Exhibit 99.4

Audited Consolidated Financial Statements as at and for the years ended December 31, 2020 and 2019 and Management’s Discussion and Analysis

[previously filed on SEDAR]

TELUS CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

report of management on internal control over financial reporting

Management of TELUS Corporation (TELUS, or the Company) is responsible for establishing and maintaining adequate internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting.

TELUS’ President and Chief Executive Officer and Executive Vice-President and Chief Financial Officer have assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020, in accordance with the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Internal control over financial reporting is a process designed by, or under the supervision of, the President and Chief Executive Officer and the Executive Vice-President and Chief Financial Officer and effected by the Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis. Also, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Based on the assessment referenced in the preceding paragraph, management has determined that the Company’s internal control over financial reporting is effective as of December 31, 2020. In connection with this assessment, no material weaknesses in the Company’s internal control over financial reporting were identified by management as of December 31, 2020.

Deloitte LLP, an Independent Registered Public Accounting Firm, audited the Company’s Consolidated financial statements for the year ended December 31, 2020, and as stated in the Report of Independent Registered Public Accounting Firm, they have expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020.

/s/ “Doug French”	/s/ “Darren Entwistle”
Doug French	Darren Entwistle
Executive Vice-President	President
and Chief Financial Officer	and Chief Executive Officer
February 11, 2021	February 11, 2021

 

2 | December 31, 2020 

report of independent registered public accounting firm

To the Shareholders and Board of Directors of TELUS Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of financial position of TELUS Corporation and subsidiaries (the Company) as at December 31, 2020 and 2019, the related consolidated statements of income and other comprehensive income, changes in owners’ equity and cash flows, for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2020 and 2019, and its financial performance and its cash flows for each of the two years in the period ended December 31, 2020, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 11, 2021, expressed an unqualified opinion on the Company’s internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Goodwill Impairment Analysis – Refer to Note 1(f) and Note 18 to the financial statements

Critical Audit Matter Description

The Company assesses goodwill impairment by comparing the recoverable amounts of its cash-generating units to their carrying values. The Company determined the recoverable amounts of the cash-generating units based on a fair value less costs of disposal calculation. The fair value less costs of disposal calculation uses discounted cash flow projections that employ the following key assumptions:

· Future cash flows and growth projections.

· Associated economic risk assumptions and estimates of the likelihood of achieving key operating metrics and drivers.

· Weighted average cost of capital.

Changes in these assumptions could have a significant impact on either the fair value less costs of disposal, the amount of any goodwill impairment charge, or both. Given the significant judgments made by management, auditing the key assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve a fair value specialist.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the key assumptions included the following, among others:

· Evaluated the effectiveness of controls over the key assumptions used by management.

 

December 31, 2020 | 3

report of independent registered public accounting firm

· Compared management’s historical cash flow forecasts to actual historical results.

· Evaluated the reasonableness of management’s forecasts of future cash flows and growth projections; associated economic risk assumptions; and estimates of the likelihood of achieving key operating metrics and drivers by comparing the forecasts to:

· Historical revenues,

· Analyst and industry reports for the Company and certain of its peer companies,

· Known changes in the Company’s operations and/or telecommunication industry, which are expected to impact future operating performance, and

· Internal communications to management and the Board of Directors.

· With the assistance of a fair value specialist, evaluated the reasonableness of the weighted average cost of capital and growth projections by:

· Testing the source information underlying the determination of the weighted average cost of capital.

· Developing a range of independent estimates for the weighted average cost of capital and growth projections and comparing those to the rates selected by management.

Valuation of Intangible Assets Acquired in Business Combinations – Refer to Note 1(b) and Note 18(b) to the financial statements

Critical Audit Matter Description

The Company completed business combinations of Competence Call Center (CCC) and the data annotation business of Lionbridge Technologies, Inc. (Lionbridge AI) and recognized the assets acquired and liabilities assumed at their acquisition-date fair values, including intangible assets for customer relationships and crowdsource asset. The fair value measurement of these intangible assets required management to make significant estimates and assumptions in forecasting future cash flows.

While there are many estimates and assumptions that management makes to determine the fair value of the customer relationships acquired for both CCC and Lionbridge AI and the crowdsource asset acquired for Lionbridge AI, the estimates and assumptions with the highest degree of subjectivity are the forecasts of future revenue arising from existing customers and discount rates used in valuing the customer relationships, and the approximate time to replace the workforce used in valuing the crowdsource asset. Performing audit procedures to evaluate these estimates and assumptions required a high degree of auditor judgment and an increased extent of audit effort, including the involvement of fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the forecasts of future revenue, discount rates, and time-to-replace assumptions used to determine the fair value of intangible assets acquired included the following, among others:

· Evaluated the effectiveness of controls over the determination of the fair value of customer relationships and the crowdsource asset at the time of acquisition, including management’s controls over key assumptions used in the valuations.

· Evaluated the reasonableness of management’s forecasts of future revenue by:

· Inspecting contracts with customers to substantiate the existence of legally enforceable contracts in place, as well as inspecting and assessing management’s business plans to grow revenue with these customers,

· Assessing the reasonableness of management’s forecasts of future revenue by comparing the projections to historical results and external sources, including industry trends and peer companies’ historical data.

· With the assistance of fair value specialists, evaluated the reasonableness of the discount rates by testing the source information underlying the determination of the discount rates and by developing a range of independent rates based on industry data and comparing them to the discount rates used by management.

· With the assistance of fair value specialists, assessed the appropriateness of the valuation methodology and performed an independent assessment of the time-to-replace assumption used in valuing the crowdsource asset, including recalculating the approximate value of the crowdsource workforce in place and performing a sensitivity analysis to substantiate the value of the lost opportunity.

/s/ “Deloitte LLP”

Chartered Professional Accountants

February 11, 2021

Vancouver, Canada

We have served as the Company’s auditor since 2002.

 

4 | December 31, 2020 

report of independent registered public accounting firm

To the Shareholders and Board of Directors of TELUS Corporation

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of TELUS Corporation and subsidiaries (the Company) as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2020, of the Company and our report dated February 11, 2021, expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ “Deloitte LLP”

Chartered Professional Accountants

February 11, 2021

Vancouver, Canada

 

December 31, 2020 | 5

consolidated statements of income and other comprehensive income

Years ended December 31 (millions except per share amounts)	Note	2020			2019
OPERATING REVENUES
Service		$	13,277		$	12,400
Equipment			2,064			2,189
Operating revenues (arising from contracts with customers)	6		15,341			14,589
Other income	7		122			69
Operating revenues and other income			15,463			14,658
OPERATING EXPENSES
Goods and services purchased			6,268			6,070
Employee benefits expense	8		3,701			3,034
Depreciation	17		2,107			1,929
Amortization of intangible assets	18		905			648
			12,981			11,681
OPERATING INCOME			2,482			2,977
Financing costs	9		771			733
INCOME BEFORE INCOME TAXES			1,711			2,244
Income taxes	10		451			468
NET INCOME			1,260			1,776
OTHER COMPREHENSIVE INCOME (LOSS)	11
Items that may subsequently be reclassified to income
Change in unrealized fair value of derivatives designated as cash flow hedges			(111	)		84
Foreign currency translation adjustment arising from translating financial statements of foreign operations			113			20
			2			104
Items never subsequently reclassified to income
Change in measurement of investment financial assets			14			12
Employee defined benefit plan re-measurements			(312	)		(338	)
			(298	)		(326	)
			(296	)		(222	)
COMPREHENSIVE INCOME		$	964		$	1,554
NET INCOME ATTRIBUTABLE TO:
Common Shares		$	1,207		$	1,746
Non-controlling interests			53			30
		$	1,260		$	1,776
COMPREHENSIVE INCOME ATTRIBUTABLE TO:
Common Shares		$	893		$	1,516
Non-controlling interests			71			38
		$	964		$	1,554
NET INCOME PER COMMON SHARE*	12
Basic		$	0.95		$	1.45
Diluted		$	0.94		$	1.45
TOTAL WEIGHTED AVERAGE COMMON SHARES OUTSTANDING*
Basic			1,275			1,204
Diluted			1,278			1,204

The accompanying notes are an integral part of these consolidated financial statements.

* Amounts reflect retrospective application of March 17, 2020, share split (see Note 28(b)).

 

6 | December 31, 2020 

consolidated statements of financial position

As at December 31 (millions)	Note	2020		2019
ASSETS
Current assets
Cash and temporary investments, net		$	848	$	535
Accounts receivable	6(b)		2,355		1,962
Income and other taxes receivable			148		127
Inventories	1(l)		407		437
Contract assets	6(c)		439		737
Prepaid expenses	20		484		547
Current derivative assets	4(h)		2		8
			4,683		4,353
Non-current assets
Property, plant and equipment, net	17		15,014		14,232
Intangible assets, net	18		15,026		12,846
Goodwill, net	18		7,235		5,307
Contract assets	6(c)		268		328
Other long-term assets	20		1,106		919
			38,649		33,632
		$	43,332	$	37,985
LIABILITIES AND OWNERS’ EQUITY
Current liabilities
Short-term borrowings	22	$	100	$	100
Accounts payable and accrued liabilities	23		2,962		2,749
Income and other taxes payable			135		55
Dividends payable	13		403		352
Advance billings and customer deposits	24		772		675
Provisions	25		73		288
Current maturities of long-term debt	26		1,432		1,332
Current derivative liabilities	4(h)		32		23
			5,909		5,574
Non-current liabilities
Provisions	25		924		590
Long-term debt	26		18,856		17,142
Other long-term liabilities	27		1,265		806
Deferred income taxes	10		3,776		3,214
			24,821		21,752
Liabilities			30,730		27,326
Owners’ equity
Common equity	28		12,074		10,548
Non-controlling interests			528		111
			12,602		10,659
		$	43,332	$	37,985
Contingent liabilities	29

The accompanying notes are an integral part of these consolidated financial statements.

