Pri Facts

I was not surprised to learn from the new audit partner that she wants to discuss our advertising
revenue during the upcoming client briefing meeting. I guess it is because the revenue resulting from
advertising has shown a very good increase in the past few months. I must admit, the many
estimates and judgements that we had to make for determining the revenue was (and maybe still
is!) a bit of a headache. However, back to the advertising…. the unprecedented Covid-19 quarantine
has amplified the popularity of advertising. In the midst of social distancing and the call upon
Zimbabweans to stay at home, people are consuming content more than ever. The ability to target
these hyper specific demographics in their living rooms is extremely attractive to marketers and
advertisers.
I would like to hear your thoughts on what you think the focus areas would be for the new audit
partner regarding estimates and judgements? The new audit partner also mentioned that the
planning process can take a ‘bit longer’ as the audit firm want to adhere to the new ISA 315R
requirements? Maybe you can brief me on the new terminology and concepts in this revised
planning standard?

Expectation

Document G

 Audit of estimates and judgements ISA 540

 How the estimate will arise - Allocation of Transaction price
 Planning of audit of advertising revenue
 What are the judgements/ estimates in advertising revenue
 Research on ISA 315R, new terminology in the revised standard
 Difference between ISA 315 to the updated ISA 315R
 ISA 540 & 300 Audit of estimates and consideration

Pri

3.3 Advertising
Advertising entails customers paying to advertise on our platform. The price for advertising is
dependent on the day, time and length of advertisements. We do not create the advertisements
ourselves. We only broadcast these on our channels as requested by the customer.(CS5.p6/16)

MultiChoice

Advertising revenue
The group primarily derives advertising revenues from advertisements broadcast on its video-
entertainment platforms and shown online on its websites and instant messaging windows as well as
sponsorship revenues earned on major events. Advertising revenues from video entertainment
platforms are recognised upon showing. Online advertising revenues are recognised over the period
in which the advertisements are displayed. Sponsorship revenues are recognised over the period of
the event. Advertising revenue is billed in arrears with 45-day payment terms.

Knowledge
Definition of terms
Estimate- Accounting estimates, therefore, are an approximation of a value that is to be debited or
credited on items for which a precise means of measurement is not available.
An accounting estimate is an approximation of the amount of a business transaction for which there
is no precise means of measurement. Estimates are used in accrual basis accounting to make the
financial statements more complete, usually to anticipate events that have not yet occurred, but
which are considered to be probable. These estimates may be subsequently revised as more
information becomes available. Changes in accounting estimates impact the current period and
future periods, but have no impact on prior periods.
Judgement-refer to KPMG document for acc policies, estimations and judgements
Information Uncertainty-the susceptibility of an accounting estimate & related disclosures to an
inherent risk of precision in its measurement. For example estimation uncertainty in high in brand
valuation as compared to construction cost.

IFRS 15—Steps.
Step 2.
Identifying a performance obligation might need judgement.-Various --
One performance obligation).
Team to further on this step

Step 3: Determine the transaction price

The transaction price is the amount of consideration that an entity expects to be entitled in
exchange for transferring promised goods or services to a customer, excluding amounts collected on
behalf of third parties (IFRS 15 Appendix A).

That’s the definition from the standard and in other words, it’s what you expect to receive from your
customer in return for your supplies.

Attention – it’s NOT always the price set in the contract. It is your expectation of what your receive.

It means that you need to estimate the transaction price.

How?

First, you need to take the price stated in the contract as some basis (if applicable).

Then, you need to take some items into account, such as:

 Variable consideration – are there some bonuses or discounts, for example, performance
bonus?

Could not be an issue

--Multiple contracts

--There are judgements and estimates

-Are there any rebates? Depenend on the information on the day as the advertising revenue
is becoming popular
  Constraining estimates in variable consideration – you should include variable
consideration (e.g. bonus) in the transaction price only when it’s highly probable that you
can keep it (this is a big simplification);
 Significant financing component – if your clients will pay you with delay, do the payments
reflect the time value of money?
 Non-cash consideration – do you receive some non-cash items from your customer in return
for your goods or services?
 Consideration payable to a customer – do you provide some vouchers or coupons to your
customers?
 And other factors.

Step 4: Allocate the transaction price to the performance obligations

Once you have identified the contract‘s performace obligations and determined the transaction
price, you need to split the transaction price and allocate it to the individual performance
obligations.

The general rule is to do it based on their relative stand-alone selling prices, but there are 2
exceptions when you allocate in a different way:

1. When allocating discounts, and

2. When allocating considerations with variable amounts.

A stand-alone selling price is a price at which an entity would sell a promised good or a service
separately to the customer (not in the bundle).

The best way to determine a stand-alone selling price is simply to take observable selling prices and
if these are not available, then you need to estimate them. IFRS 15 suggest a few methods for
estimating stand-alone selling prices, such as adjusted market assessment approach, etc.

If this seems too theoretical, let me point you to this article. It illustrates all steps on a very simple
telecom example.

Step 5 Recognize revenue when (or as) the entity satisfies a performance obligation

A performance obligation is satisfied (and revenue is recognized) when a promised good or service
is transferred to a customer. This happens when control is passed.

A performance obligation can be satisfied either:

 Over time – in this case, control is passed to the customer over some period of time (e.g.
contract term); or
 At the point of time – in this case, control is retained by the supplier until it is transferred at
some moment.

Application

Estimates and Judgements.

  estimate the transaction price. if your clients will pay you with delay, do the payments
reflect the time value of money? -for advertising
 Estimation of stand-alone selling price-For example adjusted market prices, Expected cost
plus a margin approach and residual approach.
 If a stand-alone selling price is not directly observable, an entity shall estimate the stand-
alone selling price at an amount that would result in the allocation of the transaction price
meeting the allocation objective in paragraph 73. When estimating a stand-alone selling
price, an entity shall consider all information (including market conditions, entity-specific
factors and information about the customer or class of customer) that is reasonably
available to the entity. In doing so, an entity shall maximise the use of observable inputs and
apply estimation methods consistently in similar circumstances.

What if?

Could be advertising and other services like subscriptions

-Residual approach

If a stand-alone selling price is not directly observable, an entity shall estimate the stand-alone
selling price at an amount that would result in the allocation of the transaction price meeting the
allocation objective in paragraph 73. When estimating a stand-alone selling price, an entity shall
consider all information (including market conditions, entity-specific factors and information about
the customer or class of customer) that is reasonably available to the entity. In doing so, an entity
shall maximise the use of observable inputs and apply estimation methods consistently in similar
circumstances.

Suitable methods for estimating the stand-alone selling price of a good or service include, but are
not limited to, the following:

(a) Adjusted market assessment approach—an entity could evaluate the market in which it sells
goods or services and estimate the price that a customer in that market would be willing to pay for
those goods or services. That approach might also include referring to prices from the entity’s
competitors for similar goods or services and adjusting those prices as necessary to reflect the
entity’s costs and margins.

(b) Expected cost plus a margin approach—an entity could forecast its expected costs of satisfying a
performance obligation and then add an appropriate margin for that good or service.

(c) Residual approach—an entity may estimate the stand-alone selling price by reference to the total
transaction price less the sum of the observable stand-alone selling prices of other goods or services
promised in the contract. However, an entity may use a residual approach to estimate, in
accordance with paragraph 78, the stand-alone selling price of a good or service only if one of the
following criteria is met: [Refer: Basis for Conclusions paragraphs BC270–BC273]

(i) the entity sells the same good or service to different customers (at or near the same time) for a
broad range of amounts (ie the selling price is highly variable because a representative stand-alone
selling price is not discernible from past transactions or other observable evidence); or

(ii) the entity has not yet established a price for that good or service and the good or service has not
previously been sold on a stand-alone basis (ie the selling price is uncertain).
Point of Recognition (Judgement)

Judgement will be exercised as to the point where advertising revenue will be recognised.

Over time – in this case, control is passed to the customer over some period of time (e.g., contract
term); or

 Online advertising revenues are recognised over the period in which the
advertisements are displayed.
 Sponsorship revenues are recognised over the period of the event. Advertising
revenue is billed in arrears with 45-day payment terms.
 Advertising revenues from video entertainment platforms are recognised upon
showing.
(Depends on nature)
(the customer simultaneously receives and consumes the benefits
provided by the entity’s performance as the entity performs)

At the point of time – in this case, control is retained by the supplier until it is transferred at some
moment.

Additional Points

Disclosures –IAS1.122 requires companies to disclose their judgements and estimate.

Audit Planning

Audit planning is a process of deciding in advance what is to be done, who is to do it, how it is to be
done and when it is to be done by the auditor in order to have efficient and effective completion of
work.

ISA 315

Expectations

Research on ISA 315R, new terminology in the revised standard

Difference between ISA 315 to the updated ISA 315R

-Add what will be the questions and what that partner could asked by the partner.

-Prepare for role changes.

Changes

 Name Change from Identify and assess risk of Material Misstatements through
understanding the entity to Identify and assess risk of Material Misstatements.
  Objective of the standard changed.
 Par 14 Changed to include risk assessment procedures as Analytical Procedures, Enquiry,
Observation and Inspection.
 New concept relating to team discussion of audit risk
 Par 19 talks about understanding the client-No guessing of the client. Like know the mind
map of the company. The of ISA 315R standard indicated the need to practice.
 Par 20 talks about understanding the client’s accounting policies, judgements and estimates
 Par 21 talks about understanding internal controls as the first line of defence
 Summary-Identify risks>brainstorm of the risks>identify sig risks>document the sig risks.
 Definition of sig risks changed from the previous ISA.This means items that that require
more attention. Need to look likelihood and magnitude

New terms were introduced as follows.

1. Inherent Risk Factors

 An acronym SUCCS can be used to describe this as follows;
Subjectivity
Uncertainty
Complexity
Change
Susceptible
Any ABCOTD wit many SUCCS is going to be an area of significant risk .

