General

The annual report and consolidated financial statements have been approved for issue by the Board of Directors on March 8, 2017. The income statement and the balance sheet of the parent company and the statement of comprehensive income and the statement of financial position of the group are subject to adoption by the Annual General Meeting on April 5, 2017.

Telia Company’s consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU). In addition, concerning purely Swedish circumstances, the Swedish Financial Reporting Board has issued standard RFR 1 “Supplementary Accounting Rules for Groups” and other statements. The standard is applicable to Swedish legal entities whose securities are listed on a Swedish stock exchange or authorized equity market place at the end of the reporting period and specifies supplementary rules and disclosures in addition to IFRS requirements, caused by provisions in the Swedish Annual Reports Act.

Measurement bases and accounting policies

The consolidated financial statements have been prepared mainly under the historical cost convention. Other measurement bases used and applied accounting policies are described below.

Amounts and dates

Unless otherwise specified, all amounts are in millions of Swedish kronor (SEK) or other currency specified and are based on the twelve-month period ended December 31 for items related to comprehensive income and cash flows, and as of December 31 for items related to financial position. Rounding differences may occur.

Correction of prior period classification errors

Prior periods have been restated to reflect the discovery of certain classification errors between net sales and cost of sales referring to insurance sales in region Europe. The corrections were as follows:

Condensed consolidated statement of comprehensive income

SEK in millions

2015

Reported

Restatement

Restated

Net sales

86,569

-71

86,498

Cost of sales

-52,782

71

-52,710

Gross profit

33,788

33,788

Segments

The former segment region Eurasia is classified as held for sale and discontinued operations since December 31, 2015, and is therefore not included in the segment information. See Note C5 “Segment information.” For inormation on discontinued operations, see Note C34 “Discontinued operations and assets classified as held for sale.”

Recently issued accounting standards

New and amended standards and interpretations effective in 2016

As of January 1, 2016, the following new or amended standards became applicable:

The amendment to IFRS 11 “Accounting for acquisitions of interests in joint operations” clarifies that the principles and disclosure requirements in IFRS 3 “Business Combinations” also are applicable to an acquired share in a joint operation. The amendment has been applied since ­January 1, 2016, and has not had any material affect on Telia Company’s consolidated financial statements.

The following amendments has been applied since January 1, 2016:

  • Amendments to IAS 16 and IAS 38 “Clarification of acceptable methods of depreciation and amortisation,” “Disclosure Initiative”
  • Amendments to IAS 1 “Disclosure Initiative”
  • Annual Improvements to IFRSs 2012-2014 cycle

The amendments relevant to Telia Company are in certain cases in line with already applied interpretations and otherwise have had no or very limited impact on results or financial position.

New or revised/amended standards and interpretations effective on or after January 1, 2017

Telia Company has not pre-adopted any of the new or revised/amended standards effective on or after January 1, 2017.

IFRS 15 “Revenue from Contracts with Customers” is effective January 1, 2018, with earlier application permitted, and among others gives detailed guidance on the accounting for:

Bundled offerings: Telia Company’s current accounting and recognition of revenue for bundled offerings and allocation of the consideration between equipment and service is in line with IFRS 15. A detailed analyzis of the performance obligations and the revenue recognition for each type of customer contract is being performed and possibly the model currently used must be refined.

Incremental costs for obtaining a contract: Sales commissions and equipment subsidies granted to dealers for obtaining a specific contract should be capitalized and deferred over the contract term if the contract is beyond one year. Deferral related to contracts with shorter terms is allowed but not mandatory. Telia Company currently does not capitalize such costs. The potential effects are dependent on to what extent current commissions and subsidies are “incremental,” etc. and are being analyzed further.

Financing: If the period between payment and transfer of goods and services is beyond one year, adjustments for the time value of money should be made at the prevailing interest rates in the relevant market. Telia Company currently apply discounting, using the group’s average borrowing rate. This discount rate might have to be adjusted. The potential effects are being analyzed further.

Contract modifications: Guidance is included on when to account for modifications retrospectively or progressively. The effects, if any, are being analyzed further.

Disclosures: IFRS 15 adds a number of disclosure requirements in annual and interim reports, e.g. to disaggregate revenues into categories that depict how the nature, amount, timing and uncertainty of revenues and cash flows are affected by economic factors.

Transition methods: Either a full retrospective approach with adjustments to all periods presented or a modified approach with only the current period adjusted which however requires disclosures of all financial statement line items in the year of adoption as if prepared under current standards, i.e. effectively requiring two sets of accounting records during the year of adoption.

The IFRS 15 project has continued during the year and is proceeding according to plan. Telia Company is continuing to assess the total impact of IFRS 15 on the financial statements of the group and additional effects may be identified.

IFRS 9 “Financial Instruments” is effective as of January 1, 2018, and replaces IAS 39 “Financial Instruments: Recognition and Measurement.” The standard’s three main projects have been classification and measurement, impairment and hedge accounting.

Classification and measurement: Depending on how certain specified conditions are met after assessing the asset’s contractual cash flow characteristics and the entities business model for managing the asset, financial assets are classified and measured at any of the following three categories: Amortized Cost (AC); Fair Value through Other Comprehensive Income (FVOCI); or Fair Value through Profit or Loss (FVPL). The classification of financial liabilities is more or less unchanged from existing requirements. Preliminary, for Telia Company’s financial assets, the change into three categories will in most cases have no major effect on the measurement of a specific financial asset since the measurement bases are already today amortized cost or fair value, and, for financial liabilities, the changes will not impact Telia Company.