Approved by the Directors:
/s/ “David L. Mowat”	/s/ “R.H. Auchinleck”
David L. Mowat	R.H. Auchinleck
Director	Director

 

December 31, 2020 | 7

consolidated statements of changes in owners’ equity

		Common equity
		Equity contributed										Accumulated
		Common Shares (Note 28)										other						Non-
		Number of		Share		Contributed			Retained			comprehensive						controlling
(millions)	Note	shares*		capital		surplus			earnings			income			Total			interests			Total
Balance as at January 1, 2019			1,197	$	5,390	$	383		$	4,321		$	11		$	10,105		$	74		$	10,179
Net income			—		—		—			1,746			—			1,746			30			1,776
Other comprehensive income (loss)	11		—		—		—			(338	)		108			(230	)		8			(222	)
Dividends	13		—		—		—			(1,358	)		—			(1,358	)		—			(1,358	)
Dividends reinvested and optional cash payments	13(b), 14(c)		8		184		—			—			—			184			—			184
Equity accounted share-based compensation			1		13		20			—			—			33			—			33
Share option award net-equity settlement feature			—		1		(1	)		—			—			—			—			—
Issue of Common Shares in business combination			3		72		—			—			—			72			—			72
Change in ownership interests of subsidiary			—		—		(4	)		—			—			(4	)		(1	)		(5	)
Balance as at December 31, 2019			1,209	$	5,660	$	398		$	4,371		$	119		$	10,548		$	111		$	10,659
Balance as at January 1, 2020			1,209	$	5,660	$	398		$	4,371		$	119		$	10,548		$	111		$	10,659
Net income			—		—		—			1,207			—			1,207			53			1,260
Other comprehensive income (loss)	11		—		—		—			(312	)		(2	)		(314	)		18			(296	)
Dividends	13		—		—		—			(1,520	)		—			(1,520	)		—			(1,520	)
Dividends reinvested and optional cash payments	13(b), 14(c)		23		541		—			—			—			541			—			541
Equity accounted share-based compensation	14(b)		1		15		82			—			—			97			—			97
Issue of Common Shares in business combination	18(b)		—		8		—			—			—			8			—			8
Common Shares issued	28(a)		58		1,453		—			—			—			1,453			—			1,453
Change in ownership interests of subsidiary	28(d)		—		—		54			—			—			54			346			400
Balance as at December 31, 2020			1,291	$	7,677	$	534		$	3,746		$	117		$	12,074		$	528		$	12,602

The accompanying notes are an integral part of these consolidated financial statements.

* Amounts reflect retrospective application of March 17, 2020, share split (see Note 28(b)). 

 

8 | December 31, 2020 

consolidated statements of cash flows

Years ended December 31 (millions)	Note	2020			2019
OPERATING ACTIVITIES
Net income		$	1,260		$	1,776
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization			3,012			2,577
Deferred income taxes	10		76			115
Share-based compensation expense, net	14(a)		27			(2	)
Net employee defined benefit plans expense	15(a)		102			78
Employer contributions to employee defined benefit plans			(51	)		(41	)
Non-current contract assets			60			130
Non-current unbilled customer finance receivables	20		(136	)		(178	)
Loss from equity accounted investments	7, 21		29			(4	)
Other			(75	)		(192	)
Net change in non-cash operating working capital	31(a)		270			(332	)
Cash provided by operating activities			4,574			3,927
INVESTING ACTIVITIES
Cash payments for capital assets, excluding spectrum licences	31(a)		(2,822	)		(2,952	)
Cash payments for spectrum licences			—			(942	)
Cash payments for acquisitions, net	18(b)		(3,205	)		(1,105	)
Advances to, and investment in, real estate joint ventures and associate	21		(100	)		(35	)
Real estate joint venture receipts	21		5			7
Proceeds on disposition			86			16
Investment in portfolio investments and other			(129	)		(33	)
Cash used by investing activities			(6,165	)		(5,044	)
FINANCING ACTIVITIES	31(b)
Common Shares issued			1,495			—
Dividends paid to holders of Common Shares	13(a)		(930	)		(1,149	)
Issue (repayment) of short-term borrowings, net			(8	)		(1	)
Long-term debt issued	26		4,882			7,705
Redemptions and repayment of long-term debt	26		(3,863	)		(5,261	)
Shares of subsidiary issued to non-controlling interests	28(d)		400			(9	)
Other			(72	)		(47	)
Cash provided by financing activities			1,904			1,238
CASH POSITION
Increase in cash and temporary investments, net			313			121
Cash and temporary investments, net, beginning of period			535			414
Cash and temporary investments, net, end of period		$	848		$	535
SUPPLEMENTAL DISCLOSURE OF OPERATING CASH FLOWS
Interest paid		$	(740	)	$	(714	)
Interest received		$	13		$	7
Income taxes paid, net
In respect of comprehensive income		$	(397	)	$	(629	)
In respect of business acquisitions			(33	)		(15	)
		$	(430	)	$	(644	)

The accompanying notes are an integral part of these consolidated financial statements.

 

December 31, 2020 | 9

notes to consolidated financial statements

DECEMBER 31, 2020

TELUS Corporation is one of Canada’s largest telecommunications companies, providing a wide range of telecommunications services and products, including wireless and wireline voice and data. Data services include: internet protocol; television; hosting, managed information technology and cloud-based services; healthcare solutions; customer care and business services; and home and business smart technology (including security and agriculture).

TELUS Corporation was incorporated under the Company Act (British Columbia) on October 26, 1998, under the name BCT.TELUS Communications Inc. (BCT). On January 31, 1999, pursuant to a court-approved plan of arrangement under the Canada Business Corporations Act among BCT, BC TELECOM Inc. and the former Alberta-based TELUS Corporation (TC), BCT acquired all of the shares of BC TELECOM Inc. and TC in exchange for Common Shares and Non-Voting Shares of BCT, and BC TELECOM Inc. was dissolved. On May 3, 2000, BCT changed its name to TELUS Corporation and in February 2005, TELUS Corporation transitioned under the Business Corporations Act (British Columbia), successor to the Company Act (British Columbia). TELUS Corporation maintains its registered office at Floor 7, 510 West Georgia Street, Vancouver, British Columbia, V6B 0M3.

The terms “TELUS”, “we”, “us”, “our” or “ourselves” refer to TELUS Corporation and, where the context of the narrative permits or requires, its subsidiaries.    

Notes to consolidated financial statements		Page
General application
1.	Summary of significant accounting policies	11
2.	Accounting policy developments	20
3.	Capital structure financial policies	21
4.	Financial instruments	24
Consolidated results of operations focused
5.	Segment information	31
6.	Revenue from contracts with customers	32
7.	Other income	33
8.	Employee benefits expense	34
9.	Financing costs	34
10.	Income taxes	35
11.	Other comprehensive income	37
12.	Per share amounts	38
13.	Dividends per share	38
14.	Share-based compensation	39
15.	Employee future benefits	42
16.	Restructuring and other costs	48
Consolidated financial position focused
17.	Property, plant and equipment	49
18.	Intangible assets and goodwill	50
19.	Leases	54
20.	Other long-term assets	55
21.	Real estate joint ventures and investment in associate	55
22.	Short-term borrowings	57
23.	Accounts payable and accrued liabilities	57
24.	Advance billings and customer deposits	58
25.	Provisions	58
26.	Long-term debt	59
27.	Other long-term liabilities	63
28.	Owners’ equity	63
29.	Contingent liabilities	65
Other
30.	Related party transactions	67
31.	Additional statement of cash flow information	68

 

10 | December 31, 2020 

notes to consolidated financial statements

1 summary of significant accounting policies

	Accounting policy requiring a more significant choice among policies and/or a more significant application of judgment
Accounting policy	Yes	No
General application
(a) Consolidation		X
(b) Use of estimates and judgments	X
(c) Financial instruments – recognition and measurement		X
(d) Hedge accounting		X
Results of operations focused
(e) Revenue recognition	X
(f) Depreciation, amortization and impairment	X
(g) Translation of foreign currencies		X
(h) Income and other taxes	X
(i) Share-based compensation		X
(j) Employee future benefit plans	X
Financial position focused
(k) Cash and temporary investments, net		X
(l) Inventories		X
(m) Property, plant and equipment; intangible assets	X
(n) Investments		X

Our consolidated financial statements are expressed in Canadian dollars. The generally accepted accounting principles that we use are International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS-IASB) and Canadian generally accepted accounting principles.

Generally accepted accounting principles require that we disclose the accounting policies we have selected in those instances in which we have been obligated to choose from among various accounting policies that comply with generally accepted accounting principles. In certain other instances, including those in which no selection among policies is allowed, we are also required to disclose how we have applied certain accounting policies. In the selection and application of accounting policies, we consider, among other factors, the fundamental qualitative characteristics of useful financial information, namely relevance and faithful representation. In our assessment, the accounting policy disclosures we are required to make are not all equally significant for us, as set out in the accompanying table; their relative significance for us will evolve over time, as we do.

These consolidated financial statements for each of the years ended December 31, 2020 and 2019, were authorized by our Board of Directors for issue on February 11, 2021.

(a) Consolidation

Our consolidated financial statements include our accounts and the accounts of all of our subsidiaries, the principal ones of which are: TELUS Communications Inc. in which, as at December 31, 2020, we have a 100% equity interest; and TELUS International (Cda) Inc. in which, as at December 31, 2020, we have a 62.6% equity interest, as discussed further in Note 28(d). TELUS Communications Inc. includes substantially all of our wireless and wireline operations, excluding the customer experience and digital enablement transformation provided through the customer care and business services business of TELUS International (Cda) Inc.

Our financing arrangements and those of our wholly owned subsidiaries do not impose restrictions on inter-corporate dividends.

On a continuing basis, we review our corporate organization and effect changes as appropriate so as to enhance the value of TELUS Corporation. This process can, and does, affect which of our subsidiaries are considered principal subsidiaries at any particular point in time.

(b) Use of estimates and judgments

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates, assumptions and judgments that affect: the reported amounts of assets and liabilities at the date of the financial statements; the disclosure of contingent assets and liabilities at the date of the financial statements; and the reported amounts and classification of income and expense during the reporting period. Actual results could differ from those estimates.

  Denotes accounting policy requiring, for us, a more significant choice among accounting policies and/or a more significant application of judgment.

December 31, 2020 | 11

notes to consolidated financial statements

Estimates

Examples of the significant estimates and assumptions that we make, and their relative significance and degree of difficulty, are set out in the graphic at right. 

 

Judgments

Examples of our significant judgments, apart from those involving estimation, include the following:

· Assessments about whether line items are sufficiently material to warrant separate presentation in the primary financial statements and, if not, whether they are sufficiently material to warrant separate presentation in the notes to the financial statements. In the normal course, we make changes to our assessments regarding materiality for presentation so that they reflect current economic conditions. Due consideration is given to the view that it is reasonable to expect differing opinions of what is, and is not, material.

· In respect of revenue-generating transactions, we must make judgments that affect the timing of the recognition of revenue, as set out following:

· We have millions of multi-year contracts with our customers and we must make judgments about when we have satisfied our performance obligations to our customers, either over a period of time or at a point in time. Service revenues are recognized based upon customers’ access to, or usage of, our telecommunications infrastructure; we believe that this method faithfully depicts the transfer of the services, and thus the revenues are recognized as the services are made available and/or rendered. We consider our performance obligations arising from the sale of equipment to have been satisfied when the equipment has been delivered to, and accepted by, the end-user customers (see (e) following).

· Principally in the context of revenue-generating transactions involving wireless handsets, we must make judgments about whether third-party re-sellers that deliver equipment to our customers are acting in the transactions as principals or as our agents. Upon due consideration of the relevant indicators, we believe that the decision to consider the re-sellers to be acting, solely for accounting purposes, as our agents is more representative of the economic substance of the transactions, as we are the primary obligor to the end-user customers. The effect of this judgment is that no equipment revenue is recognized upon the transfer of inventory to third-party re-sellers.

