A Comprehensive Guide to Telecom Audits in India

Given the sector’s capital-intensive nature and stringent regulatory requirements, the audit of telecommunications companies has become extremely important. 

Telecom audits are vital for assessing financial health, mitigating risks, and promoting transparency for investors and consumers alike. Get to know their important aspects in details. 

Main Types of Audits of Telecommunications Companies in India

Financial Audit

This audit ensures that the telecom company’s financial records are in compliance with accounting standards and regulatory frameworks.

The auditor reviews  financial statements and verifies transactions, accounting practices, ensuring there is no misrepresentation in financial reports.

This audit is carried out in accordance with the Ind AS as prescribed by the Institute of ICAI and the Income Tax Act.

Regulatory Compliance Audits

Regulatory compliance audits ensure that telecom companies are adhering to the various laws and regulations established by Indian regulatory bodies like TRAI, DoT, and other industry-specific standards.

Outcome: The audit ensures that telecom companies are fully compliant with the regulations and identifies areas where corrective actions may be required to avoid penalties or sanctions.

Internal Audit

Internal audits focus on assessing the company’s internal control systems, risk management practices, and overall governance processes. 

The audit covers various aspects of the telecom company’s operations, including financial transactions, procurement, network management, and compliance with internal policies. 

The audit is typically conducted by the company’s own internal audit team or department or outsourced to trusted firms like PKC Management Consulting. 

Operational Audit

It is designed to improve the company’s operational processes by identifying inefficiencies, cost overruns, and opportunities for operational improvements.

This audit examines various functional areas like customer service, network management, billing systems, supply chain, and workforce management. 

It assesses how resources are utilized and identifies areas where cost savings or performance enhancements can be achieved.

Technical and Network Audits

The goal is to ensure the network’s reliability, performance, and security, as well as compliance with industry standards.

This audit covers the evaluation of network performance, equipment functionality, disaster recovery plans, data protection, cybersecurity measures, and compliance with electromagnetic field (EMF) emission standards.

It may also look into the network’s capability to handle growing user demand and ensure high levels of service availability.

Specialized Audits

These audits are conducted to address specific areas of concern or to meet particular regulatory or business needs. 

They can cover areas such as fraud detection, revenue assurance, cybersecurity audits, or audits related to environmental compliance.

 For example, a fraud audit might look at instances of billing fraud or network misuse, while a revenue assurance audit checks for gaps or leakages in revenue collection.

5 Key Areas of Focus in a Telecom Audit

Revenue Recognition:

In the absence of standard industry guidelines, there is no clarity on the recognition of certain revenue in this sector.

If the service provided is a postpaid service, the recognition of revenue is simpler and is recognised by the companies more or less in accordance with the recognised principle of revenue recognition of revenue.

 If the service provided is a prepaid service, the revenue from the prepaid service revenue (recharge vouchers) can be divided into three segments, namely 

1. service/administration charges or fees
2. service tax payable to the government, and 
3. talk time and internet quota available to the subscriber

Service tax payable to the government is paid at the time of sale of recharge vouchers to the Dealers or Distributors as well as to the end customers. 

For other revenues, different revenue recognition practices are followed by different telecom companies. The internal auditor should satisfy himself that the accounting policies applied by the company in respect of revenue recognition have been consistently followed.

Registration, Processing and Activation Charges are charged to the customer at the time of acquisition. 

Revenue is generally recognised either immediately or when the services are activated by the customer, or on a staggered basis and amortised over the estimated period of the customer relationship.

 When recognising revenue in connection with the “lifetime validity” offer, various factors included in the offer must be taken into account. 

Even if the offer mentions the period “during the validity of the licensed period”, there is a possibility that the licensed period may be extended. It has been shown that prepaid customers tend to cancel within 18 to 24 months. 

In legal terms, therefore, the services are to be offered for life; in practice, the services are offered for a period of 18 to 24 months and extended accordingly.

Network Security:

Every non-network call (i.e. calls to another operator’s network) must be routed through a “Point of Interaction” (POI) as per the guidelines of TRAI. 