2. Significant classes-These are financial statements line items that could be misstated
3. Data analytics-Can be used to assess audit risks.
4. Spectrum of risk-Can be presented in a continuum plotted on a graph with likelihood on the
y axis and magnitude on the axis---Sig risk will be at the upper end of the spectrum.
5. Internal Control-CRIME
 A distinction between Direct and Indirect Control
 Controls may be direct or indirect. Direct controls are controls that are precise enough to
address risks of material misstatement at the assertion level. Indirect controls are controls
that support direct controls.
 The controls in the control environment, the entity’s risk assessment process and the
entity’s process to monitor the system of internal control are primarily indirect controls (i.e.,
controls that are not sufficiently precise to prevent, detect or correct misstatements at the
assertion level but which support other controls and may therefore have an indirect effect
on the likelihood that a misstatement will be detected or prevented on a timely basis).
However, some controls within these components may also be direct controls.
 Control Activities and Information and Communication are direct controls.

Auditing accounting estimates

Take what in the standard and paraphrase here.

Introduction

Scope of this ISA

1. This International Standard on Auditing (ISA) deals with the auditor’s responsibilities relating
to accounting estimates and related disclosures in an audit of financial statements. Specifically, it
includes requirements and guidance that refer to, or expand on, how ISA 315 (Revised),1 ISA 330,2
ISA 450,3 ISA 5004 and other relevant ISAs are to be applied in relation to accounting estimates and
related disclosures. It also includes requirements and guidance on the evaluation of misstatements
of accounting estimates and related disclosures, and indicators of possible management bias.

Nature of Accounting Estimates

2. Accounting estimates vary widely in nature and are required to be made by management
when the monetary amounts cannot be directly observed. The measurement of these monetary
amounts is subject to estimation uncertainty, which reflects inherent limitations in knowledge or
data. These limitations give rise to inherent subjectivity and variation in the measurement outcomes.
The process of making accounting estimates involves selecting and applying a method using
assumptions and data, which requires judgment by management and can give rise to complexity in
measurement. The effects of complexity, subjectivity or other inherent risk factors on the
measurement of these monetary amounts affects their susceptibility to misstatement. (Ref: Para.
A1–A6, Appendix 1)

3. Although this ISA applies to all accounting estimates, the degree to which an accounting
estimate is subject to estimation uncertainty will vary substantially. The nature, timing and extent of
the risk assessment and further audit procedures required by this ISA will vary in relation to the
estimation uncertainty and the assessment of the related risks of material misstatement. For certain
accounting estimates, estimation uncertainty may be very low, based on their nature, and the
complexity and subjectivity involved in making them may also be very low. For such accounting
estimates, the risk assessment procedures and further audit procedures required by this ISA would
not be expected to be extensive. When estimation uncertainty, complexity or subjectivity are very
high, such procedures would be expected to be much more extensive. This ISA contains guidance on
how the requirements of this ISA can be scaled. (Ref: Para. A7)

Key Concepts of This ISA

4. This ISA requires a separate assessment of inherent risk for purposes of assessing the risks of
material misstatement at the assertion level for accounting estimates. Depending on the nature of a
particular accounting estimate, the susceptibility of an assertion to a misstatement that could be
material may be subject to or affected by estimation uncertainty, complexity, subjectivity or other
inherent risk factors, and the interrelationship among them. As explained in ISA 200,5 inherent risk is
higher for some assertions and related classes of transactions, account balances and disclosures than
for others. Accordingly, the assessment of inherent risk depends on the degree to which the
inherent risk factors affect the likelihood or magnitude of misstatement, and varies on a scale that is
referred to in this ISA as the spectrum of inherent risk. (Ref: Para. A8–A9, A65–A66, Appendix 1)

5. This ISA refers to relevant requirements in ISA 315 (Revised) and ISA 330, and provides
related guidance, to emphasize the importance of the auditor’s decisions about controls relating to
accounting estimates, including decisions about whether:

• There are controls relevant to the audit, for which the auditor is required to evaluate their
design and determine whether they have been implemented.
• To test the operating effectiveness of relevant controls.

6. This ISA also requires a separate assessment of control risk when assessing the risks of
material misstatement at the assertion level for accounting estimates. In assessing control risk, the
auditor takes into account whether the auditor’s further audit procedures contemplate planned
reliance on the operating effectiveness of controls. If the auditor does not perform tests of controls,
the auditor’s assessment of the risk of material misstatement at the assertion level cannot be
reduced for the effective operation of controls with respect to the particular assertion. (Ref: Para.
A10)

7. This ISA emphasizes that the auditor’s further audit procedures (including, where
appropriate, tests of controls) need to be responsive to the reasons for the assessed risks of material
misstatement at the assertion level, taking into account the effect of one or more inherent risk
factors and the auditor’s assessment of control risk.

8. The exercise of professional skepticism in relation to accounting estimates is affected by the

auditor’s consideration of inherent risk factors, and its importance increases when accounting
estimates are subject to a greater degree of estimation uncertainty or are affected to a greater
degree by complexity, subjectivity or other inherent risk factors. Similarly, the exercise of
professional skepticism is important when there is greater susceptibility to misstatement due to
management bias or fraud. (Ref: Para. A11)

9. This ISA requires the auditor to evaluate, based on the audit procedures performed and the
audit evidence obtained, whether the accounting estimates and related disclosures are reasonable7
in the context of the applicable financial reporting framework, or are misstated. For purposes of this
ISA, reasonable in the context of the applicable financial reporting framework means that the
relevant requirements of the applicable financial reporting framework have been applied
appropriately, including those that address: (Ref: Para. A12–A13, A139–A144)

• The making of the accounting estimate, including the selection of the method, assumptions
and data in view of the nature of the accounting estimate and the facts and circumstances of the
entity;

• The selection of management’s point estimate; and

• The disclosures about the accounting estimate, including disclosures about how the
accounting estimate was developed and that explain the nature, extent, and sources of estimation
uncertainty.

Effective Date

10. This ISA is effective for audits of financial statements for periods beginning on or after
December 15, 2019.

Objective
11. The objective of the auditor is to obtain sufficient appropriate audit evidence about
whether accounting estimates and related disclosures in the financial statements are reasonable
in the context of the applicable financial reporting framework.

Definitions

12. For purposes of the ISAs, the following terms have the meanings attributed below:

(a) Accounting estimate – A monetary amount for which the measurement, in accordance with
the requirements of the applicable financial reporting framework, is subject to estimation
uncertainty. (Ref: Para. A14)

(b) Auditor’s point estimate or auditor’s range – An amount, or range of amounts, respectively,
developed by the auditor in evaluating management’s point estimate. (Ref: Para. A15)

(c) Estimation uncertainty – Susceptibility to an inherent lack of precision in measurement.

(Ref: Para. A16, Appendix 1)

(d) Management bias – A lack of neutrality by management in the preparation of information.

(Ref: Para. A17)

(e) Management’s point estimate – The amount selected by management for recognition or
disclosure in the financial statements as an accounting estimate.

(f) Outcome of an accounting estimate – The actual monetary amount that results from the
resolution of the transaction(s), event(s) or condition(s) addressed by an accounting estimate. (Ref:
Para. A18)

Requirements

Risk Assessment Procedures and Related Activities

13. When obtaining an understanding of the entity and its environment, including the entity’s
internal control, as required by ISA 315 (Revised),8 the auditor shall obtain an understanding of the
following matters related to the entity’s accounting estimates. The auditor’s procedures to obtain
the understanding shall be performed to the extent necessary to provide an appropriate basis for
the identification and assessment of risks of material misstatement at the financial statement and
assertion levels. (Ref: Para. A19–A22)

The Entity and Its Environment

(a) The entity’s transactions and other events and conditions that may give rise to the need for,
or changes in, accounting estimates to be recognized or disclosed in the financial statements. (Ref:
Para. A23)
(b) The requirements of the applicable financial reporting framework related to accounting
estimates (including the recognition criteria, measurement bases, and the related presentation and
disclosure requirements); and how they apply in the context of the nature and circumstances of the
entity and its environment, including how transactions and other events or conditions are subject to,
or affected by, inherent risk factors. (Ref: Para. A24–A25)

(c) Regulatory factors relevant to the entity’s accounting estimates, including, when applicable,
regulatory frameworks related to prudential supervision. (Ref: Para. A26)

(d) The nature of the accounting estimates and related disclosures that the auditor expects to
be included in the entity’s financial statements, based on the auditor’s understanding of the matters
in 13(a)–(c) above. (Ref: Para. A27)

The Entity’s Internal Control

(e) The nature and extent of oversight and governance that the entity has in place over
management’s financial reporting process relevant to accounting estimates. (Ref: Para. A28– A30).

(f) How management identifies the need for, and applies, specialized skills or knowledge
related to accounting estimates, including with respect to the use of a management’s expert. (Ref:
Para. A31)

(g) How the entity’s risk assessment process identifies and addresses risks relating to accounting
estimates. (Ref: Para. A32–A33)

(h) The entity’s information system as it relates to accounting estimates, including:

(i) The classes of transactions, events and conditions that are significant to the financial
statements and that give rise to the need for, or changes in, accounting estimates and related
disclosures; and (Ref: Para. A34–A35)

(ii) For such accounting estimates and related disclosures, how management:

a. Identifies the relevant methods, assumptions or sources of data, and the need for changes in
them, that are appropriate in the context of the applicable financial reporting framework, including
how management: (Ref: Para. A36–A37)

i. Selects or designs, and applies, the methods used, including the use of models; (Ref: Para.
A38–A39)

ii. Selects the assumptions to be used, including consideration of alternatives, and identifies
significant assumptions; and (Ref: Para. A40–A43)

iii. Selects the data to be used; (Ref: Para. A44)

b. Understands the degree of estimation uncertainty, including through considering the range
of possible measurement outcomes; and (Ref: Para. A45)
c. Addresses the estimation uncertainty, including selecting a point estimate and related
disclosures for inclusion in the financial statements. (Ref: Para. A46–A49)

(i) Control activities relevant to the audit over management’s process for making accounting
estimates as described in paragraph 13(h)(ii). (Ref: Para. A50–A54)

(j) How management reviews the outcome(s) of previous accounting estimates and responds to
the results of that review.

