Audit of

Telecommunications
Industry

Submitted by:

Amoguis, Jhanna Cuanan

Bernido, Elaine E.
Calpe, Charlyn
Cruz, Rowena
Fernando, Kyanna N.
Gauiran, Rhoda Mae
Justicia, Jhaspher
Luching, Elisha Mae
Manlangit, Dundie C.
Robiso, Eva May
Tinos, Maricar
Zamora, Victoria Dianne

October, 2024
Definition and Overview of Telecommunication

❖ Telecommunication is the transmission of information over distance using technologies like

phones, computers, and networks (cables, satellites, fiber optics, and wireless). It enables
instant, global exchange of voice, text, audio, and video.
❖ The Philippine telecommunications industry has seen consistent growth, driven by the
increasing demand for mobile, internet, and digital services. It plays a vital role in the country's
economy, connecting people across over 7,000 islands and supporting the growing digital
landscape.
❖ The three major telecom providers in the Philippines are PLDT, Inc., Globe Telecom Inc., and
DITO Telecommunity Corporation.
❖ The National Telecommunications Commission (NTC) oversees and regulates the
telecommunication industry, ensuring service standards and protecting consumer interests

Types of Telecommunications

1. Computer networks - set of interconnected computers that allow for resource sharing and
communication.
2. Advanced Research Projects Agency Network (ARPANET) - the first public
packet-switched computer network.
3. Ethernet - commonly associated with connected devices in a wired LAN or WAN.
4. Internet - global network of interconnected computers that communicate with each other,
allowing people to share information and access services like websites, email, and social media.
5. Wireless connection - allows devices to connect to a network without cables
6. Switch - connects devices and forwards data only to the device that needs it.
7. Public switched telephone networks (PSTN) - Circuit-switched telephone networks,
operated by national, regional, or local telecommunication providers, deliver the essential
infrastructure and services for public telecommunications.
8. Packet switched networks - routes small data units, known as packets, through the system
according to the destination address included in each packet.
9. Radio network
- The one-to-many broadcast network commonly used for public information and mass
media entertainment
- The two-way radio type used more commonly for public safety and public services
10. Television networks - distribution of television program content, whereby a central
operation provides programming to many television stations or pay television providers.
Audit Planning
● Credit Control - A credit limit Is assigned to each of the postpaid subscribers, based on the
tariff plan, past usage, payment history and credit worthless of the subscribers.

Credit Classes
1. VIP Credit Class - This class typically includes clients with strong credit histories or large
transaction volumes.
2. General Public Class - This class targets a broader customer base and provides standard
credit terms.
3. Segmento Specific Class - Tailored to meet the needs of specific customer segments or
industries, such as students, small businesses, or a particular demographic.

Credit Control Stages

1. Unbilled Usage Based
- This stage tracks the usage or consumption of services that have yet to be billed to the
customer.
- Monitoring unbilled usage allows for real-time or near-real-time credit management, ensuring
that customers do not exceed credit limits before billing.
- It’s especially useful for services that charge based on usage, like utilities or
telecommunications.

2. Billers Usage Based

- Usage has been recorded and billed to the customer.
- The focus here is on managing payment collection and credit risk associated with outstanding
invoices.
- Credit controls at this stage might include reminders, payment terms enforcement, or late fees
to ensure timely payments and mitigate the risk of default.

● Dunning Process - Process of methodically communicating with customers to ensure the

collectors of Accounts receivable.

Types of Dunning Process

1. Time Based - follow-up actions are triggered based on the time elapsed since the payment
was due.
Examples:
- First Reminder: Sent a few days after the due date.
- Second Reminder: Sent a week or two later if payment is still outstanding.
- Escalation: Additional reminders or penalties are applied at further intervals.
 2. Value Based - the dunning process is influenced by the outstanding amount. High-value
overdue accounts may receive more immediate attention and additional follow-up actions.
Examples:
- Large unpaid invoices may trigger earlier or more frequent reminders.
- Smaller balances may follow a more lenient or infrequent dunning schedule.

