To:
From:
Date:
Re:
International Accounting Standards Board
China Telecom Corporation Ltd.
March 11, 2009
Proposed Amendments to IAS 24
Dear Sir or Madam:
Our comments regarding International Accounting Standards Board’s
Proposed Amendments to IAS 24 in the Exposure Draft are as follows:
Question 1—State-controlled entities
We agree with the suggestion of exemption of disclosure set out in
paragraph 17A. The reasons are as follows:
Despite the dominance of the state-owned economy in PRC and the
ultimate control of the State over SOEs, in practice the State has never
participated in financial and operating policy decisions. Enterprises
operate independently, and on market principles, while assuming sole
responsibility for their performance. As a result, activities and transactions
between SOEs are all conducted at an arm’s length and on terms similar to
that between non-SOEs. Accordingly, SOEs should not be treated as a
related party because of the State’s common control.
We agree with the suggestion of disclosing the name of the State and the
relationship between the State and the reporting entity in 17B, but we
disagree with the suggestion of disclosing the indicators of influence
between the reporting entity and the State or state-controlled entities. The
reasons are as follows:
(1) In PRC, the disclosure of the indicator of influence has no practical
meaning for the users. The State in practice has never participated in
financial and operating policy decisions. Enterprises operate
1
independently, and on market principles. As a result, activities and
transactions between SOE’s and the State are all conducted at an
arm’s length and on terms similar to that between non-SOEs. Since
the transactions themselves are not influenced by the State, disclosure
of the indicator of influence are irrelevant to investor’s decisions.
(2) To disclose transactions between entities under common control of
the State as related party transactions is not in line with the financial
accounting conceptual framework’s principle of cost effectiveness. In
the PRC, the state-owned economy continues to play a significant role,
with a large number of SOEs still in operation. If transactions
between entities under common control of the State were disclosed in
strict compliance with IAS24, almost all our daily activities and
expenses, such as equipment purchase, utilities, petrol expense,
insurance and travel allowances, etc, would have to be recorded and
classified as related party transactions, which would incur heavy costs.
We also believe this information would not only prove to be irrelevant
to investors’ decisions, but may also smother genuinely useful
investment information. Our view is that this type of disclosure would
not serve the basic principles of cost effectiveness, relevancy, and
usefulness.
(3) In the PRC, the telecommunications services market continues to
grow, and China Telecom is a dominant player in China’s fixed-line
and mobile market with a huge customer base. We do not have any
effective means of identifying which customers are under State
control, so in practice, these types of transactions could never be
adequately and effectively disclosed.
2
Question 2—Definition of Related Party
We disagree with example 2, 3, and 4 regarding the extension of the
definition of related party. The reasons are as follows:
(1)
The new definition of related party extends the original definition in
that not only two parties under common control are related parties,
but where one party is under control and the other party is under
significant influence of the same entity, the two parties are also
related parties. As, investor cannot exercise operating decisions on
entities where there is only significant influence, extension of the
definition of related party will only increase the amount of related
party information to be disclosed and in practice, greatly increase the
cost of the disclosure.
(2) If an entity is not under direct control, it is difficult to effectively
obtain related party information; hence the information could never
be comprehensively and effectively disclosed.
We hope the IASB will take these comments into accounts.
Sincerely,
Wu Andi
Executive Director, EVP and CFO
China Telecom Corporation Limited
3