14. The auditor shall review the outcome of previous accounting estimates, or, where
applicable, their subsequent re-estimation to assist in identifying and assessing the risks of material
misstatement in the current period. The auditor shall take into account the characteristics of the
accounting estimates in determining the nature and extent of that review. The review is not
intended to call into question judgments about previous period accounting estimates that were
appropriate based on the information available at the time they were made. (Ref: Para. A55–A60)

15. With respect to accounting estimates, the auditor shall determine whether the engagement
team requires specialized skills or knowledge to perform the risk assessment procedures, to identify
and assess the risks of material misstatement, to design and perform audit procedures to respond to
those risks, or to evaluate the audit evidence obtained. (Ref: Para. A61–A63)

Identifying and Assessing the Risks of Material Misstatement

16. In identifying and assessing the risks of material misstatement relating to an accounting
estimate and related disclosures at the assertion level, as required by ISA 315 (Revised),9 the auditor
shall separately assess inherent risk and control risk. The auditor shall take the following into
account in identifying the risks of material misstatement and in assessing inherent risk : (Ref: Para.
A64–A71)

(a) The degree to which the accounting estimate is subject to estimation uncertainty; and (Ref:
Para. A72–A75)

(b) The degree to which the following are affected by complexity, subjectivity, or other inherent
risk factors: (Ref: Para. A76–A79)

(i) The selection and application of the method, assumptions and data in making the
accounting estimate; or

(ii) The selection of management’s point estimate and related disclosures for inclusion in the
financial statements.

17. The auditor shall determine whether any of the risks of material misstatement identified and
assessed in accordance with paragraph 16 are, in the auditor’s judgment, a significant risk.10 If the
auditor has determined that a significant risk exists, the auditor shall obtain an understanding of the
entity’s controls, including control activities, relevant to that risk.11 (Ref: Para. A80)
Responses to the Assessed Risks of Material Misstatement

18. As required by ISA 330,12 the auditor’s further audit procedures shall be responsive to the
assessed risks of material misstatement at the assertion level,13 considering the reasons for the
assessment given to those risks. The auditor’s further audit procedures shall include one or more of
the following approaches:

(a) Obtaining audit evidence from events occurring up to the date of the auditor’s report (see
paragraph 21);

(b) Testing how management made the accounting estimate (see paragraphs 22–27); or

(c) Developing an auditor’s point estimate or range (see paragraphs 28–29).

The auditor’s further audit procedures shall take into account that the higher the assessed risk of
material misstatement, the more persuasive the audit evidence needs to be.14 The auditor shall
design and perform further audit procedures in a manner that is not biased towards obtaining audit
evidence that may be corroborative or towards excluding audit evidence that may be contradictory.
(Ref: Para. A81–A84)

19. As required by ISA 330,15 the auditor shall design and perform tests to obtain sufficient
appropriate audit evidence as to the operating effectiveness of relevant controls, if:

(a) The auditor’s assessment of risks of material misstatement at the assertion level includes an
expectation that the controls are operating effectively; or

(b) Substantive procedures alone cannot provide sufficient appropriate audit evidence at the
assertion level.

In relation to accounting estimates, the auditor’s tests of such controls shall be responsive to the
reasons for the assessment given to the risks of material misstatement. In designing and performing
tests of controls, the auditor shall obtain more persuasive audit evidence the greater the reliance
the auditor places on the effectiveness of a control.16 (Ref: Para. A85–A89)

20. For a significant risk relating to an accounting estimate, the auditor’s further audit
procedures shall include tests of controls in the current period if the auditor plans to rely on those
controls. When the approach to a significant risk consists only of substantive procedures, those
procedures shall include tests of details.17 (Ref: Para. A90)

Obtaining Audit Evidence from Events Occurring up to the Date of the Auditor’s Report

21. When the auditor’s further audit procedures include obtaining audit evidence from events
occurring up to the date of the auditor’s report, the auditor shall evaluate whether such audit
evidence is sufficient and appropriate to address the risks of material misstatement relating to the
accounting estimate, taking into account that changes in circumstances and other relevant
conditions between the event and the measurement date may affect the relevance of such audit
evidence in the context of the applicable financial reporting framework. (Ref: Para. A91–A93)
Testing How Management Made the Accounting Estimate

22. When testing how management made the accounting estimate, the auditor’s further audit
procedures shall include procedures, designed and performed in accordance with paragraphs 23–26,
to obtain sufficient appropriate audit evidence regarding the risks of material misstatement relating
to: (Ref: Para. A94)

(a) The selection and application of the methods, significant assumptions and the data used by
management in making the accounting estimate; and

(b) How management selected the point estimate and developed related disclosures about
estimation uncertainty.

Methods

23. In applying the requirements of paragraph 22, with respect to methods, the auditor’s further
audit procedures shall address:

(a) Whether the method selected is appropriate in the context of the applicable financial
reporting framework, and, if applicable, changes from the method used in prior periods are
appropriate; (Ref: Para. A95, A97)

(b) Whether judgments made in selecting the method give rise to indicators of possible
management bias; (Ref: Para. A96)

(c) Whether the calculations are applied in accordance with the method and are mathematically
accurate;

(d) When management’s application of the method involves complex modelling, whether
judgments have been applied consistently and whether, when applicable: (Ref: Para. A98– A100)

(i) The design of the model meets the measurement objective of the applicable financial
reporting framework, is appropriate in the circumstances, and, if applicable, changes from the prior
period’s model are appropriate in the circumstances; and

(ii) Adjustments to the output of the model are consistent with the measurement objective of
the applicable financial reporting framework and are appropriate in the circumstances; and

(e) Whether the integrity of the significant assumptions and the data has been maintained in
applying the method. (Ref: Para. A101)

Significant Assumptions

24. In applying the requirements of paragraph 22, with respect to significant assumptions, the
auditor’s further audit procedures shall address:

(a) Whether the significant assumptions are appropriate in the context of the applicable
financial reporting framework, and, if applicable, changes from prior periods are appropriate; (Ref:
Para. A95, A102–A103)
(b) Whether judgments made in selecting the significant assumptions give rise to indicators of
possible management bias; (Ref: Para. A96)

(c) Whether the significant assumptions are consistent with each other and with those used in
other accounting estimates, or with related assumptions used in other areas of the entity’s business
activities, based on the auditor’s knowledge obtained in the audit; and (Ref: Para. A104)

(d) When applicable, whether management has the intent to carry out specific courses of action
and has the ability to do so. (Ref: Para. A105)

Data

25. In applying the requirements of paragraph 22, with respect to data, the auditor’s further
audit procedures shall address:

(a) Whether the data is appropriate in the context of the applicable financial reporting
framework, and, if applicable, changes from prior periods are appropriate (Ref: Para. A95, A106);

(b) Whether judgments made in selecting the data give rise to indicators of possible
management bias; (Ref: Para. A96)

(c) Whether the data is relevant and reliable in the circumstances; and (Ref: Para. A107)

(d) Whether the data has been appropriately understood or interpreted by management,
including with respect to contractual terms. (Ref: Para. A108)

Management’s Selection of a Point Estimate and Related Disclosures about Estimation Uncertainty

26. In applying the requirements of paragraph 22, the auditor’s further audit procedures shall
address whether, in the context of the applicable financial reporting framework, management has
taken appropriate steps to:

(a) Understand estimation uncertainty; and (Ref: Para. A109)

(b) Address estimation uncertainty by selecting an appropriate point estimate and by

developing related disclosures about estimation uncertainty. (Ref: Para. A110–A114)

27. When, in the auditor’s judgment based on the audit evidence obtained, management has
not taken appropriate steps to understand or address estimation uncertainty, the auditor shall: (Ref:
Para. A115–A117)

(a) Request management to perform additional procedures to understand estimation

uncertainty or to address it by reconsidering the selection of management’s point estimate or
considering providing additional disclosures relating to the estimation uncertainty, and evaluate
management’s response(s) in accordance with paragraph 26;
(b) If the auditor determines that management’s response to the auditor’s request does not
sufficiently address estimation uncertainty, to the extent practicable, develop an auditor’s point
estimate or range in accordance with paragraphs 28–29; and

(c) Evaluate whether a deficiency in internal control exists and, if so, communicate in
accordance with ISA 265.18

Developing an Auditor’s Point Estimate or Range

28. When the auditor develops a point estimate or range to evaluate management’s point
estimate and related disclosures about estimation uncertainty, including when required by
paragraph 27(b), the auditor’s further audit procedures shall include procedures to evaluate
whether the methods, assumptions or data used are appropriate in the context of the applicable
financial reporting framework. Regardless of whether the auditor uses management’s or the
auditor’s own methods, assumptions or data, these further audit procedures shall be designed and
performed to address the matters in paragraphs 23–25. (Ref: Para. A118–A123)

29. If the auditor develops an auditor’s range, the auditor shall:

(a) Determine that the range includes only amounts that are supported by sufficient
appropriate audit evidence and have been evaluated by the auditor to be reasonable in the context
of the measurement objectives and other requirements of the applicable financial reporting
framework; and (Ref: Para. A124–A125)

(b) Design and perform further audit procedures to obtain sufficient appropriate audit evidence
regarding the assessed risks of material misstatement relating to the disclosures in the financial
statements that describe the estimation uncertainty.

Other Considerations Relating to Audit Evidence

30. In obtaining audit evidence regarding the risks of material misstatement relating to
accounting estimates, irrespective of the sources of information to be used as audit evidence, the
auditor shall comply with the relevant requirements in ISA 500.