Dunning Model
1. Collectors Aging Tracking
- This focuses on tracking overdue accounts by age, categorizing receivables into aging brackets
(e.g., 0–30 days, 31–60 days, etc.).
- It helps identify accounts that require attention based on how long payments have been
outstanding.
- By monitoring aging, collectors can prioritize their efforts on older or high-risk accounts and
implement the appropriate collection measures.
2. Collections Actions
- These are the specific steps taken to recover overdue payments, tailored to the aging status and
value of the receivables.
Actions might include:
- Reminders: Sending notifications via email, SMS, or mail.
- Escalations: Initiating calls or involving senior collectors for critical accounts.
- Legal Action: For severely delinquent accounts, initiating legal or third-party collections if
necessary.

Regulatory Bodies
● National Telecommunication Commission (NTC)
- NTC’s primary purpose is to regulate, supervise, and promote the efficient and effective use of
the telecommunications and broadcast spectrum.
- Administer and Implement laws on the licensing and operations of the telecommunication,
broadcasting, and other radio communication industry.
- NTC manages the allocation and assignment of radio frequencies to avoid interference,
ensuring optimal use of the radio spectrum.
● Department of Information and Communications Technology (DICT)
- The primary policy, planning, coordinating, implementing, and administrative entity of the
Executive Branch to plan, develop and promote the national Information and Communication
Technology development.
- DICT’s primary purpose is to lead and support the Philippines’ digital transformation, enabling
a connected and digitally empowered society.
 - DICT is responsible for planning, establishing, and maintaining ICT infrastructure across the
country.
- DICT formulates policies and guidelines that regulate and support the ICT sector, including
data privacy, cybersecurity, and digital governance.

Regulatory Framework
● Republic Act No. 3846 “Radio Control Law”
- Enacted to regulate the ownership, operation, and use of radio stations and radio
communication devices.
- Licensing and regulation of radio stations and operators.
- The primary purpose is to control and regulate the establishment and operation of radio
stations and the ownership of radio transmitting equipment in the Philippines.
● Republic Act No. 6849 “Municipal Telephone Act of 1989”
- Establishment of Public Calling Stations
- Enacted to provide access to basic telephone services for every municipality in the country.
- It aims to bridge the communication gap between urban and rural areas by establishing at least
one public calling station in every municipality.
- The law seeks to support local economic development, improve access to services, and enhance
communication for businesses.
● Republic Act No. 7925 “ Public Telecommunications Policy Act of the
Philippines”
- Promote and Govern the Development of Philippine Communications and the delivery of
public telecommunications services.
- No person/ entity may conduct telecom business without obtaining a franchise.
- Certificate of Public Convenience and Necessity (CPCN), as issued by the NTC,
requires carriers to prove that they are technically and financially viable to operate.
● Republic Act No. 10844 “ Department of Information and Communications
Technology
- Provide oversight over agencies governing and regulating the ICT sector and ensure
consumer protection and welfare, data privacy and security, foster competition and the growth
of the ICT sector.
- RA 10844 mandates the DICT to improve the accessibility and quality of ICT services across
the Philippines, especially in underserved and rural areas.

Internal Audit Considerations

1. PFRS/IFRS 15: Revenue from Contracts with Customers (Revenue Recognition)
- Assess the telecommunication company’s timing of revenue recognition based on when the
performance occurs and control of the related goods or services is transferred to the customer.
 - Revenue Recognition:
a. Prepaid Revenue - is recognized on the income statement as the prepaid service or
product is delivered.
b. Postpaid Revenue - is the revenue generated from customers who are billed monthly for
services after they are delivered.
2. PFRS 16: Lease transactions
- check the existence of lease liabilities and the proper classification of every lease
agreement and assess if they shall be recognized under PFRS 16.
3. PAS 38: Intangible Assets - Goodwill
- evaluate the appropriateness of management’s identification of cash-generating units
(CGUs)
- obtain an understanding of the company’s impairment assessment process
- test the relevant controls addressing the risks related to the assumptions and the
impairment analysis.
4. Network Data Integrity
- Maintaining data integrity is critical for operational reliability.
- Auditors need to assess the systems in place for monitoring network performance and
data accuracy, ensuring they comply with industry standards.
5. Capital Expenditures
- Evaluating the vendor authorization and procurement process to ensure compliance
with policies.
- Assessing the policies and control environment such as project authorization,
contracting, scope changes, and fraud.
5. Going Concern Assumptions
- The continuity of their operation is based on the licenses, frequencies, and
authorizations granted by the NTC. Thus, their going concern assumption must always
be assessed.