· We compensate third-party re-sellers and our employees for generating revenues, and we must make judgments as to whether such sales-based compensation amounts are costs incurred to obtain contracts with customers that should be capitalized (see Note 20). We believe that compensation amounts tangentially attributable to obtaining a contract with a customer, because the amount of such compensation could be affected in ways other than by simply obtaining that contract, should be expensed as incurred; compensation amounts directly attributable to obtaining a contract with a customer should be capitalized and subsequently amortized on a systematic basis, consistent with the satisfaction of our associated performance obligations.

  Denotes accounting policy requiring, for us, a more significant choice among accounting policies and/or a more significant application of judgment.

12 | December 31, 2020 

notes to consolidated financial statements

Judgment must also be exercised in the capitalization of costs incurred to fulfill revenue-generating contracts with customers. Such fulfilment costs are those incurred to set up, activate or otherwise implement services involving access to, or usage of, our telecommunications infrastructure that would not otherwise be capitalized as property, plant, equipment and/or intangible assets (see Note 20).

·

The decision to depreciate and amortize any property, plant, equipment (including right-of-use lease assets) and intangible assets that are subject to amortization on a straight-line basis, as we believe that this method reflects the consumption of resources related to the economic lifespan of those assets better than an accelerated method and is more representative of the economic substance of the underlying use of those assets.

·

The preparation of financial statements in accordance with generally accepted accounting principles requires management to make judgments that affect the financial statement disclosure of information regularly reviewed by our chief operating decision-maker used to make resource allocation decisions and to assess performance (segment information, Note 5). A significant judgment we make is in respect of distinguishing between our wireless and wireline operations and cash flows (and this extends to allocations of both direct and indirect expenses and capital expenditures). The clarity of this distinction has been increasingly affected by the convergence and integration of our wireless and wireline telecommunications infrastructure technology and operations. Less than one-half of the operating expenses included in the segment performance measure reported to our chief operating decision-maker during the years ended December 31, 2020 and 2019, were direct costs; judgment, largely based upon historical experience, is applied in apportioning indirect expenses that are not objectively distinguishable between our wireless and wireline operations.

Until recently, our judgment was that our wireless and wireline telecommunications infrastructure technology and operations had not experienced sufficient convergence to objectively make their respective operations and cash flows practically indistinguishable. The continued build-out of our technology-agnostic fibre-optic infrastructure, in combination with converged edge network technology, has significantly affected this judgment, as have the commercialization of fixed-wireless telecommunications solutions for customers and the consolidation of our non-customer facing operations. As a result, it has become increasingly difficult and impractical to objectively and clearly distinguish between our wireless and wireline operations and cash flows, and the assets from which those cash flows arise. Our judgment as to whether these operations can continue to be judged to be individual components of the business and discrete operating segments has changed; effective January 1, 2020, we embarked upon modifying our internal and external reporting processes, systems and internal controls to accommodate the technology convergence-driven cessation of the historical distinction between our wireless and wireline operations at the level of regularly reported discrete performance measures that are provided to our chief operating decision-maker. We anticipate transitioning to a new segment reporting structure during the first quarter of 2021. The impracticality of objectively distinguishing between our wireless and wireline cash flows, and the assets from which those cash flows arise, is evidence of their increasing interdependence, and this is expected to result in the unification of the wireless cash-generating unit and the wireline cash-generating unit as a single telecommunications cash-generating unit for future impairment testing purposes. As our business continues to evolve, new cash-generating units may also develop.

· The view that our spectrum licences granted by Innovation, Science and Economic Development Canada (including spectrum licences that have been subordinated to us) will likely be renewed; that we intend to renew them; that we believe we have the financial and operational ability to renew them; and thus, that they have an indefinite life, as discussed further in Note 18(d).

· In connection with the annual impairment testing of intangible assets with indefinite lives and goodwill, there are instances in which we must exercise judgment in allocating our net assets, including shared corporate and administrative assets, to our cash-generating units when determining their carrying amounts. These judgments are necessary because of the convergence that our wireless and wireline telecommunications infrastructure technology and operations have experienced to date, and because of our continuous development. There are instances in which similar judgments must also be made in respect of future capital expenditures in support of both wireless and wireline operations, which are a component of the determination of recoverable amounts used in the annual impairment testing, as discussed further in Note 18(e).

· In respect of claims and lawsuits, as discussed further in Note 29(a), the determination of whether an item is a contingent liability or whether an outflow of resources is probable and thus needs to be accounted for as a provision.

  Denotes accounting policy requiring, for us, a more significant choice among accounting policies and/or a more significant application of judgment.

December 31, 2020 | 13

notes to consolidated financial statements

(c) Financial instruments – recognition and measurement

In respect of the recognition and measurement of financial instruments, we have adopted the following policies:

· Regular-way purchases or sales of financial assets or financial liabilities (purchases or sales that require actual delivery of financial assets or financial liabilities) are recognized on the settlement date. We have selected this method as the benefits of using the trade date method were not expected to exceed the costs of selecting and implementing that method.

· Transaction costs, other than in respect of items held for trading, are added to the initial fair value of the acquired financial asset or financial liability. We have selected this method as we believe that it results in a better matching of the transaction costs with the periods in which we benefit from the transaction costs.

(d) Hedge accounting

General

We apply hedge accounting to the financial instruments used to: establish designated currency hedging relationships for certain U.S. dollar-denominated future purchase commitments and debt repayments, as set out in Note 4(a) and (d); and fix the compensation cost arising from specific grants of restricted share units, as set out in Note 4(f) and discussed further in Note 14(b).

Hedge accounting

The purpose of hedge accounting, in respect of our designated hedging relationships, is to ensure that counterbalancing gains and losses are recognized in the same periods. We have chosen to apply hedge accounting as we believe that it is more representative of the economic substance of the underlying transactions.

In order to apply hedge accounting, a high correlation (which indicates effectiveness) is required in the offsetting changes in the risk-associated values of the financial instruments (the hedging items) used to establish the designated hedging relationships and all, or a part, of the asset, liability or transaction having an identified risk exposure that we have taken steps to modify (the hedged items). We assess the anticipated effectiveness of designated hedging relationships at inception and their actual effectiveness for each reporting period thereafter. We consider a designated hedging relationship to be effective if the following critical terms match between the hedging item and the hedged item: the notional amount of the hedging item and the principal amount of the hedged item; maturity dates; payment dates; and interest rate index (if, and as, applicable). As set out in Note 4(i), any ineffectiveness, such as would result from a difference between the notional amount of the hedging item and the principal amount of the hedged item, or from a previously effective designated hedging relationship becoming ineffective, is reflected in the Consolidated statements of income and other comprehensive income as Financing costs if in respect of long-term debt, as Goods and services purchased if in respect of U.S. dollar-denominated future purchase commitments, or as Employee benefits expense if in respect of share-based compensation.

Hedging assets and liabilities

In the application of hedge accounting, an amount (the hedge value) is recorded in the Consolidated statements of financial position in respect of the fair value of the hedging items. The net difference, if any, between the amounts recognized in the determination of net income and the amounts necessary to reflect the fair value of the designated cash flow hedging items recorded in the Consolidated statements of financial position is recognized as a component of Other comprehensive income, as set out in Note 11.

In the application of hedge accounting to the compensation cost arising from share-based compensation, the amount recognized in the determination of net income is the amount that counterbalances the difference between the quoted market price of our Common Shares at the statement of financial position date and the price of our Common Shares in the hedging items.

(e) Revenue recognition

General

We earn the majority of our revenues (wireless: network revenues (voice and data); wireline: data revenues (which include: internet protocol; television; hosting, managed information technology and cloud-based services; customer care and business services; certain healthcare solutions; and home and business smart technology (including security and agriculture)) and voice revenues) from access to, and usage of, our telecommunications infrastructure. The majority of the balance of our revenues (wireless equipment and other) arises from providing services and products facilitating access to, and usage of, our telecommunications infrastructure.

  Denotes accounting policy requiring, for us, a more significant choice among accounting policies and/or a more significant application of judgment.

14 | December 31, 2020 

notes to consolidated financial statements

We offer complete and integrated solutions to meet our customers’ needs. These solutions may involve deliveries of multiple services and products (our performance obligations) that occur at different points in time and/or over different periods of time; as referred to in (b), this is a significant judgment for us. As required, the performance obligations of these multiple element arrangements are identified, the transaction price for the entire multiple element arrangement is determined and allocated among the performance obligations based upon our relative stand-alone selling prices for each of them, and our relevant revenue recognition policies are then applied, so that revenue is recognized when, or as, we satisfy the performance obligations. To the extent that variable consideration is included in determining the minimum transaction price, it is constrained to the “minimum spend” amount required in a contract with a customer. Service revenues arising from contracts with customers typically have variable consideration, because customers have the ongoing ability to both add and remove features and services, and because customer usage of our telecommunications infrastructure may exceed the base amounts provided for in their contracts.

Our contracts with customers do not have a significant financing component. With the exception of both equipment-related upfront payments that may be required under the terms of contracts with customers and in-store “cash and carry” sales of equipment and accessories, payments are typically due 30 days from the billing date. Billings are typically rendered on a monthly basis.

Multiple contracts with a single customer are normally accounted for as separate arrangements. In instances where multiple contracts are entered into with a customer in a short period of time, the contracts are reviewed as a group to ensure that, as with multiple element arrangements, their relative transaction prices are appropriate.

Lease accounting is applied to an accounting unit if it conveys to a customer the right to use a specific asset but does not convey the risks and/or benefits of ownership.

Our revenues are recorded net of any value-added and/or sales taxes billed to the customer concurrent with a revenue-generating transaction.

We use the following revenue accounting practical expedients provided for in IFRS 15, Revenue from Contracts with Customers:

· No adjustment of the contracted amount of consideration for the effects of financing components when, at the inception of a contract, we expect that the effect of the financing component is not significant at the individual contract level.

· No deferral of contract acquisition costs when the amortization period for such costs would be one year or less.

· When estimating minimum transaction prices allocated to any remaining unfulfilled, or partially unfulfilled, performance obligations, exclusion of amounts arising from contracts originally expected to have a duration of one year or less, as well as amounts arising from contracts under which we may recognize and bill revenue in an amount that corresponds directly with our completed performance obligations.

Contract assets

Many of our multiple element arrangements arise from bundling the sale of equipment (e.g. a wireless handset) with a contracted service period. Although the customer receives the equipment at contract inception and the revenue from the associated completed performance obligation is recognized at that time, the customer’s payment for the equipment will effectively be received rateably over the contracted service period to the extent it is not received as a lump-sum amount at contract inception. The difference between the equipment revenue recognized and the associated amount cumulatively billed to the customer is recognized on the Consolidated statements of financial position as a contract asset.

Contract assets may also arise in instances where we give consideration to a customer. When we receive no identifiable, separable benefit for consideration given to a customer, the amount of the consideration is recorded as a reduction of revenue rather than as an expense. Such amounts are included in the determination of transaction prices for allocation purposes in multiple element arrangements.