Impairment: IFRS 9 introduces a general three-stage model for impairment (expected credit losses) based on changes in credit quality since initial recognition. Calculation of amortized cost/effective interest differs between the stages; it either includes or excludes the allowance. The impairment model however includes some simplifications for trade receivables that do not have a significant financing component and a policy choice for trade receivables which contain a significant financing component and lease receivables, to either apply the simplified approach, or to apply the general model. In some cases the model will probably result in earlier recognition of losses than currently for Telia Company. In addition, extensive disclosures are required to identify and explain amounts that arise from expected credit losses and the effect of decline and improvement in credit risk.

Hedge accounting: IFRS 9 applies to all hedge relationships, with the exception of “fair value macro hedges.” The IASB is working on a project to address macro hedging, so in the meantime IFRS 9 provides an accounting policy choice for hedge accounting: either to continue to apply the requirements of IAS 39 until the macro hedging project is finalized, or apply IFRS 9. The hedge accounting requirements in IFRS 9 retain the three hedge accounting mechanisms but introduces greater flexibility in the types of transactions eligible for hedge accounting, the risks that can be hedged, and the instruments that can be used as hedging instruments. The new hedge accounting model enables a better reflection of risk management activities in the financial statements. The current 80-125 percent threshold effective-test is not carried over to IFRS 9. Instead, there should be an economic relationship between the hedged item and the hedging instrument, with no quantitative threshold. Telia Company expects no major effects based on current hedging activities. On the contrary, IFRS 9 is assumed to make it easier to achieve hedge accounting. However, the increased hedge accounting possibilities also require increased disclosures about the risk management strategy, cash flows from hedging activities and the impact of hedge accounting on the financial statements. In addition, consequential amendments have been made to IFRS 7 “Financial Instruments: Disclosures”.

Telia Company’s IFRS 9 project is proceeding according to plan and the assessment of the IFRS 9 impact continues. Additional effects may be identified.

IFRS 16 “Leases” replaces the current IAS 17 ”Leases” and its associated interpretative guidance. The new standard is effective as of January 1, 2019. IFRS 16 applies a control model to the identification of leases, distinguishing between leases and service contracts on the basis of whether there is an identified asset controlled by the customer. The new standard removes the classification of leases as operating leases or finance leases as is required by IAS 17 and, instead introduces a single accounting model. According to the new model all leases result in the lessee obtaining the right to use an asset at the start of the lease and, if lease payments are made over time, also obtaining financing. The lessee is required to recognize: a) assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value; and b) depreciation of lease assets separately from interest on lease liabilities in the income statement. The new standard does not include significant changes to the requirements for accounting by lessors. When the new standard is implemented, Telia Company’s long term operating leases will be recognized as non-current assets and financial liabilities in the consolidated statement of financial position. Instead of operating lease expenses, Telia Company will recognize depreciation and interest expenses in the consolidated income statement. Telia Company is assessing the effects of IFRS 16 and cannot provide an estimate of the effects of the new lease standard until the group has performed a detailed review.

Amendments to IAS 7 “Disclosure Initiative” are effective January 1, 2017. Comparative information for earlier periods are not required. The objective of the amendments is to improve the information about financing activities in the cash flow statements. The amendments require disclosure of information enabling users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. When applying the changes Telia Company expects to extend cash flow disclosures relating to financing activities in the consolidated financial statements.

Amendments to IFRS 10 and IAS 28 “Sale or contribution of assets between an investor and its associate or joint venture” address an acknowledged inconsistency between the requirements in IFRS 10 and those in IAS 28 (2011), in dealing with the sale or contribution of assets between an investor and its associate or joint venture. According to the amendments a full gain or loss is recognized when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss (only to the extent of the unrelated investors’ interests in that associate or joint venture) is recognized when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. The effective date of these amendments has been postponed indefinitely. The amendments may have an impact on Telia Company’s consolidated financial statements in future periods if such transactions should arise.

IFRIC 22 “Foreign currency transactions and advance considerations” is effective January 1, 2018. The new interpretation provides requirements about which exchange rate to use in reporting foreign currency transactions (such as revenue transactions) when payment is made or received in advance. The interpretation may have an impact on Telia Company’s consolidated financial statements in future periods if such transactions should arise.

The following amendments, which will be applicable for Telia Company, are expected to have no or very limited impact on Telia Company’s financial statements when they are applied for the first time:

  • Amendments to IAS 12 “Recognition of deferred tax assets for unrealised losses,” effective January 1, 2017.
  • Amendments to IFRS 2 “Classification and measurement of share-based payment transactions”, effective January 1, 2018.
  • Annual Improvements to IFRSs 2014-2016 cycle, effective January 1, 2017 and 2018.

Other issued amendments are deemed not applicable for Telia Company.

EU endorsement status

As of the beginning of March 2017, all standards, amendments to standards and interpretations mentioned above had been adopted by the EU, except for IFRS 16, amendments to IAS 7, IFRS 10/IAS 28, IAS 12, IFRS 2, Annual improvments 2014-2016 cycle, clarification to IFRS 15 and IFRIC 22.