When using the work of a management’s expert, the requirements in paragraphs 21–29 of this ISA
may assist the auditor in evaluating the appropriateness of the expert’s work as audit evidence for a
relevant assertion in accordance with paragraph 8(c) of ISA 500. In evaluating the work of the
management’s expert, the nature, timing and extent of the further audit procedures are affected by
the auditor’s evaluation of the expert’s competence, capabilities and objectivity, the auditor’s
understanding of the nature of the work performed by the expert, and the auditor’s familiarity with
the expert’s field of expertise. (Ref: Para. A126–A132)

Disclosures Related to Accounting Estimates

31. The auditor shall design and perform further audit procedures to obtain sufficient
appropriate audit evidence regarding the assessed risks of material misstatement at the assertion
level for disclosures related to an accounting estimate, other than those related to estimation
uncertainty addressed in paragraphs 26(b) and 29(b).

Indicators of Possible Management Bias

32. The auditor shall evaluate whether judgments and decisions made by management in
making the accounting estimates included in the financial statements, even if they are individually
reasonable, are indicators of possible management bias. When indicators of possible management
bias are identified, the auditor shall evaluate the implications for the audit. Where there is intention
to mislead, management bias is fraudulent in nature. (Ref: Para. A133–A136)

Overall Evaluation Based on Audit Procedures Performed

33. In applying ISA 330 to accounting estimates,19 the auditor shall evaluate, based on the audit
procedures performed and audit evidence obtained, whether: (Ref: Para A137–A138)

(a) The assessments of the risks of material misstatement at the assertion level remain
appropriate, including when indicators of possible management bias have been identified;

(b) Management’s decisions relating to the recognition, measurement, presentation and

disclosure of these accounting estimates in the financial statements are in accordance with the
applicable financial reporting framework; and

(c) Sufficient appropriate audit evidence has been obtained.

34. In making the evaluation required by paragraph 33(c), the auditor shall take into account
all relevant audit evidence obtained, whether corroborative or contradictory. If the auditor is
unable to obtain sufficient appropriate audit evidence, the auditor shall evaluate the implications for
the audit or the auditor’s opinion on the financial statements in accordance with ISA 705 (Revised).

Determining Whether the Accounting Estimates are Reasonable or Misstated

35. The auditor shall determine whether the accounting estimates and related disclosures are
reasonable in the context of the applicable financial reporting framework, or are misstated. ISA 450
provides guidance on how the auditor may distinguish misstatements (whether factual, judgmental,
or projected) for the auditor’s evaluation of the effect of uncorrected misstatements on the financial
statements. (Ref: Para. A12–A13, A139–A144)

36. In relation to accounting estimates, the auditor shall evaluate:

(a) In the case of a fair presentation framework, whether management has included disclosures,
beyond those specifically required by the framework, that are necessary to achieve the fair
presentation of the financial statements as a whole;or
(b) In the case of a compliance framework, whether the disclosures are those that are necessary
for the financial statements not to be misleading.

Written Representations

37. The auditor shall request written representations from management and, when appropriate,
those charged with governance about whether the methods, significant assumptions and the data
used in making the accounting estimates and the related disclosures are appropriate to achieve
recognition, measurement or disclosure that is in accordance with the applicable financial reporting
framework. The auditor shall also consider the need to obtain representations about specific
accounting estimates, including in relation to the methods, assumptions, or data used. (Ref: Para.
A145)

Communication with Those Charged With Governance, Management, or Other Relevant Parties

38. In applying ISA 260 (Revised) and ISA 265, the auditor is required to communicate with those
charged with governance or management about certain matters, including significant qualitative
aspects of the entity’s accounting practices and significant deficiencies in internal control,
respectively. In doing so, the auditor shall consider the matters, if any, to communicate regarding
accounting estimates and take into account whether the reasons given to the risks of material
misstatement relate to estimation uncertainty, or the effects of complexity, subjectivity or other
inherent risk factors in making accounting estimates and related disclosures. In addition, in certain
circumstances, the auditor is required by law or regulation to communicate about certain matters
with other relevant parties, such as regulators or prudential supervisors. (Ref: Para. A146–A148)

Documentation

39. The auditor shall include in the audit documentation:28 (Ref: Para. A149–A152)

(a) Key elements of the auditor’s understanding of the entity and its environment, including the
entity’s internal control related to the entity’s accounting estimates;

(b) The linkage of the auditor’s further audit procedures with the assessed risks of material
misstatement at the assertion level, taking into account the reasons (whether related to inherent
risk or control risk) given to the assessment of those risks;

(c) The auditor’s response(s) when management has not taken appropriate steps to understand
and address estimation uncertainty;

(d) Indicators of possible management bias related to accounting estimates, if any, and the
auditor’s evaluation of the implications for the audit, as required by paragraph 32; and

(e) Significant judgments relating to the auditor's determination of whether the accounting
estimates and related disclosures are reasonable in the context of the applicable financial reporting
framework, or are misstated.
FOREIGN LEASE
Trigger
The one audit notification relates to SatNet Zimbabwe – specifically the tax treatment
surrounding the satellite transmission equipment. We do not own the satellite transmission
equipment. Instead, we lease these from GlobeSat, a company in the United States of
America. The lease period is 20 years. The lease payments are foreign denominated, payable
monthly in advance. The second audit notification relates to SecureIT and Technology – the
research and development subsidiary. I cannot remember if I told you that the company
expanded its investments in the field of research and development. In the previous financial
period, as part of the expansion, SecureIT and Technology acquired a building that solely
houses research projects. Also, are you aware of government grants as funding for projects?
I am particularly interested in understanding the accounting implications relating to the
cost of producing the film under this arrangement. Specifically, the classification and the
resulting accounting treatment of the rights to the film and the resulting accounting
treatment of the rights.
The classification of the cost of producing the film is really what is keeping me awake at
night.
Technical
Foreign Lease
Income Tax
COT v British United Shoe Machinery SA (Pty) Ltd 1964 3 SA 193, 26 SATC 163
In this case the respondent company had its principle place of business in South Africa and
it manufactured shoe machines. The company leased them to a trader in Rhodesia. The
source of the rent derived from the use of property was located where it was used. The tax
payer was assessed to tax on the income paid from the lessee in Rhodesia. He appealed
against the assessment. It was held that in certain cases of leasing of machinery for long
durations which specified the place where the machinery would be operating and that place
happens to not be the lessor’s place of business, the place where the lease agreement was
conducted would be the source of income and because the agreement was conducted in SA
it would be taxable there.
Will the cost relating to lease payments be deductible for tax purposes ?
A deduction will be allowed if it is an expenditure/ loss incurred for the purpose of trade or
production of income and not of a capital nature (Section 15(2) of the income tax act ).
Satnet Zimbabwe uses the satellite transmission equipment for the purposes of trade
( broadcasting services ) thus the costs that relate the lease arrangement will be allowed as
a deduction .
Exchange gains/ losses
For the purpose of determining the taxable income of any person, there shall be deducted
from the income of such person the amounts allowed to be deducted in terms of this
section:
Provided that—
(a) When, owing to a variation in the rate of exchange of currency between Zimbabwe and
any other country, the amount actually paid in Zimbabwean currency differs from the
amount of the liability that had been incurred prior to the variation in the rate of exchange
—
(i) the amount to be deducted shall be the said amount actually paid in Zimbabwean
currency
(ii) if the incurring of the liability and the payment therefor occur in different years of
assessment, effect shall be given to the increase or reduction in the amount in the year of
assessment in which the amount was paid (Section 15(1)(a)).
Prepayments of the lease payments
Expenditure that constitutes prepayment for goods, services or benefits that will be used
up in any subsequent year of assessment (in which event the expenditure will be allowed
proportionately over the years of assessment in which the goods, services or benefits are
used up ( section 15 (2)(a)(ii).
Interest
Necessary costs ( connected with the costs of leasing the equipment which is for the
purpose of trade )thus deductible for tax purposes (section 15(2) . Not a prohibited
deduction since it is not interest arising from a loan from a financial institution .
Any withholding tax of royalties(NINETEENTH SCHEDULE ) ?
royalties” means any amount from a source within Zimbabwe payable as a consideration for
the use of, or the right to use, any literary, dramatic, musical, artistic, scientific or other
work whatsoever (including cinematograph films or recordings) in which any copyright
exists, any patented article, trade mark, design or model, plan, secret formula or process, or
for the use of, or the right to use, industrial, commercial or scientific equipment, or for
information concerning industrial, commercial or scientific experience
Follow up Questions
Is the satellite transmission equipment a scientific equipment ( if yes then WHT on royalties
might exist )
Is the satellite transmission equipment being used in Zimbabwe( if yes then WHT on royalties
exist )
Capital Gains Tax
No disposal of a specified asset thus no CGT implications .
VAT
VAT is claimed when an SatNet is charged and incurred the expense for the purpose of
making some taxable supplies ( Section 16 of VAT Act) .
Interest
Is this a financial service? (section 2 )
Lease Arrangement
Is it an installment credit arrangement or a rental agreement ? (Section 2 of VAT Act)
Installment credit arrangement
” means any agreement entered into on or after the fixed date whereby any goods
consisting of corporeal movable goods or of any machinery or plant, whether movable or
immovable—
(b) are supplied under a lease under which—
(i) the rent consists of a stated or determinable sum of money payable at a stated or
determinable future date or periodically in whole or in part in instalments over a period in
the future; and
(ii) such sum of money includes finance charges stipulated in the lease; and
(iii) the aggregate of the amounts payable under such lease by the lessee to the lessor for
the period of such lease, disregarding the right of any party thereto to terminate the lease
before the end of such period, and any residual value of the leased goods on termination of
the lease, as stipulated in the lease, exceeds the cash value of the supply; and
(iv) the lessee accepts the full risk of destruction or loss of, or other disadvantage to, those
goods and assumes all obligations of whatever nature arising in connection with the
insurance, maintenance and repair of those goods while the agreement remains in force.
Rental agreement
means any agreement entered into before, on or after the fixed date for the letting of
goods, other than a lease referred to in paragraph (b) of the definition of “instalment credit
agreement”