· Some forms of consideration given to a customer, effectively at contract inception, such as rebates (including prepaid non-bank cards) and/or equipment, are considered to be performance obligations in a multiple element arrangement. Although the performance obligation is satisfied at contract inception, the customer’s payment associated with the performance obligation will effectively be received rateably over the associated contracted service period. The difference between the revenue arising from the satisfied performance obligation and the associated amount cumulatively reflected in billings to the customer is recognized on the Consolidated statements of financial position as a contract asset.

· Other forms of consideration given to a customer, either at contract inception or over a period of time, such as discounts (including prepaid bank cards), may result in us receiving no identifiable, separable benefit and thus are not

  Denotes accounting policy requiring, for us, a more significant choice among accounting policies and/or a more significant application of judgment.

December 31, 2020 | 15

notes to consolidated financial statements

considered performance obligations. Such consideration is recognized as a reduction of revenue rateably over the term of the contract. The difference between the consideration provided and the associated amount recognized as a reduction of revenue is recognized on the Consolidated statements of financial position as a contract asset.

Contract liabilities

Advance billings are recorded when billing occurs prior to provision of the associated services; such advance billings are recognized as revenue in the period in which the services and/or equipment are provided (see Note 24). Similarly, and as appropriate, upfront customer activation and connection fees are deferred and recognized over the average expected term of the customer relationship.

Costs of contract acquisition and contract fulfilment

Costs of contract acquisition (typically commissions) and costs of contract fulfilment are capitalized and recognized as an expense, generally over the life of the contract on a systematic and rational basis consistent with the pattern of the transfer of goods or services to which the asset relates. The amortization of such costs is included in the Consolidated statements of income and other comprehensive income as a component of Goods and services purchased, with the exception of amounts paid to our employees, which are included as Employee benefits expense.

The total cost of wireless equipment sold to customers and advertising and promotion costs related to initial customer acquisition are expensed as incurred; the cost of equipment we own that is situated at customers’ premises and associated installation costs are capitalized as incurred. Costs of advertising production, advertising airtime and advertising space are expensed as incurred.

Voice and data

We recognize revenues on an accrual basis and include an estimate of revenues earned but unbilled. Wireless and wireline service revenues are recognized based upon access to, and usage of, our telecommunications infrastructure and upon contract fees.

Advance billings are recorded when billing occurs prior to provision of the associated services; such advance billings are recognized as revenue in the period in which the services are provided. Similarly, and as appropriate, upfront customer activation and connection fees are deferred and recognized over the average expected term of the customer relationship.

We use the liability method of accounting for the amounts of our quality of service rate rebates that arise from the jurisdiction of the Canadian Radio-television and Telecommunications Commission (CRTC).

The CRTC has established a mechanism to subsidize local exchange carriers, such as ourselves, that provide residential basic telephone service to high cost serving areas. The CRTC has determined the per network access line/per band subsidy rate for all local exchange carriers. We recognize the subsidy on an accrual basis by applying the subsidy rate to the number of residential network access lines we provide in high cost serving areas, as discussed further in Note 7. Differences, if any, between interim and final subsidy rates set by the CRTC are accounted for as a change in estimate in the period in which the CRTC finalizes the subsidy rate.

Other and wireless equipment

We recognize product revenues, including amounts related to wireless handsets sold to re-sellers and customer premises equipment, when the products are both delivered to, and accepted by, the end-user customers, irrespective of which supply channel delivers the product. With respect to wireless handsets sold to re-sellers, we consider ourselves to be the principal and primary obligor to the end-user customers. Revenues from operating leases of equipment are recognized on a systematic and rational basis (normally a straight-line basis) over the term of the lease.

(f) Depreciation, amortization and impairment

Depreciation and amortization

Property, plant and equipment (including right-of-use lease assets) are depreciated on a straight-line basis over their estimated useful lives (lease terms for right-of-use lease assets) as determined by a continuing program of asset life studies. Depreciation includes amortization of leasehold improvements and, prior to fiscal 2019, amortization of assets under finance leases. Leasehold improvements are normally amortized over the lesser of their expected average service lives or the terms of the associated leases. Intangible assets with finite lives (intangible assets subject to amortization) are amortized on a straight-line basis over their estimated useful lives, which are reviewed at least annually and adjusted as appropriate. As referred to in (b), the use of a straight-line basis of depreciation and amortization is a significant judgment for us.

  Denotes accounting policy requiring, for us, a more significant choice among accounting policies and/or a more significant application of judgment.

 

16 | December 31, 2020 

notes to consolidated financial statements

Estimated useful lives for the majority of our property, plant and equipment and right-of-use lease assets subject to depreciation are as follows:

	Estimated useful lives 1
Network assets
Outside plant	17 to 40 years
Inside plant	4 to 25 years
Wireless site equipment	5 to 7 years
Real estate right-of-use lease assets	5 to 20 years
Balance of depreciable property, plant and equipment and right-of-use lease assets	3 to 40 years

1 The composite property, plant and equipment depreciation rate for the year ended December 31, 2020, was 5.0% (2019 – 5.0%). The rate is calculated by dividing property, plant and equipment depreciation expense by an average of the gross book value of property, plant and equipment depreciable assets over the reporting period.

Estimated useful lives for the majority of our intangible assets subject to amortization are as follows:

	Estimated useful lives
Wireline subscriber base	25 years
Customer contracts and related customer relationships	4 to 15 years
Software	2 to 10 years
Access to rights-of-way, crowdsource assets and other	5 to 30 years

Impairment – general

Impairment testing compares the carrying values of the assets or cash-generating units being tested with their recoverable amounts (the recoverable amount being the greater of an asset’s or a cash-generating unit’s value in use or its fair value less costs of disposal); as referred to in (b), this is a significant estimate for us. Impairment losses are immediately recognized to the extent that the carrying value of an asset or a cash-generating unit exceeds its recoverable amount. Should the recoverable amounts for impaired assets or cash-generating units subsequently increase, the impairment losses previously recognized (other than in respect of goodwill) may be reversed to the extent that the reversal is not a result of “unwinding of the discount” and that the resulting carrying values do not exceed the carrying values which would have been the result if no impairment losses had been recognized previously.

Impairment – property, plant and equipment; intangible assets subject to amortization

The continuing program of asset life studies considers such items as the timing of technological obsolescence, competitive pressures and future infrastructure utilization plans; these considerations could also indicate that the carrying value of an asset may not be recoverable. If the carrying value of an asset were not considered to be recoverable, an impairment loss would be recognized.

Impairment – intangible assets with indefinite lives; goodwill

The carrying values of intangible assets with indefinite lives and goodwill are periodically tested for impairment. The frequency of the impairment testing is generally the reciprocal of the stability of the relevant events and circumstances, but intangible assets with indefinite lives and goodwill must, at a minimum, be tested annually; we have selected December as the time of our annual test.

We assess our intangible assets with indefinite lives by comparing the recoverable amounts of our cash-generating units to their carrying values (including the intangible assets with indefinite lives allocated to a cash-generating unit, but excluding any goodwill allocated to a cash-generating unit). To the extent that the carrying value of a cash-generating unit (including the intangible assets with indefinite lives allocated to the cash-generating unit, but excluding any goodwill allocated to the cash-generating unit) exceeds its recoverable amount, the excess amount would be recorded as a reduction in the carrying value of intangible assets with indefinite lives.

Subsequent to assessing intangible assets with indefinite lives, we assess goodwill by comparing the recoverable amounts of our cash-generating units to their carrying values (including the intangible assets with indefinite lives and any goodwill allocated to a cash-generating unit). To the extent that the carrying value of a cash-generating unit (including the intangible assets with indefinite lives and the goodwill allocated to the cash-generating unit) exceeds its recoverable amount, the excess amount would first be recorded as a reduction in the carrying value of goodwill and any remainder would be recorded as a reduction in the carrying values of the assets of the cash-generating unit on a pro-rated basis.

  Denotes accounting policy requiring, for us, a more significant choice among accounting policies and/or a more significant application of judgment.

December 31, 2020 | 17

notes to consolidated financial statements

(g) Translation of foreign currencies

Trade transactions completed in foreign currencies are translated into Canadian dollars at the rates of exchange prevailing at the time of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars at the rate of exchange in effect at the statement of financial position date, with any resulting gain or loss recorded in the Consolidated statements of income and other comprehensive income as a component of Financing costs, as set out in Note 9. Hedge accounting is applied in specific instances, as discussed further in (d) preceding.

We have foreign subsidiaries that do not have the Canadian dollar as their functional currency. Foreign exchange gains and losses arising from the translation of these foreign subsidiaries’ accounts into Canadian dollars are reported as a component of other comprehensive income, as set out in Note 11.

(h) Income and other taxes

We follow the liability method of accounting for income taxes; as referred to in (b), this is a significant estimate for us. Under this method, current income taxes are recognized for the estimated income taxes payable for the current year. Deferred income tax assets and liabilities are recognized for temporary differences between the tax and accounting bases of assets and liabilities, and also for any benefits of losses and Investment Tax Credits available to be carried forward to future years for tax purposes that are more likely than not to be realized. The amounts recognized in respect of deferred income tax assets and liabilities are based upon the expected timing of the reversal of temporary differences or the usage of tax losses and the application of the substantively enacted tax rates at the time of reversal or usage.

We account for any changes in substantively enacted income tax rates affecting deferred income tax assets and liabilities in full in the period in which the changes are substantively enacted. We account for changes in the estimates of tax balances for prior years as estimate revisions in the period in which changes in the estimates arise; we have selected this approach as its emphasis on the statement of financial position is more consistent with the liability method of accounting for income taxes.

Our operations are complex and the related domestic and foreign tax interpretations, regulations, legislation and jurisprudence are continually changing. As a result, there are usually some tax matters in question that result in uncertain tax positions. We recognize the income tax benefit of an uncertain tax position only when it is more likely than not that the ultimate determination of the tax treatment of the position will result in that benefit being realized; however, this does not mean that tax authorities cannot challenge these positions. We accrue an amount for interest charges on current tax liabilities that have not been funded, which would include interest and penalties arising from uncertain tax positions. We include such charges in the Consolidated statements of income and other comprehensive income as a component of Financing costs.

Our research and development activities may be eligible to earn Investment Tax Credits, for which the determination of eligibility is a complex matter. We recognize Investment Tax Credits only when there is reasonable assurance that the ultimate determination of the eligibility of our research and development activities will result in the Investment Tax Credits being received, at which time they are accounted for using the cost reduction method, whereby such credits are deducted from the expenditures or assets to which they relate, as set out in Note 10(c).

(i) Share-based compensation

General

When share-based compensation vests in its entirety at one future point in time (cliff-vesting), we recognize the expense on a straight-line basis over the vesting period. When share-based compensation vests in tranches (graded-vesting), we recognize the expense using the accelerated expense attribution method. An estimate of forfeitures during the vesting period is made at the date of grant of such share-based compensation; this estimate is adjusted to reflect actual experience.

