Making sense of a complex world

Valuing deferred tax assets - a guide to the exercise of judgment

The telecommunications industry is very dynamic, driven by technological developments and changes in the competitive and regulatory environment. Due to the significant capital expenditure involved in building infrastructure, investment recovery periods tend to be longer than in many other industries. In the past, a number of telecom operators have recorded significant start-up trading losses and losses due to impairment charges on licences or goodwill and other assets resulting from business combinations. Depending on local tax legislation, operators can use these losses to offset future taxable income.

This paper describes the issues typically encountered by operators in accounting for deferred tax assets and provides practical guidance on how to make, and support, the difficult judgments that are often required.