Accounting ( IFRS 16 )-Foreign denominated Lease

A lessee is required to record a right-of-use asset and lease liability for all leases other than
those that, at lease commencement, have a lease term of 12 months or less.
When calculating the right-of-use asset and lease liability for a foreign currency
denominated lease, the present value of future lease payments, payments made to the
lessor at or before the commencement date, lease incentives, and initial direct costs should
be measured in the functional currency using the exchange rate at the lease
commencement date (or the date the cash flow is paid or received, if before lease
commencement.
The right-of-use asset is a non-monetary asset and lease liability is a monetary liability. Over
the lease term, a lessee must amortize the right-of-use asset and lease liability. The right-of-
use asset should be remeasured into the functional currency using the exchange rate on the
lease commencement date, while the lease liability should be remeasured based on the
period end exchange rate.
The accretion of interest on the lease liability should be remeasured using the average
exchange rate during the period in which it is incurred as well as the depreciation which
arises from the right of use asset .
MAF Considerations
o Do we have local expertise in terms of the service of the transmission equipment ?
o 20 years is a long term contract ( we will maintain the commitment over such a long
period ( payment , compliance to the requirements )
o Compliance to both laws and regulations between Zim and US ( BAZ)
o Will quality service still be maintained ?
o Cant this been made so that we have our own considering the importance of the
equipment as part of our operations ?
o Exchange rate risk

SecureIT and Technology acquired a building that solely houses research projects.
Income Tax
An amount is deductible for tax purposes if its an expenditure or loss incurred for the
purpose of trade or production of income and not of a capital nature ( Section 15(2)).
Acquisition of a building is capital in nature (the tree ) thus not deductible .
However it ranks for capital allowances under Section 15 (2)(c)
Is this building an industrial building(4th Schedule) ?
Any building erected and used mainly for the purpose of carrying out industrial research or
scientific experiments into improved or new methods of manufacture;
Can SIA be elected or its Wear and tear ?
No SIA will be granted on acquired industrial building thus a wear and tear allowance of 5%
will be allowed .
VAT
Claim if we are charged and incurred the expenditure for the purpose of making some
taxable supplies(Section 16 ).
Section 8 (1)(m)-Grant
Section 15(2)(m)-research costs
Funding of the acquisition through government Grants
IAS 20 Accounting for Government Grants and Disclosure of Government Assistance outlines
how to account for government grants and other assistance. Government grants are
recognised in profit or loss on a systematic basis over the periods in which the entity
recognises expenses for the related costs for which the grants are intended to compensate,
which in the case of grants related to assets requires setting up the grant as deferred
income or deducting it from the carrying amount of the asset.
A government grant is recognised only when there is reasonable assurance that (a) the
entity will comply with any conditions attached to the grant and (b) the grant will be
received. [IAS 20.7]
A grant relating to assets may be presented in one of two ways: [IAS 20.24]
 as deferred income, or
 by deducting the grant from the asset's carrying amount.
A grant relating to income may be reported separately as 'other income' or deducted from
the related expense. [IAS 20.29]
If a grant becomes repayable, it should be treated as a change in estimate. Where the
original grant related to income, the repayment should be applied first against any related
unamortised deferred credit, and any excess should be dealt with as an expense. Where the
original grant related to an asset, the repayment should be treated as increasing the
carrying amount of the asset or reducing the deferred income balance. The cumulative
depreciation which would have been charged had the grant not been received should be
charged as an expense. [IAS 20.32]
Disclosure of government grants
The following must be disclosed: [IAS 20.39]
 accounting policy adopted for grants, including method of balance sheet
presentation
 nature and extent of grants recognised in the financial statements
 unfulfilled conditions and contingencies attaching to recognised grants

Co-Production arrangement
IFRS addresses accounting for capitalisation of product development costs, including
guidance on the nature of costs, timing of cost capitalisation and method of cost recognition
in the income statement as amortisation.
 However, IFRS does not include specific industry guidance so in practice application of the
relevant standards requires careful consideration of the specific facts and circumstances.
Fundamental to the concept of capitalising costs is that they must meet the definition of an
asset i.e. a resource (a) controlled by an entity as a result of past events; and (b) from which
future economic benefits are expected to flow to the entity.
The two key standards that provide guidance for cost capitalisation are IAS 38 and IAS 2:
IAS 38 Intangible Assets, defined as non-physical resources controlled by an entity for which
they will generate future economic benefit. Under IAS 38, costs incurred in the ‘research
phase’ are expensed as incurred, while costs incurred in the ‘development phase’ are
capitalised once the recognition criteria are met. ‘Development’ is the application of
research or other knowledge to a plan or design for the production content before the start
of commercial sale.
The threshold for capitalising content development costs is to demonstrate all of:
o The technical feasibility of completing the intangible asset so that it will be available
for sale;
o The intention to complete the asset and use or sell it;
o The ability to use or sell the asset;
o The way in which the intangible asset will generate probable future economic
benefits i.e. the existence of a market for the asset;
o The availability of adequate technical, financial and other resources to complete the
development and to sell the asset; and
o The ability to measure reliably the expenditure attributable to the asset during its
development
Once these criteria are met IFRS requires capitalisation of development costs; there is no
option to expense such costs.
IAS 2 Inventories, defined as assets held for sale or in the process of production or to be
consumed in that process. Inventory costs are capitalised once the general asset criteria are
fullfilled:
o The entity has control of the inventory.
o The inventory will generate probable future economic benefits.
o The ability to measure reliably the expenditure attributable to the asset during its
development
Film cost capitalisation When and which costs?
Having determined the appropriate standard to follow, at what point should film costs start
to be capitalised and which costs should be capitalised?
As described earlier, IAS 38 and IAS 2 set out similar criteria that must be met in order to
capitalise content development costs. The fundamental premise under both standards is it
must be probable that the asset capitalised will bring future economic benefit of at least the
amount capitalised. Determining the point at which the asset recognition criteria are met
will usually require judgement and will be dependent on past experience.
Selling, promotion and marketing costs are always expensed. Although such expenditure is
intended to generate future economic benefits, these benefits are not separable from
overall business development and do not meet the definition of an asset. Similarly, costs
incurred as a result of sales (e.g. lead actors participating in a share of the film’s revenues or
profits) are also usually recognised as expenses when the revenue is earned.
Film development and production costs
In this scenario a film producer creates and produces a film that is intended to be
distributed globally, and retains the intellectual property rights i.e. the international format,
distribution and ancillary rights, etc. Figure 2 sets out the development and production
stages for this film. (In more complex real-life scenarios, the distributor might have provided
an advance and the residual intellectual property rights will only have value if and when the
distributor can recoup its initial outlay.) The start point of capitalising costs occurs when
there is evidence that all the recognition criteria set out in the ‘background’ section above
are met.
On the assumption that the film producer has the access to the financing and other
resources to complete and distribute the film and the systems to measure reliably the
expenditure, the key judgements will include both which costs to capitalise and the forecast
revenues. Provided the film is expected to generate profits, the film producer is likely to
have the intention and ability to complete and distribute the film. The pitching phase is
likely to be ‘research’ that is undertaken with the prospect of understanding the potential
market for such a film and the availability of talent to direct and star in it. As no intangible
asset will arise from research phase any cost shall be expensed as incurred.
The ability to complete the film and reliably generate profits is likely to come at some point
between the start and the end of pre-production phase, but before actual filming starts.
Considerations for the start point of capitalisation may include:
o Ability to complete the project: e.g. commitment of key talent and script writers, or
‘locking-in’ of financing such that all or most budgeted costs are now funded
o Existence of a market: e.g. prior evidence of successful film productions.
o Generate profits: e.g. history of accurate forecasts of revenues from theatres,
DVDs, licensing, etc. Once the recognition criteria are fulfilled, directly attributable
internal and external costs must be capitalised.
The point of starting to capitalise film costs might vary between producers. For some, the
internal approval process may mean that an idea for a film is never progressed unless there
is high degree of certainty of success, which means that capitalisation of film costs may start
relatively early in the process. For others, there may be multiple smaller film projects where
there is no certainty of success until near the end of the process and hence film costs may
never qualify for capitalisation. Capitalisation of eligible costs should cease when the asset is
capable of operating in the manner intended. In practice this means that film cost
capitalisation would usually cease once the film is ready for release.
Capitalised costs for cancelled films are recognised as an immediate expense in the period
of cancellation.
Which film costs can be capitalised?
Examples of ‘directly attributable’ film costs that can be capitalised could include:
o Direct labour: e.g. actors, film crew, security
o Production costs: e.g. editing, visual effects
o Production overhead costs: e.g. studio rent, costumes, catering
o Production-related administrative costs: e.g. insurance

The following film activities and costs are generally not considered capitalisable:
o Corporate senior management costs e.g. finance director and other non-production-
related senior management costs, because such costs are considered general and
administrative
o Central costs e.g. human resources
o Marketing expenses, selling expenditures, and distribution cost

Film cost amortisation

Under IAS 38 amortisation is defined as the systematic allocation of the depreciable amount
of an intangible asset over its useful economic life. The allocation method should reflect the
pattern in which the asset’s future economic benefits are consumed by the company. If that
pattern cannot be measured reliably the straight-line method must be used.
A common industry practice is to use an accelerated amortisation profile for film costs
based on the observable decline in value of the film asset after its initial or early showings.
This practice continues to be an acceptable and conceptually sound approach, based on an
analysis of the remaining useful economic life and the recoverable amount of the underlying
film cost asset.
IAS 38 explicitly states that film publishing assets will not have a residual value on the basis
that there is not an active market for a film as each title is unique. Therefore, the film asset
will amortise to zero over the useful economic life.
Film cost impairment reviews ( Applying IAS 36 Principles)
An impairment test is performed when an event or change in circumstance indicates that
the carrying amount of unamortised film costs may exceed their recoverable amount. The
recoverable amount is the higher of the estimated fair value less costs to sell or value in use.
The impairment indicators can be external or internal. Examples include:
 o An adverse change on the expected performance of a film prior to release
o Actual costs substantially in excess of budgeted costs
o Substantial delays in completion or release schedules
o Changes in release plans, such as a reduction in the initial release pattern
o Insufficient funding or resources to complete the film and market it effectively
o Actual performances subsequent to release (e.g. poor box office performance or
weak DVD sales) fails to meet that which had been expected prior to release
o Restrictions under media law affecting the usability of films

The impairment test should be performed at the individual asset level; and where the
recoverable amount cannot be determined for an individual asset, the test is done at the
level of a ‘cash generating unit (‘CGU’). A CGU is the smallest identifiable group of assets
that generates cash inflows largely independent of the cash inflows from other assets or
group of assets.
ONLINE STREAMING

Document J
Document H
Task …… Time…………………

Pri Facts IOD changes

I am putting together a task team for online
entertainment streaming and would like
you to be part of the team. I thought I
would gain some fresh and dynamic
insights from you which would be a great
addition to the team.