Restricted share units

In respect of restricted share units with neither an equity settlement feature nor market performance conditions, as set out in Note 14(b), we accrue a liability equal to the product of the number of vesting restricted share units multiplied by the fair market value of the corresponding Common Shares at the end of the reporting period (unless hedge accounting is applied, as set out in (d) preceding). Similarly, we accrue a liability for the notional subset of our restricted share units without an equity settlement feature and with market performance conditions using a Monte Carlo simulation-determined fair value. Restricted share units that have an equity settlement feature are accounted for as equity instruments. The expense for restricted share units that do not ultimately vest is reversed against the expense that was previously recorded in their respect.

  Denotes accounting policy requiring, for us, a more significant choice among accounting policies and/or a more significant application of judgment.

18 | December 31, 2020 

notes to consolidated financial statements

Share option awards

A fair value for share option awards is determined at the date of grant and that fair value is recognized in the financial statements. Proceeds arising from the exercise of share option awards are credited to share capital, as are the recognized grant-date fair values of the exercised share option awards.

Share option awards that have a net-equity settlement feature, as set out in Note 14(d), are accounted for as equity instruments. We have selected the equity instrument fair value method of accounting for the net-equity settlement feature as it is consistent with the accounting treatment applied to the associated share option awards.

(j) Employee future benefit plans

Defined benefit plans

We accrue amounts for our obligations under employee defined benefit plans and the related costs, net of plan assets. The cost of pensions and other retirement benefits earned by employees is actuarially determined using the accrued benefit method pro-rated on service and management’s best estimates of both salary escalation and the retirement ages of employees. In the determination of net income, net interest for each plan, which is the product of the plan’s surplus (deficit) multiplied by the discount rate, is included as a component of Financing costs, as set out in Note 9.

An amount reflecting the effect of differences between the discount rate and the actual rate of return on plan assets is included as a component of employee defined benefit plan re-measurements within Other comprehensive income, as set out in Note 11 and Note 15. We determine the maximum economic benefit available from the plans’ assets on the basis of reductions in future contributions to the plans.

On an annual basis, at a minimum, the defined benefit plan key assumptions are assessed and revised as appropriate; as referred to in (b), these are significant estimates for us.

Defined contribution plans

We use defined contribution accounting for the Telecommunication Workers Pension Plan and the British Columbia Public Service Pension Plan, which cover certain of our employees and provide defined benefits to their members. In the absence of any regulations governing the calculation of the share of the underlying financial position and plan performance attributable to each employer-participant, and in the absence of contractual agreements between the plans and the employer-participants related to the financing of any shortfall (or distribution of any surplus), we account for these plans as defined contribution plans in accordance with International Accounting Standard 19, Employee Benefits.

(k) Cash and temporary investments, net

Cash and temporary investments, which may include investments in money market instruments that are purchased three months or less from maturity, are presented net of outstanding items, including cheques written but not cleared by the related banks as at the statement of financial position date. Cash and temporary investments, net, are classified as a liability in the statement of financial position when the total amount of all cheques written but not cleared by the related banks exceeds the amount of cash and temporary investments. When cash and temporary investments, net, are classified as a liability, they may also include overdraft amounts drawn on our bilateral bank facilities, which revolve daily and are discussed further in Note 22.

(l) Inventories

Our inventories primarily consist of wireless handsets, parts and accessories totalling $328 million at year-end (2019 – $375 million) and communications equipment held for resale. Inventories are valued at the lower of cost and net realizable value, with cost being determined on an average cost basis. Costs of goods sold for the year ended December 31, 2020, totalled $2.0 billion (2019 – $2.1 billion).

(m) Property, plant and equipment; intangible assets

General

Property, plant and equipment and intangible assets are recorded at historical cost, which for self-constructed property, plant and equipment includes materials, direct labour and applicable overhead costs. For internally developed, internal-use software, the historical cost recorded includes materials, direct labour and direct labour-related costs. Where property, plant and equipment construction projects are of sufficient size and duration, an amount is capitalized for the cost of funds used to finance construction, as set out in Note 9. The rate for calculating the capitalized financing cost is based on the weighted average cost of borrowing that we experience during the reporting period.

  Denotes accounting policy requiring, for us, a more significant choice among accounting policies and/or a more significant application of judgment.

December 31, 2020 | 19

notes to consolidated financial statements

When we sell property, plant and/or equipment, the net book value is netted against the sale proceeds and the difference, as set out in Note 7, is included in the Consolidated statements of income and other comprehensive income as a component of Other income.

Asset retirement obligations

Provisions for liabilities, as set out in Note 25, are recognized for statutory, contractual or legal obligations, normally when incurred, associated with the retirement of property, plant and equipment (primarily certain items of outside plant and wireless site equipment) when those obligations result from the acquisition, construction, development and/or normal operation of the assets; as referred to in (b), this is a significant estimate for us. The obligations are measured initially at fair value, which is determined using present value methodology, and the resulting costs are capitalized as a part of the carrying value of the related asset. In subsequent periods, the provisions for these liabilities are adjusted for the accretion of discount, for any changes in the market-based discount rate and for any changes in the amount or timing of the underlying future cash flows. The capitalized asset retirement cost is depreciated on the same basis as the related asset and the discount accretion, as set out in Note 9, is included in the Consolidated statements of income and other comprehensive income as a component of Financing costs.

(n) Investments

We account for our investments in companies over which we have significant influence, as discussed further in Note 21, using the equity method of accounting, whereby the investments are initially recorded at cost and subsequently adjusted to recognize our share of earnings or losses of the investee companies and any earnings distributions received. The excess of the cost of an equity investment over its underlying book value at the date of acquisition, except for goodwill, is amortized over the estimated useful lives of the underlying assets to which the excess cost is attributed.

Similarly, we account for our interests in the real estate joint ventures, as discussed further in Note 21, using the equity method of accounting. Unrealized gains and losses from transactions with (including contributions to) the real estate joint ventures are deferred in proportion to our remaining interest in the real estate joint ventures.

We account for our other long-term investments at their fair values unless they are investment securities that do not have quoted market prices in an active market or do not have other clear and objective evidence of fair value. When we do not account for our other long-term investments at their fair values, we use the cost basis of accounting, whereby the investments are initially recorded at cost, and earnings from those investments are recognized only to the extent received or receivable. When there is a significant or prolonged decline in the value of an other long-term investment, the carrying value of that other long-term investment is adjusted to its estimated fair value.

2 accounting policy developments

(a) Initial application of standards, interpretations and amendments to standards and interpretations in the reporting period

In October 2018, the International Accounting Standards Board amended IFRS 3, Business Combinations, seeking to clarify whether an acquisition transaction results in the acquisition of an asset or the acquisition of a business. The amendments are effective for acquisition transactions on or after January 1, 2020, although earlier application was permitted. The amended standard has a narrower definition of a business, which could result in the recognition of fewer business combinations than under the previous standard; the implication of this is that amounts which may have been recognized as goodwill in a business combination under the previous standard may now be recognized as allocations to net identifiable assets acquired under the amended standard (with an associated effect in an entity’s results of operations that would differ from the effect of goodwill having been recognized). We have applied the standard prospectively from January 1, 2020. The effects of the amended standard on our financial performance and disclosure will be dependent upon the facts and circumstances of any future acquisition transactions and have not been material in the current fiscal year.

(b) Standards, interpretations and amendments to standards and interpretations in the reporting period not yet effective and not yet applied

In August 2020, the International Accounting Standards Board issued Interest Rate Benchmark Reform—Phase 2, which amends IFRS 9 Financial Instruments, IAS 39 Financial Instruments: Recognition and Measurement, IFRS 7 Financial Instruments: Disclosures, IFRS 4 Insurance Contracts and IFRS 16 Leases. The amendments are effective for periods beginning on or after January 1, 2021, although earlier application is permitted. Interest rate benchmarks such as interbank offer rates (IBORs) play an important role in global financial markets as they index a wide variety of financial products,

  Denotes accounting policy requiring, for us, a more significant choice among accounting policies and/or a more significant application of judgment.

20 | December 31, 2020 

notes to consolidated financial statements

including derivative financial instruments. Market developments have impacted the reliability of some existing benchmarks and, in this context, the Financial Stability Board has published a report setting out recommendations to reform such benchmarks. The Interest Rate Benchmark Reform—Phase 2 amendments focus on the effects of the interest rate benchmark reform on a company’s financial statements that arise when an interest rate benchmark used to calculate interest is replaced with an alternative benchmark rate; most significantly, there will be no requirement to derecognize or adjust the amount of financial instruments for changes required by the reform, but will instead update the effective interest rate to reflect the change to the alternative benchmark rate. The effects of these amendments on our financial performance and disclosure will be dependent upon the facts and circumstances of future changes in the derivative financial instruments we use, if any, and any future changes in interest rate benchmarks, if any, referenced by such derivative financial instruments we use.

3 capital structure financial policies

General

Our objective when managing capital is to maintain a flexible capital structure that optimizes the cost and availability of capital at acceptable risk.

In the management of capital and in its definition, we include common equity (excluding accumulated other comprehensive income), long-term debt (including long-term credit facilities, commercial paper backstopped by long-term credit facilities and any hedging assets or liabilities associated with long-term debt items, net of amounts recognized in accumulated other comprehensive income), cash and temporary investments, and short-term borrowings arising from securitized trade receivables.

We manage our capital structure and make adjustments to it in light of changes in economic conditions and the risk characteristics of our business. In order to maintain or adjust our capital structure, we may adjust the amount of dividends paid to holders of Common Shares, purchase Common Shares for cancellation pursuant to normal course issuer bids, issue new shares, issue new debt, issue new debt to replace existing debt with different characteristics and/or increase or decrease the amount of trade receivables sold to an arm’s-length securitization trust.

During 2020, our financial objectives, which are reviewed annually, were unchanged from 2019, except for a change in the methodology for calculating our TELUS Corporation Common Share dividend payout ratio. We believe that our financial objectives are supportive of our long-term strategy.

We monitor capital utilizing a number of measures, including: net debt to earnings before interest, income taxes, depreciation and amortization (EBITDA^*) – excluding restructuring and other costs ratio; coverage ratios; and dividend payout ratios.

Debt and coverage ratios

Net debt to EBITDA – excluding restructuring and other costs is calculated as net debt at the end of the period, divided by 12-month trailing EBITDA – excluding restructuring and other costs. This measure, historically, is substantially similar to the leverage ratio covenant in our credit facilities. Net debt and EBITDA – excluding restructuring and other costs are measures that do not have any standardized meanings prescribed by IFRS-IASB and are therefore unlikely to be comparable to similar measures presented by other issuers. The calculation of these measures is set out in the following table. Net debt is one component of a ratio used to determine compliance with debt covenants.

