engleski

New cost methodologhy in telecommunication industry

Long Run Incremental Cost methodology (hereinafter LRIC) is relatively new methodology for allocation of cost in telecommunication industry and it isn’t used in other types of production industries or companies which are providing services except in telecommunication industry. The paper will try to give theoretical approach and framework of LRIC methodology through some basic terms of costs methodologies, development dynamic of costs methodologies, economic approach in the LRIC concept and through advantages and disadvantages of LRIC concept where some opinions of different authors are shown. LRIC methodology is crucial element in order to achieve current cost accounting (hereinafter CCA). Current cost accounting in accounting theory and practise is used in inflationary conditions and it is regulated by International Financial Reporting Standards IAS 29 - Financial Reporting In Hyperinflationary Economies but it is also mentioned in all the accounting standards that are regulating valuation of property, plant and equipment and investment property. CCA attempts to provide more realistic book values by valuing assets at current replacement cost, rather than at the amount actually paid for them. This contrasts with the usual historical cost approach. The current cost is usually calculated by adjusting the historical cost for inflation, in addition to the usual adjustments such as depreciation. Current cost accounting is more complex than historical cost accounting, and attempts to implement it tend to create controversy over what adjustments are appropriate. This has some interesting comments on the reasons for the failure of attempts at inflation accounting because there is to much estimations. The problems that current cost accounting (and other approaches to accounting for inflation) attempt to solve are obviously linked to inflation. Interest in inflation accounting tends to be greatest when inflation is high and low when inflation is low. Current cost accounting models that are used in telecommunication industry are trying to grasp not only the accounting aspects but also economic aspect which is crucial in determination of costs for provided services, especially for next generation access (hereinafter NGA) networks because of the rapid changes in prices and in new technology. Forward-looking costs are preferable than historical costs for regulatory purposes because they correspond to the costs incurred by an efficient operator. However, these costs correspond to an ideal hypothetical situation and are therefore open to debate because they imply various forecasts and estimates, thereby introducing more subjectivity into the valuation of various elements. In fact, determining these costs is difficult and is limited in terms of transparency, objectivity and their verification and auditing. Accordingly, we believe that the costing system that the notified operators implement should be based on current costs, with necessary adjustments to the asset valuation method in order to maximize efficiency. It thus becomes possible to overcome part of the difficulties associated with use of historical costs without the enormous complexity and subjectivity of a forward looking valuation method. Therefore, regarding theoretical framework of LRIC methodology, one can say it is all clear but when it comes to implementation it is completely different story. There are still clouds regarding its implementation, especially in multiproduct companies.

cost accounting; telecommunication industry; LRIC methodology; CCA; HCA

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