What are your thoughts on SatNet

becoming an aggregator of online
streaming entertainment? I think there will
be benefit to all our different types of
subscribers. Online streaming providers
don’t only offer online streaming, but they
also have libraries one can get access to.
Technical:
Do we need experts

Format of Response.e.g memo Audience e.g CFO

Key Points to be discussed:

Structure/Answering Approach/Key
Headings/Layout
Expectations
 What does it mean to be an aggregator of online streaming entertainment?
 Online streaming libraries?
 Understand the business model of an aggregator.
 Impact on our business model for us being an aggregator.
 Are we using our Ultra decoder or using a different platform for the content
aggregation?
 Benefits vs disadvantages of being an aggregator of online streaming from Satnet’s
Perspective.

Business Model

What does it mean to be an aggregator of online streaming entertainment?

This business model collects products and suppliers under one hood and that is convenient
for the customer. Of course, the pricing of the aggregator services should be modest, and it
should lead to more business for the suppliers. Refer to Annexure for pictorial presentation
of an aggregator
The reality is that startups trying to make inroads in streaming simply don't have the means
to license and/or create content like HBO, YouTube or Hulu can. Highly rated series and
cinema blockbusters aren't cheap to add to streaming offerings, or may not even be options
at all, given agreements made among key industries that restrict platform availability.
Whichever route a company chooses can be expensive, so finding a cost-effective way to
acquiring or generating content that serves an audience's needs is paramount.
The alternative many businesses are betting on is aggregated streaming. While even Netflix
technically aggregates, in that it hosts a variety of content in one location for streaming,
streaming aggregators themselves are gaining attention by gathering niche content and
channels under one roof for customers looking past the latest network sitcom or docuseries.
Instead of playing to the masses, these operations are hyperfocused on providing specific
content types (like '60s pulp horrors or other cult favorites) that audiences demand and
can't get readily get elsewhere.
The aggregator business model works as follows;
1. Aggregator gets in contact with the provider, offering a partnership plan
2. Providers and aggregator sign up contracts, becoming partners
3. Aggregator creates a network of partnerships
4. Aggregator Invests in great marketing strategy to empower its brand
5. Users attracted by aggregators promises to buy through its platform
6. Partners gets their customers and aggregator, its commission.
How does the aggregator make money?
- The revenue streams of the aggregator is the commissions.
- Because, as the aggregator provides the customers to the partners, then the
partners pay a percentage of their earnings.
- For that the partners quote a minimum price and the aggregator will quote the total
price to the final consumer. The revenue can vary according to the industry, but also
to the season, the place etc.
Are we using our Ultra decoder or using a different platform for the content aggregation?
-The streaming app will house separate blocks or apps, incorporating Netflix, Show Max,
Amazon video etc as indicated in Annexure A

Advantages
Content aggregation as the future of streaming-
-Instead of focusing on content acquisition to feature a movie or a TV show, Broadcasters
are also offering the possibility to subscribe to other streaming services from within,
expanding on their offering while minimizing costs, providing a better user experience and,
most importantly, gaining revenue from platform “rent space”.
This can be seen as taking advantage of less resourceful content providers, but it’s actually
a win-win situation for all the parties involved. Most niche or small streaming services
struggle to find their audience, and while making the journey towards a profitable future,
the engine just doesn’t go as fast as the fuel being put into it. So, if there’s a chance to get
their product to a larger audience by offering their service to an aggregator, they would not
only ensure it would be available in more places to get discovered, but they could also take
a bigger profit by means of revenue share. This way the aggregator would increase its
ecosystem and overall range of products, while smaller services would only lose a small
cut compared to not having a big platform to showcase their services.

This model has been known to work rather well, with even established companies going
through this route to expand their viewership and profits. Look at HBO, for example. HBO
has a worldwide reputation for being a quality content creator and a leader when it comes
to Pay-Tv(television broadcasting in which viewers pay by subscription to watch a particular
channel), also making a worldwide move through their OTT subscription service, but this
didn’t stop the goliath from sharing their content with other streaming platforms.

If you look into Amazon Prime Video, Hulu or even Apple TV, you can see the HBO add-on
right there for subscription, and the same goes for many other players in the industry who
have no problems in distributing their content outside their main app, going for a revenue
share strategy. Plus, you have to take into consideration the way people move around OTT
platforms.

The major hassle of subscribing to multiple platforms is finding content. When subscribing
to Netflix, HBO or Disney +, you have to go from app to app, looking for the content you
want. Over time, people get fed up with this kind of time consuming tasks and usually stick
to the one most of their friend circle has, in order to get into the conversation and group
social dynamics. Remember that this is only a business for you, to audiences around the
world you represent entertainment, and entertainment doesn’t go well with hard work. This
hard work is also applied to the multiple billing cycles you have to create when joining
various different OTT apps, so it’s a no-brainer to think that having, or being a part of, an
aggregator offering will significantly improve your retention numbers and consumer choice
preference.
If content aggregation is going to be the future, you don’t have to rush in and spend all your
hard-earned money on all available content. No, take a step back and keep making smart
choices. Many service providers will make the bad decision of getting as many services as
they can and crunch them all together, but you, being above all others (wink wink), will
assess the market and carefully choose a line of content that fits your needs. Plus, when this
prediction becomes a reality, user experience will be even more of a deciding factor than it
already is, and if everyone packs the same content, users will be looking at comfort first and
content second.
To sum it all up, make smart deals. Make partnerships and either become an aggregator or
share your service with them, you’ll have a better return on your investment. The landscape
is becoming oversaturated with services providers who want to become the next Netflix,
when the reality of the situation is that even Netflix is being forced to pivot and is slowly
moving its way into becoming a production company. Aggregation is the new black, put
content pride aside and be prouder of your business choices.

Disadvantages
-Content aggregation can be viewed as anti-competitive behaviour by the competition and
Commission Tariff commission. -
MultiChoice is under investigation by the Competition Tariff Commission in South Africa of
its plans to aggregate global streaming services like Amazon Prime Video and Netflix.
Annexure: Aggregator and the OTT service providers

Netflix is a streaming service that offers a wide variety of award-winning TV shows, movies,
anime, documentaries, and more on thousands of internet-connected devices.
You can watch as much as you want, whenever you want without a single commercial – all
for one low monthly price. There's always something new to discover and new TV shows
and movies are added every week!
Netflix has an extensive library of feature films, documentaries, TV shows, anime, award-
winning Netflix originals, and more. Watch as much as you want, anytime you want.
Library
-a collection of films, recorded music, etc., organized systematically and kept for research or
borrowing.
How can streaming aggregators monetize?
While streaming aggregation is an enticing opportunity, businesses need to be sure they
know how they're going to monetize their platform and streaming content. Tight margins,
lack of user engagement and content appeal, or unfamiliarity with subscription services
could all hamper efforts to monetize.
Companies that want to succeed will need to take note of a few key points to make
streaming aggregation work:
 You need to know what your customers are doing: FierceCable reported the
average VRV customer used the service three hours a week, and a premium user five
hours. Having data on what content types or formats users interact with most can
highlight areas to build up for streaming aggregators.
 You need to be able to bill them competently: Whether your platform is billed on a
usage-based rate or flat fee, subscription companies need the tools to bill precisely.
Companies must strive to be faultless, or else they may see customers leave for
bigger Netflix-styled pastures.
 You have to know what your customers like: Streaming aggregators make their
pitch by knowing what niche content customers want, so they have to back that
assertion up. Personalizing the user's experience is a high-level priority.
DATA ANALYSIS
Trigger

To this end, we are in the early stages of appointing an entity to assist us in creating algorithms to
maximise benefit from our data. One question that still concerns me is the risks associated with
using artificial intelligence within our industry. Can you look into this, and I will be in touch regarding
this endeavour as soon as we have an update.

Technical

Algorithms

An algorithm in data mining (or machine learning) is a set of heuristics and calculations that creates
a model from data. To create a model, the algorithm first analyzes the data you provide, looking for
specific types of patterns or trends. The algorithm uses the results of this analysis over many
iterations to find the optimal parameters for creating the mining model. These parameters are then
applied across the entire data set to extract actionable patterns and detailed statistics.

The mining model that an algorithm creates from your data can take various forms, including:

 A set of clusters that describe how the cases in a dataset are related.

 A decision tree that predicts an outcome, and describes how different criteria affect that
outcome.

 A mathematical model that forecasts sales.

 A set of rules that describe how products are grouped together in a transaction, and the
probabilities that products are purchased together.