As at, or for the 12-month periods ended, December 31 ($ in millions)	Objective		2020		2019
Components of debt and coverage ratios
Net debt 1			$	19,826	$	18,199
EBITDA – excluding restructuring and other costs 2			$	5,753	$	5,688
Net interest cost 3 (Note 9)			$	792	$	755
Debt ratio
Net debt to EBITDA – excluding restructuring and other costs		2.20 – 2.70 4		3.45		3.20
Coverage ratios
Earnings coverage 5				3.2		4.0
EBITDA – excluding restructuring and other costs interest coverage 6				7.3		7.5

* EBITDA does not have any standardized meaning prescribed by IFRS-IASB and is therefore unlikely to be comparable to similar measures presented by other issuers; we define EBITDA as operating revenues and other income less goods and services purchased and employee benefits expense. We have issued guidance on, and report, EBITDA because it is a key measure that management uses to evaluate the performance of our business, and it is also utilized in measuring compliance with certain debt covenants.

December 31, 2020 | 21

notes to consolidated financial statements

1 Net debt and total capitalization are calculated as follows:

As at December 31	Note		2020			2019
Long-term debt		26	$	20,288		$	18,474
Debt issuance costs netted against long-term debt				97			87
Derivative (assets) liabilities, net				120			(37	)
Accumulated other comprehensive income amounts arising from financial instruments used to manage interest rate and currency risks associated with U.S. dollar-denominated long-term debt – excluding tax effects				69			110
Cash and temporary investments, net				(848	)		(535	)
Short-term borrowings		22		100			100
Net debt				19,826			18,199
Common equity				12,074			10,548
Less: accumulated other comprehensive income included in common equity above				(117	)		(119	)
Total capitalization			$	31,783		$	28,628

2 EBITDA – excluding restructuring and other costs is calculated as follows:

Years ended December 31	Note		2020		2019
EBITDA		5	$	5,494	$	5,554
Restructuring and other costs		16		259		134
EBITDA – excluding restructuring and other costs			$	5,753	$	5,688

3 Net interest cost is defined as financing costs, excluding employee defined benefit plans net interest, recoveries on long-term debt prepayment premium and repayment of debt, calculated on a 12-month trailing basis (expenses recorded for long-term debt prepayment premium, if any, are included in net interest cost) (see Note 9).

4 Our long-term objective range for this ratio is 2.20 – 2.70 times. The ratio as at December 31, 2020, is outside the long-term objective range. We may permit, and have permitted, this ratio to go outside the objective range (for long-term investment opportunities), but we will endeavour to return this ratio to within the objective range in the medium term (following upcoming 2021, 2022 and 2023 spectrum auctions), as we believe that this range is supportive of our long-term strategy. We are in compliance with the leverage ratio covenant in our credit facilities, which states that we may not permit our net debt to operating cash flow ratio to exceed 4.00:1.00 (see Note 26(d)); the calculation of the debt ratio is substantially similar to the calculation of the leverage ratio covenant in our credit facilities.

5 Earnings coverage is defined by Canadian Securities Administrators National Instrument 41-101 as net income before borrowing costs and income tax expense, divided by borrowing costs (interest on long-term debt; interest on short-term borrowings and other; long-term debt prepayment premium), and adding back capitalized interest, all such amounts excluding amounts attributable to non-controlling interests.

6 EBITDA – excluding restructuring and other costs interest coverage is defined as EBITDA – excluding restructuring and other costs, divided by net interest cost. This measure is substantially similar to the coverage ratio covenant in our credit facilities.

Net debt to EBITDA – excluding restructuring and other costs was 3.45 times as at December 31, 2020, up from 3.20 times one year earlier. The effect of the increase in net debt, primarily due to business acquisitions and the acquisition of spectrum licences, exceeded the effect of growth in EBITDA – excluding restructuring and other costs. EBITDA growth was reduced by COVID-19 pandemic impacts.

As set out in Note 28(d), in February 2021, TELUS International (Cda) Inc. made an initial public offering of subordinate voting shares; both TELUS Corporation and a TELUS International (Cda) Inc. non-controlling shareholder individually also offered subordinate voting shares in conjunction with the initial public offering. Through February 11, 2021, net proceeds of approximately $0.6 billion from the offering were used to reduce the amount of outstanding TELUS International (Cda) Inc. credit facility indebtedness and $0.2 billion (comprised of net proceeds on disposition of TELUS International (Cda) Inc. subordinate voting shares by TELUS Corporation) from the offering was included in cash and temporary investments, net; had such reduction, and inclusion, respectively, been made at December 31, 2020, the pro forma net debt to EBITDA – excluding restructuring and other costs ratio would have been 3.30 times.

The earnings coverage ratio for the twelve-month period ended December 31, 2020, was 3.2 times, down from 4.0 times one year earlier. Higher borrowing costs reduced the ratio by 0.1 and a decrease in income before borrowing costs and income taxes decreased the ratio by 0.7. The EBITDA – excluding restructuring and other costs interest coverage ratio for the twelve-month period ended December 31, 2020, was 7.3 times, down from 7.5 times one year earlier. Growth in EBITDA – excluding restructuring and other costs increased the ratio by 0.1, while an increase in net interest costs reduced the ratio by 0.3.

TELUS Corporation Common Share dividend payout ratio

Commencing in 2020, so as to be consistent with the way we manage our business, we updated our revised TELUS Corporation Common Share dividend payout ratio presented to be a historical measure calculated as the sum of the most recent four quarters’ dividends declared for TELUS Corporation Common Shares, as recorded in the financial statements net of dividend reinvestment plan effects (see Note 13), divided by the sum of free cash flow^* amounts for the

* Free cash flow does not have any standardized meaning prescribed by IFRS-IASB and is therefore unlikely to be comparable to similar measures presented by other issuers; we define free cash flow as EBITDA (operating revenues and other income less goods and services purchased and employee benefits expense) excluding certain working capital changes (such as trade receivables and trade payables), proceeds from divested assets and other sources and uses of cash, as found in the consolidated statements of cash flows. We have issued guidance on, and report, free cash flow because it is a key measure that management, and investors, use to evaluate the performance of our business. 

22 | December 31, 2020 

notes to consolidated financial statements

most recent four quarters for interim reporting periods (divided by annual free cash flow if the reported amount is in respect of a fiscal year).

For the 12-month periods ended December 31	Objective		2020			2019
Determined using management measures
TELUS Corporation Common Share dividend payout ratio – net of dividend reinvestment plan effects		60%–75% 1		67	%		115	%
Determined using most comparable IFRS-IASB measures
Ratio of TELUS Corporation Common Share dividends declared to cash provided by operating activities – less capital expenditures (excluding spectrum licences)				84	%		133	%

1 Our objective range for the TELUS Corporation Common Share dividend payout ratio is 60%-75% of free cash flow on a prospective basis.

For the 12-month periods ended December 31 (millions)	2020			2019
TELUS Corporation Common Share dividends declared	$	1,520		$	1,358
Amount of TELUS Corporation Common Share dividends declared reinvested in TELUS Corporation Common Shares		(561	)		(290	)
TELUS Corporation Common Share dividends declared – net of dividend reinvestment plan effects	$	959		$	1,068

Our calculation of free cash flow, and the reconciliation to cash provided by operating activities, is as follows:

For the 12-month periods ended December 31 (millions)	Note		2020			2019
EBITDA		5	$	5,494		$	5,554
Deduct non-cash gains from the sale of property, plant and equipment				(4	)		(21	)
Restructuring and other costs, net of disbursements				35			(36	)
Effects of contract asset, acquisition and fulfilment and TELUS Easy Payment device financing				43			(118	)
Effects of lease principal		31(b)		(365	)		(333	)
Leases accounted for as finance leases prior to adoption of IFRS 16				86			108
Items from the Consolidated statements of cash flows:
Share-based compensation, net		14		27			(2	)
Net employee defined benefit plans expense		15		102			78
Employer contributions to employee defined benefit plans				(51	)		(41	)
Interest paid				(740	)		(714	)
Interest received				13			7
Capital expenditures (excluding spectrum licences)		5		(2,775	)		(2,906	)
Free cash flow before income taxes				1,865			1,576
Income taxes paid, net of refunds				(430	)		(644	)
Free cash flow				1,435			932
Add (deduct):
Capital expenditures (excluding spectrum licences)		5		2,775			2,906
Adjustments to reconcile to cash provided by operating activities				364			89
Cash provided by operating activities			$	4,574		$	3,927

December 31, 2020 | 23

notes to consolidated financial statements

4 financial instruments

(a) Risks – overview

Our financial instruments, their accounting classification and the nature of certain risks to which they may be subject are set out in the following table.

		Risks
	Accounting			Market risks
Financial instrument	classification	Credit	Liquidity	Currency	Interest rate	Other price
Measured at amortized cost
Accounts receivable	AC 1	X		X
Contract assets	AC 1	X
Construction credit facilities advances to real estate joint venture	AC 1				X
Short-term borrowings	AC 1		X	X	X
Accounts payable	AC 1		X	X
Provisions (including restructuring accounts payable)	AC 1		X	X		X
Long-term debt	AC 1		X	X	X
Measured at fair value
Cash and temporary investments	FVTPL 2	X		X	X
Long-term investments (not subject to significant influence) 3	FVTPL/FVOCI 3			X		X
Foreign exchange derivatives 4	FVTPL 2	X	X	X
Share-based compensation derivatives 4	FVTPL 2	X	X			X

1 For accounting recognition and measurement purposes, classified as amortized cost (AC).

2 For accounting recognition and measurement purposes, classified as fair value through net income (FVTPL). Unrealized changes in the fair values of financial instruments are included in net income unless the instrument is part of a cash flow hedging relationship. The effective portions of unrealized changes in the fair values of financial instruments held for hedging are included in other comprehensive income.

3 Long-term investments over which we do not have significant influence are measured at fair value if those fair values can be reliably measured. For accounting recognition and measurement purposes, on an investment-by-investment basis, long-term investments are classified as either fair value through net income or fair value through other comprehensive income (FVOCI).

4 Use of derivative financial instruments is subject to a policy which requires that no derivative transaction is to be entered into for the purpose of establishing a speculative or leveraged position (the corollary being that all derivative transactions are to be entered into for risk management purposes only) and sets criteria for the creditworthiness of the transaction counterparties.

Derivatives that are part of an established and documented cash flow hedging relationship are accounted for as held for hedging. We believe that classification as held for hedging results in a better matching of the change in the fair value of the derivative financial instrument with the risk exposure being hedged.

In respect of hedges of anticipated transactions, hedge gains/losses are included with the related expenditure and are expensed when the transaction is recognized in our results of operations. We have selected this method as we believe that it results in a better matching of the hedge gains/losses with the risk exposure being hedged.

Derivatives that are not part of a documented cash flow hedging relationship are accounted for as held for trading and thus are measured at fair value through net income.

Derivative financial instruments

We apply hedge accounting to financial instruments used to establish hedge accounting relationships for U.S. dollar-denominated transactions and to fix the cost of some share-based compensation. We believe that our use of derivative financial instruments for hedging or arbitrage assists us in managing our financing costs and/or reducing the uncertainty associated with our financing or other business activities. Uncertainty associated with currency risk and other price risk is reduced through our use of foreign exchange derivatives and share-based compensation derivatives that effectively swap floating currency exchange rates and share prices for fixed rates and prices. When entering into derivative financial instrument contracts, we seek to align the cash flow timing of the hedging items with that of the hedged items. The effects of this risk management strategy and its application are set out in (i) following.