In order to reach the POI, port and other charges are to be paid to the other telecom operator as mutually agreed within the overall cap fixed by the TRAI. The structure is as follows: 

1. Port charges 
2. Active connection charges 
3. Passive connection charges.

Each telecom company shall have the right to request an interconnection point against prepayment of charges on an annual basis subject to the cap fixed by the TRAI. 

All telecom companies are bound by the regulation to provide a port to other companies on request and on payment of port charges, subject to availability of ports, sufficient traffic and technical feasibility.

 In addition to the port charges, a telecom company has to pay active charges to BSNL. These are the connections of licensed telecom service providers for which transmission equipment of the service provider is installed in BSNL exchanges and their network is connected through it.

The infrastructure rental charges in this case have been streamlined and are as follows:

1.  Building space sharing charges 
2. Electricity and other charges 
3. Tower sharing charges d) Conduit sharing charges.

The National Telecom Policy of 1999 requires telecom companies to have access to telephone service even in rural areas. 

Since BSNL was the sole provider of services in rural areas and its revenues were not sufficient to cover its fixed costs, Access Deficit Charges (ADC) were introduced by TRAI from May 1, 2003 for a limited period to give incumbents time to revamp tariffs during a transition period.

Regulatory Compliance and License Adherence

This involves ensuring compliance with TRAI guidelines, such as proper implementation of service level agreements (SLAs), billing transparency, and customer rights.

Auditors must verify that the telecom company holds the necessary licenses for operating in specific regions and services, including wireless spectrum licenses, and is in compliance with all licensing terms.

They also review adherence to India’s GST (Goods and Services Tax) and other applicable taxes, ensuring that the telecom operator is correctly calculating, collecting, and remitting taxes on its services.

Customer Service and Quality Assurance

This area ensures telecom operators deliver high-quality customer service while adhering to regulatory standards.

Audits verify if response times, issue resolution, and service uptime meet the agreed standards. They evaluate how customer complaints are handled and resolved, ensuring timely responses.

Apart from this, the auditors will also review the efficiency of call centers and online support channels, ensuring staff are well-trained while maintaining adherence to TRAI standards for billing transparency and customer service.

Operational Efficiency and Infrastructure

Operational efficiency and robust infrastructure ensure service reliability, cost-effectiveness, and scalability to meet demand.

Therefore, here the focus is on optimizing network resources and maintaining infrastructure for cost-effective and reliable service delivery.

Audits analyse network performance and identify inefficiencies, ensuring optimal use of resources. Auditors verify that network equipment is regularly maintained and upgraded as needed.

They also assess the ability to expand network capacity to meet growing demand, review operational costs, and identify opportunities for cost optimization.

In addition to this, they may also take a look at vendor management, disaster recover and technology integration with new technologies like 5G to enhance operations.

Best Practices for Conducting Telecom Audits

Collaborative Approach

Engage experts from finance, IT, and operations to ensure a comprehensive review of all telecom aspects.

Involve internal staff and regulatory bodies to provide insights and ensure accurate data collection.

Leverage Automation and Technology

Use automated tools and AI to analyze large data volumes and identify anomalies quickly.

Automate routine checks like billing verification to reduce errors and improve audit efficiency.

Continuous Monitoring

Implement ongoing audits to detect issues in real-time rather than relying on periodic checks.

Use real-time data to address operational or compliance issues promptly and prevent major risks.

Employee and Customer Engagement

Collect feedback from employees to spot internal inefficiencies and areas needing improvement.

Assess customer service through feedback to evaluate how effectively the company meets user needs.

Detailed Documentation and Reporting

Maintain clear audit trails to ensure transparency and support the conclusions drawn during the audit.

Provide actionable insights in reports that guide the company in addressing identified issues.

Incorporate Risk-Based Auditing

Prioritize high-risk areas, such as revenue leakage or cybersecurity, to focus audit efforts where they matter most.

Stay aware of emerging risks to ensure the audit addresses current and future challenges in the telecom industry.