Choosing the Right Algorithm

Choosing the best algorithm to use for a specific analytical task can be a challenge. While you can
use different algorithms to perform the same business task, each algorithm produces a different
result, and some algorithms can produce more than one type of result. For example, you can use the
Microsoft Decision Trees algorithm not only for prediction, but also as a way to reduce the number
of columns in a dataset, because the decision tree can identify columns that do not affect the final
mining model.

AI

The ability of a digital computer or computer-controlled robot to perform tasks commonly

associated with intelligent beings.

How does an AI algorithm work?

Of course, as time goes on, these types of coding instructions have become even more detailed and
intricate than anyone could have ever possibly imagined.

And that’s where artificial intelligence algorithms come into the picture.

Essentially, an AI algorithm is an extended subset of machine learning that tells the computer how
to learn to operate on its own.

In turn, the device continues to gain knowledge to improve processes and run tasks more efficiently.

Need an example of where this is incredibly common? Think about the Alexa, Google Home, or
Apple Home device you already own.

The more you interact with it, the greater it gets at being able to notice your individual
preferences.

For instance, when you tell it to play your favorite song .

Artificial intelligence algorithms make it possible to tell the difference between individual voices,
remember the name of a specific tune, and then play the track accordingly on your individual
streaming music account.

The Role Of Artificial Intelligence Algorithms In Marketing

What if you wanted to create your own AI, but not to do your bidding or achieve world domination?

What if you just sought to make more sales, connect with your customers, and grow your
business?

Now that is something that’s getting easier to do all the time!

In fact, consumers are becoming more and more focused on website experiences that adjust to their
unique needs.

Whether it is a national brand that auto-adjusts its page to notice when you’re standing in one of
their stores or an eCommerce brand that uses automated messaging to remind a shopper when
they’ve left something behind in their cart, there are numerous ways companies are integrating this
type of technology for a better overall customer experience.

And what’s really cool is that it isn’t just a factor left to mega conglomerates, either.

Even small enterprises (“mom and pop” businesses) are able to integrate algorithms and AI into their
digital marketing strategies.

Risks of Artificial Intelligence

1. THE IMMEDIATE RISK: JOB AUTOMATION

Job automation is generally viewed as the most immediate concern. It’s no longer a matter of if AI
will replace certain types of jobs, but to what degree.

What is an algorithm -process or set of rules to be followed in solving a problem or performing a

task. The order of instructions is very important. In order for some instructions to be an algorithm, it
must have the following characteristics:
Clear and Unambiguous: Algorithm should be clear and unambiguous. Each of its steps should be
clear in all aspects and must lead to only one meaning.

Well-Defined Inputs: If an algorithm says to take inputs, it should be well-defined inputs.

Well-Defined Outputs: The algorithm must clearly define what output will be yielded and it should
be well-defined as well.

Finiteness: The algorithm must be finite, i.e. it should not end up in an infinite loops or similar.

Feasible: The algorithm must be simple, generic and practical, such that it can be executed upon will
the available resources. It must not contain some future technology, or anything.

Language Independent: The Algorithm designed must be language-independent, i.e. it must be just
plain instructions that can be implemented in any language, and yet the output will be same, as
expected.

Advantages of Algorithms:

 It improves efficiency of a program

 It is easy to understand as it is a stepwise representation of a solution to a given problem.
 Algorithm is a stepwise representation of a solution to a given problem.
 In Algorithm the problem is broken down into smaller pieces or steps hence, it is easier for
the programmer to convert it into an actual program.
 It is not dependent on any programming language, so it is easy to understand for anyone
even without programming knowledge.
 Every step in an algorithm has its own logical sequence so it is easy to debug.

Disadvantages of Algorithms:

 Writing an algorithm takes a long time so it is time-consuming.

 Branching and Looping statements are difficult to show in Algorithms.
 An Algorithm is not a computer program, it is rather a concept of how a program should be.

What considerations do we make in selecting an entity to help us create algorithms to maximize

benefit from our data?

 The problem that is to be solved by this algorithm.

 The constraints of the problem that must be considered while solving the problem.
 The input to be taken to solve the problem.
 The output to be expected when the problem the is solved.
  The solution to this problem, in the given constraints.

What are the risks associated with using artificial intelligence within our industry?

Job loss – machines are more productive and successful than humans there are replacing humans by
doing repetitive tasks

Privacy violations – monitoring of human communication violates privacy rights

Creates a single point of failure – replacing diverse human decisions with algorithms represents a
single point of failure.

Quality of life – it decreases quality of life by removing human contact

Fake news and propaganda -AI researchers create videos and audios of people eg politicians and
make them look and talk like real life counterparts

Artificial intelligence machines don’t understand ethics

Machines have no emotions they cannot bond with humans

Machines lack creativity they cannot think outside the box

Machines are complex they require heavy investment

Disadvantages of artificial intelligence

AI Requires High Investment
Being a complex system, the initial investment for utilizing an AI-based approach in an industry is
substantial. Since AI is still in its incumbent phase, developing customized solutions for a particular
application requires resources and time. The overall cost for a solution depends on the initial
research as well as the system development. Additionally, the cost of installation, repair, and
maintenance can be expensive too. Further, you have to factor the investment for upgradations as
technologies evolve in the future.

AI Applications Don’t Improve with Experience

During the early days of Artificial Intelligence, one of its key aims was the ability to learn from
experience. However, we have not been able to replicate this behaviour in AI systems. As the
machines cannot evolve with experience, it makes their application limited in dynamic
environments. In a typical industry setup, a job passed between several operators. Despite their
decision-making capability, AI systems cannot replicate human coordination.

Lack of Creativity
Despite being adaptive, AI machines can only perform tasks that are a part of their algorithm. Since
they are devoid of feelings, they lack passion and creativity. Although they can take part in the
decision making, they merely follow an algorithm based on rules and do not show the intuitiveness
of a human brain. Due to the lack of creativity, AI systems are not able to provide an out-of-box
solution for new scenarios.
Over Dependency on Machines
By assigning several jobs to machines, we are becoming over-reliant on them. The inability to
perform our daily activities without their assistance has already begun to show. As our dependency
on these machines increase, the mental growth of humans will slow down. Several experts have
warned about the adverse consequences of AI on the thinking capabilities of human beings.

Risk of Data Loss

As we become over-reliant on AI systems to manage our data, recovering the information in case of
a data loss can be very difficult. In a large enterprise, these data loss can be threatening for its
business and the privacy of its customers. Nowadays, we store all our important files on a
smartphone or a computer. If the data gets corrupted, retrieving it can be quite troublesome

Other AI limitations relate to:

 implementation times, which may be lengthy depending on what you are trying to
implement
 integration challenges and lack of understanding of the state-of-the-art systems

 usability and interoperability with other systems and platforms

 If you're deciding whether to take on AI-driven technology, you should also consider

 customer privacy

 potential lack of transparency

 technological complexity

Artificial intelligence and ethical concerns

 the potential of automation technology to give rise to job losses

 the need to redeploy or retrain employees to keep them in jobs
 fair distribution of wealth created by machines
 the effect of machine interaction on human behaviour and attention
 the need to address algorithmic bias originating from human bias in the data
 the security of AI systems (eg autonomous weapons) that can potentially cause damage
 the need to mitigate against unintended consequences, as smart machines are thought to
learn and develop independently

How to mitigate the risks

Compliance requirements:

 The legal department and/or compliance officer to conduct a detailed investigation into the
legislative universe applicable to the use of AI for commercial purposes;
  Training to be provided to all directors and relevant managers on the legislative
requirements relevant to the use of AI for commercial purposes; and
 The identification and mitigation of compliance risks associated with the use of AI for
commercial purposes to be incorporated into the company’s risk management process.

Privacy issues:

Ensure compliance with relevant legislation such as the Freedom of Information Act [Chapter 10:33]
and to ensure that customers trust the company with their personal information:

 Training to be provided to all directors and relevant managers on the legislative

requirements relevant to the protection of personal information;
 The identification and mitigation of compliance risks associated with the protection of
personal information to be incorporated into the company’s risk management process;
 SatNet to be absolutely transparent regarding the personal information of customers which
will be collected and what it will be used for; and
 SatNet to clearly indicate which information will be made available to third parties and
giving customers the option to agree or deny the use of personal information.

