Changes in accounting policies and changes in the reporting structure
Deutsche Telekom made the following changes to its accounting policies or reporting structure in the reporting period:
Gross vs. net recognition of revenues – change in the principal/agent consideration. In cases where Deutsche Telekom is in an intermediary position between a supplier and a customer, it must be assessed whether Deutsche Telekom itself supplies the relevant product or provides the service requested by the customer as a principal or merely acts as an agent for the supplier. The outcome determines whether Deutsche Telekom must recognize revenue on a gross basis (as a principal) or net (as an agent) of the costs incurred to the supplier, i.e., only in the amount of the remaining margin. The determining factor is control over the specified good or service. Depending on the facts and circumstances, the specified good that a company controls as principal may also be a right to the third party’s good or service. For Deutsche Telekom, the question arises particularly in the case of branded digital products (e.g., streaming services, software licenses, cloud-based software as a service) provided by and purchased from third parties and sold to customers as part of Deutsche Telekom’s product portfolio.
Under Deutsche Telekom’s previous interpretation, for considering itself to be principal it was sufficient that Deutsche Telekom obtains from the supplier a contractual, enforceable right to purchase the supplier’s predefined products “on demand” at any time at predefined prices and to resell them to customers in its own name and for its own account at a price determined at its own discretion. In light of the IFRS Interpretations Committee’s agenda decision published in May 2022 on transactions involving the commercial resale of software, Deutsche Telekom has implemented comprehensive changes to its accounting practices with respect to distinguishing between gross and net revenues, effective the start of the third quarter of 2022. In considering the change in policy, Deutsche Telekom determines that it only acts as a principal and thus recognizes revenues on a gross basis in the aforementioned cases if the customer does not enter into any contractual relationship with the third-party supplier, Deutsche Telekom bears primary responsibility for product acceptance and customer support, and is in a position to set the price for the customer. In contrast to its previous accounting practice, the application of the new policy results in a decline both in revenues and in goods and services purchased of EUR 1.3 billion in each case for the 2022 financial year, and of EUR 1.0 billion in each case for the prior year.
Reassignment of the security business. Effective July 1, 2022, Deutsche Telekom reassigned its subsidiary Deutsche Telekom Security GmbH and the security business in Germany, Austria, Switzerland, Hungary, and Slovakia from the Systems Solutions operating segment to the Germany operating segment in order to maintain a consistent focus on implementing the Group strategy pillar “Lead in business productivity.” Prior-year comparatives in both of the segments affected have accordingly been adjusted with retrospective effect in segment reporting.