(b) Credit risk

Excluding credit risk, if any, arising from currency swaps settled on a gross basis, the best representation of our maximum exposure (excluding income tax effects) to credit risk, which is a worst-case scenario and does not reflect results we expect, is set out in the following table.

As at December 31 (millions)	2020		2019
Cash and temporary investments, net	$	848	$	535
Accounts receivable		2,716		2,187
Contract assets		707		1,065
Derivative assets		42		84
	$	4,313	$	3,871

 

24 | December 31, 2020 

notes to consolidated financial statements

Cash and temporary investments, net

Credit risk associated with cash and temporary investments is managed by ensuring that these financial assets are placed with: governments; major financial institutions that have been accorded strong investment grade ratings by a primary rating agency; and/or other creditworthy counterparties. An ongoing review evaluates changes in the status of counterparties.

Accounts receivable

Credit risk associated with accounts receivable is inherently managed by the size and diversity of our large customer base, which includes substantially all consumer and business sectors in Canada. We follow a program of credit evaluations of customers and limit the amount of credit extended when deemed necessary. Accounts are considered to be past due (in default) when customers have failed to make the contractually required payments when due, which is generally within 30 days of the billing date. Any late payment charges are levied at an industry-based market or negotiated rate on outstanding non-current customer account balances.

		2020							2019
As at December 31 (millions)	Note	Gross		Allowance			Net 1		Gross		Allowance			Net 1
Customer accounts receivable, net of allowance for doubtful accounts
Less than 30 days past billing date		$	815	$	(19	)	$	796	$	803	$	(10	)	$	793
30-60 days past billing date			339		(17	)		322		331		(8	)		323
61-90 days past billing date			90		(19	)		71		74		(5	)		69
More than 90 days past billing date			98		(43	)		55		73		(14	)		59
Unbilled customer finance receivables			1,026		(42	)		984		523		(18	)		505
		$	2,368	$	(140	)	$	2,228	$	1,804	$	(55	)	$	1,749
Current		$	1,986	$	(119	)	$	1,867	$	1,570	$	(46	)	$	1,524
Non-current	20		382		(21	)		361		234		(9	)		225
		$	2,368	$	(140	)	$	2,228	$	1,804	$	(55	)	$	1,749

1 Net amounts represent customer accounts receivable for which an allowance had not been made as at the dates of the Consolidated statements of financial position (see Note 6(b)).

We maintain allowances for lifetime expected credit losses related to doubtful accounts. Current economic conditions (including forward-looking macroeconomic data), historical information (including credit agency reports, if available), reasons for the accounts being past due and the line of business from which the customer accounts receivable arose are all considered when determining whether to make allowances for past-due accounts. The same factors are considered when determining whether to write off amounts charged to the allowance for doubtful accounts against the customer accounts receivable; amounts charged to the customer accounts receivable allowance for doubtful accounts that were written off but were still subject to enforcement activity as at December 31, 2020, totalled $597 million (2019 – $449 million). The doubtful accounts expense is calculated on a specific-identification basis for customer accounts receivable above a specific balance threshold and on a statistically derived allowance basis for the remainder. No customer accounts receivable are written off directly to the doubtful accounts expense.

The following table presents a summary of the activity related to our allowance for doubtful accounts.

Years ended December 31 (millions)	2020			2019
Balance, beginning of period	$	55		$	53
Additions (doubtful accounts expense)		91			64
Accounts written off less than recoveries		(22	)		(66	)
Other		16			4
Balance, end of period	$	140		$	55

Contract assets

Credit risk associated with contract assets is inherently managed by the size and diversity of our large customer base, which includes substantially all consumer and business sectors in Canada. We follow a program of credit evaluations of customers and limit the amount of credit extended when deemed necessary.

	2020							2019
As at December 31 (millions)	Gross		Allowance			Net (Note 6(c))		Gross		Allowance			Net (Note 6(c))
Contract assets, net of impairment allowance
To be billed and thus reclassified to accounts receivable during:
The 12-month period ending one year hence	$	611	$	(29	)	$	582	$	952	$	(42	)	$	910
The 12-month period ending two years hence		265		(12	)		253		322		(14	)		308
Thereafter		16		(1	)		15		21		(1	)		20
	$	892	$	(42	)	$	850	$	1,295	$	(57	)	$	1,238

 

December 31, 2020 | 25

notes to consolidated financial statements

We maintain allowances for lifetime expected credit losses related to contract assets. Current economic conditions, historical information (including credit agency reports, if available), and the line of business from which the contract asset arose are all considered when determining impairment allowances. The same factors are considered when determining whether to write off amounts charged to the impairment allowance for contract assets against contract assets.

Derivative assets (and derivative liabilities)

Counterparties to our share-based compensation cash-settled equity forward agreements and foreign exchange derivatives are major financial institutions that have been accorded investment grade ratings by a primary credit rating agency. The total dollar amount of credit exposure under contracts with any one financial institution is limited and counterparties’ credit ratings are monitored. We do not give or receive collateral on swap agreements and hedging items due to our credit rating and those of our counterparties. While we are exposed to the risk of potential credit losses due to the possible non-performance of our counterparties, we consider this risk remote. Our derivative liabilities do not have credit risk-related contingent features.

(c) Liquidity risk

As a component of our capital structure financial policies, discussed further in Note 3, we manage liquidity risk by:

· maintaining a daily cash pooling process that enables us to manage our available liquidity and our liquidity requirements according to our actual needs;

· maintaining an agreement to sell trade receivables to an arm’s-length securitization trust and bilateral bank facilities (Note 22), a commercial paper program (Note 26(c)) and syndicated credit facilities (Note 26(d),(f));

· maintaining an in-effect shelf prospectus;

· continuously monitoring forecast and actual cash flows; and

· managing maturity profiles of financial assets and financial liabilities.

Our debt maturities in future years are as disclosed in Note 26(i). As at December 31, 2020, we could offer $2.0 billion of debt or equity securities pursuant to a shelf prospectus that is in effect until June 2022 (2019 – $2.0 billion pursuant to a shelf prospectus that was in effect until August 2021). We believe that our investment grade credit ratings contribute to reasonable access to capital markets.

We closely match the contractual maturities of our derivative financial liabilities with those of the risk exposures they are being used to manage.

The expected maturities of our undiscounted financial liabilities do not differ significantly from the contractual maturities, other than as noted below. The contractual maturities of our undiscounted financial liabilities, including interest thereon (where applicable), are set out in the following tables.

	Non-derivative								Derivative
						Composite long-term debt
										Currency swap agreement amounts to be exchanged 2							Currency swap agreement amounts to be exchanged
As at December 31, 2020 (millions)		Non-interest bearing financial liabilities		Short-term borrowings 1		Long-term  debt, excluding leases 1 (Note 26)		Leases  (Note 26)		(Receive)			Pay		Other		(Receive)			Pay		Total
2021	$	2,669	$	101	$	1,658	$	538	$	(882	)	$	892	$	—	$	(454	)	$	475	$	4,997
2022		74		—		2,204		371		(149	)		151		—		—			—		2,651
2023		8		—		1,149		230		(149	)		151		6		—			—		1,395
2024		8		—		1,706		191		(150	)		151		—		—			—		1,906
2025		9		—		2,868		145		(525	)		575		—		—			—		3,072
2026-2030		12		—		7,953		417		(1,836	)		1,898		—		—			—		8,444
Thereafter		—		—		9,877		379		(2,889	)		2,949		—		—			—		10,316
Total	$	2,780	$	101	$	27,415	$	2,271	$	(6,580	)	$	6,767	$	6	$	(454	)	$	475	$	32,781
					Total (Note 26(i))							$	29,873

1

Cash outflows in respect of interest payments on our short-term borrowings, commercial paper and amounts drawn under our credit facilities (if any) have been calculated based upon the interest rates in effect as at December 31, 2020.

2

The amounts included in undiscounted non-derivative long-term debt in respect of U.S. dollar-denominated long-term debt, and the corresponding amounts in the long-term debt currency swap receive column, have been determined based upon the currency exchange rates in effect as at December 31, 2020. The hedged U.S. dollar-denominated long-term debt contractual amounts at maturity, in effect, are reflected in the long-term debt currency swap pay column as gross cash flows are exchanged pursuant to the currency swap agreements.

 

26 | December 31, 2020 

notes to consolidated financial statements

	Non-derivative										Derivative
						Composite long-term debt
										Currency swap agreement amounts to be exchanged 2								Currency swap agreement amounts to be exchanged
As at December 31, 2019 (millions)		Non-interest bearing financial liabilities		Short-term borrowings 1		Construction credit facilities commitment (Note 21)		Long-term  debt, excluding leases 1		Leases		(Receive)			Pay		Other			(Receive)			Pay		Total
2020	$	2,639	$	3	$	10	$	1,657	$	373	$	(1,140	)	$	1,153	$	—		$	(917	)	$	921	$	4,699
2021		43		103		—		1,698		338		(119	)		118		—			—			—		2,181
2022		7		—		—		2,235		207		(119	)		118		8			—			—		2,456
2023		5		—		—		1,021		189		(119	)		118		—			—			—		1,214
2024		5		—		—		1,595		157		(119	)		118		—			—			—		1,756
2025-2029		4		—		—		7,311		429		(1,919	)		1,944		—			—			—		7,769
Thereafter		—		—		—		10,102		388		(3,019	)		3,020		—			—			—		10,491
Total	$	2,703	$	106	$	10	$	25,619	$	2,081	$	(6,554	)	$	6,589	$	8		$	(917	)	$	921	$	30,566
								Total						$	27,735

1 Cash outflows in respect of interest payments on our short-term borrowings, commercial paper and amounts drawn under our credit facilities (if any) have been calculated based upon the interest rates in effect as at December 31, 2019.

2 The amounts included in undiscounted non-derivative long-term debt in respect of U.S. dollar-denominated long-term debt, and the corresponding amounts in the long-term debt currency swap receive column, have been determined based upon the currency exchange rates in effect as at December 31, 2019. The hedged U.S. dollar-denominated long-term debt contractual amounts at maturity, in effect, are reflected in the long-term debt currency swap pay column as gross cash flows are exchanged pursuant to the currency swap agreements.

(d) Currency risk

Our functional currency is the Canadian dollar, but certain routine revenues and operating costs are denominated in U.S. dollars and some inventory purchases and capital asset acquisitions are sourced internationally. The U.S. dollar is the only foreign currency to which we have a significant exposure as at the balance sheet date.

Our foreign exchange risk management includes the use of foreign currency forward contracts and currency options to fix the exchange rates on a varying percentage, typically in the range of 50% to 75%, of our domestic short-term U.S. dollar-denominated transactions and commitments and all U.S. dollar-denominated commercial paper. Other than in respect of U.S. dollar-denominated commercial paper, we designate only the spot element of these instruments as the hedging item, as the forward element is wholly immaterial; in respect of U.S. dollar-denominated commercial paper, we designate the forward rate.

