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Section III 

Explanatory Memorandum 

1.  An essential ingredient of effective regulatory framework is the arrangement, 

which enables the system to generate accounting statements for analysing 

costs, revenues and capital employed in major areas of an operator's business. 

The financial reporting at the corporate/entity level presents aggregate 

information, which does not provide details for regulatory purpose such as: 

(i) 

Measuring financial performance of products; 

(ii) 

Monitor return on products and services regulated with price ceilings; 

(iii)  Identify cross subsidising, Investigating predatory pricing, 

discrimination and other anti competitive conduct; 

(iv) 

Understanding the inter operator arrangements in terms of price and 

cost, and  

(v) 

Monitoring adequacy of access deficit etc.  

2. This Regulation will facilitate the availability of more detailed and 

disaggregated information on revenues and costs on regular basis.  

3.  The central government published Notification No. GSR 782(E) dated 

27.11.2002 to specify books of accounts and other documents, which are to be 

maintained and notification/order no 7 4/2001 tariff dated 21

st

 October 2003 

in the Gazette of India dated 8.11.2003 to specify the manner in which books 

of Accounts and Other documents are to be maintained. These books of 

accounts and other documents form the underlying records for preparation of 

the reports prescribed in the Regulation.  

4.  The Reporting System on Accounting Separation can be broadly classified 

into the following segments: 

4.1 Service wise Reporting  For every geographical area, separate profit and loss 

statements are to be prepared for each of the services mentioned in clause (2) 

of regulation 1. The geographical area wise profit and loss statements for a 

particular service when aggregated at the company level will provide 

information on overall profitability of a that service. The authority requires 

profit and loss report for services to understand the profitability of each 

service and whether it is influenced by cross subsidisation;  

4.2 Product wise Reporting   Geographical area wise profit and loss statements 

are to be prepared for each of the sub service or product mentioned against 

services rendered by the service provider in Schedule I. The profit and loss 

statements of all products of a service when aggregated for a geographical area 

shall provide profit and loss statement for service in that geographical area.   

4.3 Statements on Capital Employed and Cost Sheets of Network Elements  The 

cost sheet provide information about costs incurred on network elements. The 

Capital Employed statements provide input for cost sheets on Return on