Ethical considerations

 The foundation of business ethics principles is built on the fact that decisions and choices
should be good for self and good for others.
 The consequences for all stakeholders should be considered and the best option should be
selected. The view is that an action is regarded as ethical because it produces the best
overall results.
 SatNet should identify the most important stakeholders as well as the consequences for all
stakeholders.
 Customers as well as employees’ point of view should be considered.
 Embark on a comprehensive stakeholder engagement process with identified stakeholders
in order for the potential benefits and risks to be communicated to different stakeholder
groups (including customers, employees, the environment and the company and its
shareholders) as a result of the use of AI for commercial purposes.
LOCAL CONTENT
Trigger
I need your assistance with regards to the production of local content. We need to increase
local content production in the most effective and innovative manner. There is no doubt
that there is a strong appetite for local content and majority of local productions are prime
time viewing content. Please apply your mind to this so long, we will shortly need to
formulate a feasible plan in this regard.
Technical
We believe in telling African stories that touch lives, celebrate our continent and have the
happy consequence of building great futures. This is why M-Net’s channels have made
growing Africa’s video content industry a priority.
By investing in original productions of authentic stories and talent across the continent, M-
Net is helping to launch careers, both locally and internationally. With content designed to
cater for diverse audiences, M-Net supports local production houses as well as talented
actors, writers and filmmakers.
M-Net and MultiChoice spent R2,5bn on local movies and series in 2018 ( Multi Choice
Case) .
Ways to promote local content (case of multi choice)
MultiChoice Group (https://MultiChoice.com) published its Social Impact Report which
details how Africa’s leading entertainment company continues to make a meaningful
difference in the communities in which it operates. The group operates in 50 countries
across Africa.
The report covers initiatives implemented which had a significant impact on indivduals,
businesses, non-profit organisations and companies across the continent. These include
using the DStv platform for social good, being connected and in touch with communities,
creating opportunities, supporting and growing entrepreneurs, diversity, growing the
continent’s talent pipeline and telling African stories.
MultiChoice contributed R11.2bn in taxes and spent R446m on CSI initiatives.
The group reaches more than 20 million households and has used its DStv and GOtv
platforms to raise awareness and mobilise resources to address social challenges. Last year,
it partnered with the United Nations and World Health Organisation, the national health
and education departments to address the disruption to education during the pandemic,
the spread of misinformation (around COVID-19 and COVID-19 vaccinations) and the fight
against gender-based violence (GBV). The total value of airtime allocated for social good
was R271 million.
Creating employment opportunities for the youth was another focus area. This included
collaborating with the Youth Employment Service (YES) in South Africa, which saw 300
employment opportunities created; providing bursaries, internships and learnerships, and
offering training to young Nigerians interested in tech through the Sabiman and Canvasser
schemes. The Canvasser scheme currently employs 3 205 young adults.
Small businesses are the lifeblood of African economies and MultiChoice is committed to
support the growth and development of entrepreneurs. It has created small businesses and
throusands of jobs in the decoder and hardware installation business. There are about 2 800
independent service providers (agencies) and more than 6 000 installers across Africa.
The group also creates opportunities for entrepreneurs in South Africa through its
Innovation Fund and preferential procument. Last year, it spent R11.5bn on local suppliers,
R2.3bn on suppliers that are at least 30% black women-owned, R3.3bn on small and
medium enterprises and R615 million on suppliers that are 51% black youth-owned.
MultiChoice invests siginificantly in local content and is committed to tell African stories.
Last year it spent 42% of the group’s general entertainment spend on local content and
produced 19% more local content than last year. The group invests in local-language
movies, series, telenovelas, sitcoms, soap operas, sports broadcasts and magazine shows. It
has programming in 41 languages and 15 dedicated local content channels in 10 markets. Its
local content library now exceeds 62 000 hours.
Through the MultiChoice Talent Factory (MTF), MultiChoice contributes to growing the
talent pipeline in the industry. The MTF has trained 206 students over the past six years and
62 MTF graduates now own their own production companies. 74 interns from 14 countries
across Africa created four movies, 16 short films and 14 Public Service Announcements for
the United Nations’ #PLEDGETOPAUSE campaign and the World Health Organization’s
educational campaign on COVID-19.
MultiChoice continues support and promote diversity as well as uplift women in the
workplace. The Group employs 7 028 employees from 81 nationalities, 47% of which are
women and 53% are men.
Cater for audience preferences of having content in languages and genres that resonate
culturally.
How Significant Is Local Content To DStv?
When Kwese Pay TV met it’s untimely death last year and even well before that, one of the
things we lamented was the lack of local content on the platform.
So far this year, Multichoice has added a host of local channels including Afrika Newsroom,
Maisha Magic Plus and Africa News. Going forward they intend to produce 2 locally
produced shows titled Blood Psalms and Rogue by March 2021. There will also be the
addition of 4 new local channels though it’s not clear which regions they will cater for
specifically.
Multichoice’s VoD service currently has a content library made up of 50% local content and
DStv says monthly active users for the service had grown by 39% year-on-year.
Interestingly, Multichoice says that the highest audience rating of any show aired between
March 2019 -March 2020 was a locally produced show, Trackers. They even say this show
had a higher rating than Game of Thrones.
Strategy
o Build production capabilities in the countries in which we operate
o We are uniquely positioned because we can use our extensive experience, expertise
and resources as we execute our hyper-local content strategy.
o We take a considered approach in identifying which markets to focus our local
content investment to ensure real impact and return on that investment.
o Our investment in local content will generate jobs and provides a platform for
home-grown talent to shine.
o In addition, the local sport we produce and broadcast (including some broadcasts on
community TV stations) supports sport bodies. It enables them to continue
developing sport, especially in Africa.
o Our investment in local content enables us to tell great stories that our customers
love.
o In an evolving video entertainment industry, a differentiated content strategy is key
to remaining relevant.
o Our significant investment in local content sets us apart from international
competitors, especially as African viewers love content in their own languages and
stories that resonate culturally. In addition, local content is cheaper than
international general entertainment content and helps us reduce our exposure to
US$ input costs.

BROADCASTING LICENSEES LOCAL CONTENT CONDITIONS

1. Broadcast content objectives
In exercising their duties, broadcasting licensees shall ensure that their programming
complies with the following objectives.
– Reflecting a Zimbabwean national identity.
– Respecting community standards and values.
– Reporting on matters of local significance.
– Promoting peace, stability and national cohesion.
– Preserving the national security and integrity of Zimbabwe.
– Placing a high priority in the protection of children.
– Promoting quality programming.
2. Content Conditions: Terms and conditions of licence
Terms and conditions of licence set out in the Broadcasting Services Act Chapter [12:06] and
other relevant legislation.
– Make one hour cumulatively per week of its broadcasting time available to Government to
explain its policies.
– Observe and comply with the provisions of the Copyright Act [Chapter 26:01].
– Should not broadcast any matter that contains any false and misleading news.
– Be regulated by the Zimbabwe Electoral Commission (Media Coverage of Elections),
Regulation during an election period.
– Be subject to the provisions of the Access to Information and Protection of Privacy Act
[Chapter 10:27] in regard to the conduct and accreditation of journalists employed by them.
3. Public service obligations
Public service obligations for broadcasting licensees.
– Provide information and facilities to enable a person to communicate with an emergency
organization.
– Provide sufficient coverage of national events.
– Provide an information service that is fair, balanced, accurate and complete.
4. Local Content Conditions
Local content quotas for television broadcasting licensees.
– 75 percent local television content and material from Africa every week during the
performance period.
– Specific programme categories e.g. 75% drama, 80% educational, 80% current affairs, etc.
– Forty per centum of local television content programming consists of programmes which
are independent television productions.
– 10 percent of total programming broadcast to be in National languages other than Shona
and Ndebele.
– 10 percent of total television programming broadcast in a manner for people with a
hearing impairment.
Local content quotas for radio broadcasting licensees.
– 75 percent quota for Zimbabwean music every week during performance period.
– 10 percent quota for music from Africa every week during performance period.
– 10 percent of total programming broadcast to be in National languages other than Shona
and Ndebele.
5. Broadcasting Services (Licensing and Content ) Regulations,2004
Other obligations include the following:
– Publishing of programme schedules, quarterly schedules, transmission reports, music play
lists, complaints handling procedure and record keeping – see attached Broadcasters’
Reporting Format.
BROADCASTERS’ REPORTING FORMAT TO THE BROADCASTING AUTHORITY OF ZIMBABWE
1. Programme Schedules
Publish in a national newspaper at least one month of programme schedule in
advance. (Section 34(1) of the Regulations)
-Indicate date programme schedule was published for television and radio channels.

1. Generic Issue for standard 2. Issue in the context of the industry

Multi-choice: Local content is also proving to be a key differentiator

Key factor is cost of local content is Significant. Showmax, with local content viewership up significantly this year, and f
of the top five titles on Showmax being local productions. A record num
of Showmax originals were launched during the year, including the
How do we finance local production? Kenyan and Nigerian original series.

Challenges of local content production? 1. Issue in the context of the case study
Benefits of local content production?
% decrease in revenues: 1.3%
How do we increase local content prod in the Multi-choice in R2.5Bn (2018 inv local content)
most effective and innovative manner? Goals: local content (PRI-5)

2. Application in the Industry (Solve the 3. Application in the case study (Solve the
problem) problem)

BENEFITS Since Its costly

When it comes to our content strategy, we stepped up our  Enter negotiations with production houses with regards to
investment in local content. This was not only to support payments.
the development of African storytelling, but also to cater
for our audience’s preference of having content in  We cant jointly finance the production of content and on
languages and genres that resonate culturally. pay the prod houses to extent of their cost.

The increased investment generates Employment  Enter into backward integration so that we can secure lo
content at favourable prices.
opportunities and is further supported by some of our CSI
initiatives such as the MultiChoice Talent Factory (MTF), a  Zimbabwe: Negotiate USD payments with production hou
platform for home-grown productions. During the year, we given that the local zim currency is decreasing value.
produced 28 local dramas, 13 telenovelas and 17 comedy
series.  Payments in local are cheaper: Foreign risk is low

Creating Employment supports well the initiatives of

corporate and social responsibility because we will be
contributing to the nation in reducing unemployment. FINANCIAL FEASIBILITY

Multi-choice invested and approx R2.5bn Rand in 2018.  Cash resources sitting at 915million
This is a huge cost of investment.
 They have no long term borrowings. SatNet can
Consider increasing our prices also to a reasonable borrow,
extent. Like what multichoice did in 2018 to cover initial  SatNet has profits
outlay costs.
OPERATIONAL FEASIBILITY
BENEFITS TO SATNET
TECHNICAL FEASIBILITY
 Sig investment in local content set SatNet apart from
international competitors esp as African viewers love
content in their own languages and stories that resonate LEGAL FEASIBILTY
culturally.

 Local content is cheaper that international 4. Journals

entertainment content that helps SatNet reduce
international exposure to USD input cost.

 Creating Employment.
reputation as SatNet
This helps build a better Risk
 In an evolving video enter industry, a differentiated Piracy of content, including file sharing, illegal internet streaming of sporting conte
content strategy is key to remain relevant . and the piracy of local content remain a key risk to the business.

MITIGATION

We continually invest in our leading secure me platform and application secure IT a

Technology subsidiary, which offers state of art security software, cybersecurity an
anti-piracy in media and gaming.

5. Multi-disciplinary

 Finacc :

 Auditing & Governance

 Taxation

6. Issue in the context of the Stakeholders 7. What if (How will this evolve)

RELEVENT COSTING:

Inhouse production VS outsourcing from production

houses.