Unique Accounts
1. Traffic Settlement Receivable
● Amount due from other telecom operators for handling and terminating traffic
- “Traffic”: Calls, SMS, or Data
● Presented net of traffic settlement payables from the same carrier
● Controls for traffic settlement receivable:
1. Implement automated Call Data Records (CDR) system
2. Reconcile TSR with the records of partner telecom operators to confirm alignment on
amounts owed
3. Segregation of duties
● Journal Entries:
 Traffic Settlement Receivable
Traffic Settlement Revenue
To record traffic settlement receivable

Cash
Traffic Settlement Receivable
To record collection of TSR

2. Traffic Settlement Payable

● Amount due to other telecom operators for handling and terminating traffic that
originated on the telecom company’s own network and ended on the other operator’s
network
● Journal Entries:
Traffic Settlement Expense
Traffic Settlement Payable

Traffic Settlement Payable

Cash

3. Spectrum Licensing Fee Expense

● Refers to the costs associated with acquiring and maintaining spectrum licenses, which
are necessary for wireless communication services.
● Journal Entries:
Spectrum Licensing Fee Expense
Cash in Bank/ Accounts Payable

AUDIT PROGRAM FOR SPECTRUM LICENSING FEE EXPENSES

Audit Objective:

1. To ensure the completeness of spectrum and licensing fees recorded in the financial
statements.
2. To verify the accuracy and calculation of spectrum and licensing fees.
 3. To confirm the occurrence of spectrum and licensing fees expense including invoice, receipts.
4. To assess the classification of spectrum and licensing fees in the financial statements.
5. To confirm the cut-off of spectrum and licensing fees, ensuring they are recorded in the
appropriate period.

Audit Assertions: Presentation and Disclosure (PD), Existence or Occurrence (EO), Rights and
Obligation (RO), Completeness or Cutoff (CO), Valuation, Accuracy, and Valuation (VAA)

Audit Procedure

Activities WP Ref Date Done

By

1. Review contracts, agreements, and invoices from regulatory

authorities to verify all spectrum and licensing fees are
included.
2. Recalculate the expenses based on licensing rates and
applicable adjustments.
3. Review supporting documentation (e.g., invoices, receipts) and
confirm payments were made to the correct regulatory bodies.
4. Verify that these expenses are classified under appropriate
expense accounts according to the company’s accounting
policies.
5. Review transactions around the year-end date to verify that
expenses are recorded in the correct period.

Remarks:­­________________________________________________________
________________________________________________________________

Prepared by Reviewed and Approved by

__________________________ ____________________________________

References

University of Cebu, Auditing in Specialized Industries: Telecommunications (2021/2022)

https://www.studocu.com/ph/document/university-of-cebu/bs-accountancy/auditing-in-specialized
-industries-telecommunications/52395085
Audit of Specialized Industries - Telecommunications: July 2021 - 6:00 PM - 7:00 PM Via MS Teams,
Joris Yap (2023)
https://www.scribd.com/presentation/518593136/Audit-of-Specialized-Industries-Telecommunicati
ons

KPMG, Internal Audit: Unlocking Value for telecommunications Companies, July 2016, Paul
Wismann et al. file:///C:/Users/QCU/Downloads/internal-audit-unlocking-value-telecom.pdf

Philippines, Policy and Regulation for Community, National Telecommunication Commission (NTC),
July 2023 https://policy.communitynetworks.group/country-profiles/philippines