IAS 8 (Accounting Policies, Changes in Accounting Estimates and Errors), the following
new principles and interpretations (amendments and improvements included), in force from January 1,
2011, govern situations that do not exist within Telecom Italia at the date of these separate financial
statements, but may affect the accounting for future transactions or agreements:
• Amendment to IAS 32 (Classification of Rights Issues);
• Amendments to IAS 24 (Related Party Disclosures);
• Amendments to IFRIC 14 (Prepayments of a Minimum Funding Requirement);
Telecom Italia S.p.A. Separate Financial Statements Note 2 – Accounting policies 324