As discussed further in Note 26(b) and Note 26(f), we are also exposed to currency risk in that the fair value or future cash flows of our U.S. Dollar Notes and our TELUS International (Cda) Inc. credit facility U.S. dollar borrowings could fluctuate because of changes in foreign exchange rates. Currency hedging relationships have been established for the related semi-annual interest payments and the principal payment at maturity in respect of the U.S. Dollar Notes; we designate only the spot element of these instruments as the hedging item, as the forward element is wholly immaterial. As the functional currency of our TELUS International (Cda) Inc. subsidiary is the U.S. dollar, fluctuations in foreign exchange rates affecting its borrowings are reflected as a foreign currency translation adjustment within other comprehensive income.

(e) Interest rate risk

Changes in market interest rates will cause fluctuations in the fair values or future cash flows of temporary investments, construction credit facility advances made to the real estate joint venture, short-term obligations, long-term debt and interest rate swap derivatives.

When we have temporary investments, they have short maturities and fixed interest rates and, as a result, their fair values will fluctuate with changes in market interest rates; absent monetization prior to maturity, the related future cash flows will not change due to changes in market interest rates.

If the balance of short-term investments includes dividend-paying equity instruments, we could be exposed to interest rate risk.

Due to the short-term nature of the applicable rates of interest charged, the fair value of the construction credit facility advances made to the real estate joint venture is not materially affected by changes in market interest rates; the associated cash flows representing interest payments will be affected until such advances are repaid.

As short-term obligations arising from bilateral bank facilities, which typically have variable interest rates, are rarely outstanding for periods that exceed one calendar week, interest rate risk associated with this item is not material.

Short-term borrowings arising from the sales of trade receivables to an arm’s-length securitization trust are fixed-rate debt. Due to the short maturities of these borrowings, interest rate risk associated with this item is not material.

All of our currently outstanding long-term debt, other than commercial paper and amounts drawn on our credit facilities (Note 26(c), (f)), is fixed-rate debt. The fair value of fixed-rate debt fluctuates with changes in market interest

December 31, 2020 | 27

notes to consolidated financial statements

rates; absent early redemption, the related future cash flows will not change. Due to the short maturities of commercial paper, its fair value is not materially affected by changes in market interest rates, but the associated cash flows representing interest payments may be affected if the commercial paper is rolled over.

Amounts drawn on our short-term and long-term credit facilities will be affected by changes in market interest rates in a manner similar to commercial paper.

(f) Other price risk

Long-term investments

We are exposed to equity price risk arising from investments classified as fair value through other comprehensive income. Such investments are held for strategic rather than trading purposes.

Share-based compensation derivatives

We are exposed to other price risk arising from cash-settled share-based compensation (appreciating Common Share prices increase both the expense and the potential cash outflow). Certain cash-settled equity swap agreements were entered into which fixed the cost associated with our estimate of the TELUS Corporation restricted share units that were expected to vest.

(g) Market risks

Net income and other comprehensive income for the years ended December 31, 2020 and 2019, could have varied if the Canadian dollar: U.S. dollar exchange rate, the U.S. dollar: European euro exchange rate, market interest rates and our Common Share price varied by reasonably possible amounts from their actual statement of financial position date amounts.

The sensitivity analysis of our exposure to currency risk at the reporting date has been determined based upon a hypothetical change taking place at the relevant statement of financial position date. The U.S. dollar-denominated and European euro-denominated balances and derivative financial instrument notional amounts as at the statement of financial position dates have been used in the calculations.

The sensitivity analysis of our exposure to interest rate risk at the reporting date has been determined based upon a hypothetical change taking place at the beginning of the relevant fiscal year and being held constant through to the statement of financial position date. The principal and notional amounts as at the relevant statement of financial position date have been used in the calculations.

The sensitivity analysis of our exposure to other price risk arising from share-based compensation at the reporting date has been determined based upon a hypothetical change taking place at the relevant statement of financial position date. The relevant notional number of Common Shares at the relevant statement of financial position date, which included those in the cash-settled equity swap agreements, were used in the calculations.

Income tax expense, which is reflected net in the sensitivity analysis, reflects the applicable statutory income tax rates for the reporting periods.

Years ended December 31	Net income						Other comprehensive income						Comprehensive income
(increase (decrease) in millions)	2020			2019			2020			2019			2020			2019
Reasonably possible changes in market risks 1
10% change in C$: US$ exchange rate
Canadian dollar appreciates	$	—		$	—		$	14		$	(80	)	$	14		$	(80	)
Canadian dollar depreciates	$	—		$	—		$	(14	)	$	80		$	(14	)	$	80
10% change in US$: € exchange rate
U.S. dollar appreciates	$	—		$	—		$	(54	)	$	(4	)	$	(54	)	$	(4	)
U.S. dollar depreciates	$	—		$	—		$	54		$	4		$	54		$	4
25 basis point change in interest rates
Interest rates increase
Canadian interest rate	$	(1	)	$	(2	)	$	107		$	93		$	106		$	91
U.S. interest rate	$	—		$	—		$	(107	)	$	(95	)	$	(107	)	$	(95	)
Combined	$	(1	)	$	(2	)	$	—		$	(2	)	$	(1	)	$	(4	)
Interest rates decrease
Canadian interest rate	$	1		$	2		$	(112	)	$	(98	)	$	(111	)	$	(96	)
U.S. interest rate	$	—		$	—		$	113		$	101		$	113		$	101
Combined	$	1		$	2		$	1		$	3		$	2		$	5
25% 2 change in Common Share price 3
Price increases		N/A		$	(5	)		N/A		$	5			N/A		$	—
Price decreases		N/A		$	13			N/A		$	(5	)		N/A		$	8

1 These sensitivities are hypothetical and should be used with caution. Changes in net income and/or other comprehensive income generally cannot be extrapolated because the relationship of the change in assumption to the change in net income and/or other comprehensive income may not be linear. In this table, the effect of a variation in a particular assumption on the amount of net income and/or other comprehensive income is calculated without changing any other factors; in reality, changes in one factor may result in changes in another, which might magnify or counteract the sensitivities.

28 | December 31, 2020 

notes to consolidated financial statements

The sensitivity analysis assumes that we would realize the changes in exchange rates and market interest rates; in reality, the competitive marketplace in which we operate would have an effect on this assumption.

No consideration has been made for a difference in the notional number of Common Shares associated with share-based compensation awards made during the reporting period that may have arisen due to a difference in the Common Share price.

2 To facilitate ongoing comparison of sensitivities, a constant variance of approximate magnitude has been used. Reflecting a twelve-month data period and calculated on a monthly basis, the volatility of our Common Share price as at December 31, 2019, was 9.9%.

3 The hypothetical effects of changes in the price of our Common Shares are restricted to those which would arise from our share-based compensation awards that are accounted for as liability instruments and the associated cash-settled equity swap agreements; as at December 31, 2020, we had no Common Share compensation awards accounted for as liability instruments.

(h) Fair values

Derivative

The derivative financial instruments that we measure at fair value on a recurring basis subsequent to initial recognition are set out in the following table.

			2020								2019
As at December 31 (millions)	Designation		Maximum maturity date		Notional amount		Fair value 1 and carrying value		Price or rate		Maximum maturity date		Notional amount		Fair value 1 and carrying value		Price or rate
Current Assets 2
Derivatives used to manage
Currency risk arising from U.S. dollar revenues		HFT 4		2021	$	87	$	2		US$1.00: C$1.27		2020	$	36	$	1		US$1.00: C$1.30
Changes in share-based compensation costs (Note 14(b))		HFH 3		—	$	—		—		—		2020	$	72		4		$24.40*
Currency risk arising from U.S. dollar-denominated long-term debt (Note 26(b)-(c))		HFH 3		2021	$	95		—		US$1.00: C$1.27		—	$	—		—		—
Currency risk associated with European euro-denominated business acquisition		HFH 5		—	$	—		—		—		2020	$	472		3		€1.00: US$1.12
							$	2							$	8
Other Long-Term Assets 2
Derivatives used to manage
Currency risk arising from U.S. dollar-denominated long-term debt 6 (Note 26(b)-(c))		HFH 3		2049	$	2,176	$	40		US$1.00: C$1.27		2048	$	3,068	$	76		US$1.00: C$1.28
Current Liabilities 2
Derivatives used to manage
Currency risk arising from U.S. dollar-denominated purchases		HFH 3		2021	$	388	$	21		US$1.00: C$1.34		2020	$	412	$	6		US$1.00: C$1.32
Currency risk arising from U.S. dollar-denominated long-term debt (Note 26(b)-(c))		HFH 3		2021	$	647		11		US$1.00: C$1.29		2020	$	1,037		17		US$1.00: C$1.32
Currency risk arising from European euro functional currency operations purchased with U.S. dollar-denominated long-term debt 7 (Notes 18(b), 26(f))		HFH 5		2024	$	34		—		€1.00: US$1.09		—	$	—		—		—
Interest rate risk associated with non-fixed rate credit facility amounts drawn (Note 26(f))		HFH 3		2022	$	8		—		2.64%		2022	$	8		—		2.64%
							$	32							$	23

^* Amounts reflect retrospective application of March 17, 2020, share split (see Note 28(b)).

 

December 31, 2020 | 29

notes to consolidated financial statements

		2020							2019
As at December 31 (millions)	Designation	Maximum maturity date	Notional amount		Fair value 1 and carrying value		Price or rate		Maximum maturity date		Notional amount		Fair value 1 and carrying value		Price or rate
Other Long-Term Liabilities 2
Derivatives used to manage
Currency risk arising from U.S. dollar-denominated long-term debt 6 (Note 26(b)-(c))	HFH 3	2049	$	3,260	$	82		US$1.00: C$1.33		2049	$	2,485	$	22		US$1.00: C$1.34
Currency risk arising from European euro functional currency operations purchased with U.S. dollar-denominated long-term debt 7 (Notes 18(b), 26(f))	HFH 5	2025	$	557		67		€1.00: US$1.09		—	$	—		—		—
Interest rate risk associated with non-fixed rate credit facility amounts drawn (Note 26(f))	HFH 3	2022	$	120		6		2.64%		2022	$	130		4		2.64%
					$	155							$	26

1 Fair value measured at reporting date using significant other observable inputs (Level 2).

2 Derivative financial assets and liabilities are not set off.

3 Designated as held for hedging (HFH) upon initial recognition (cash flow hedging item); hedge accounting is applied. Unless otherwise noted, hedge ratio is 1:1 and is established by assessing the degree of matching between the notional amounts of hedging items and the notional amounts of the associated hedged items.

4 Designated as held for trading (HFT) and classified as fair value through net income upon initial recognition; hedge accounting is not applied.

5 Designated as a hedge of a net investment in a foreign operation and hedge accounting is applied. Hedge ratio is 1:1 and is established by assessing the degree of matching between the notional amounts of hedging items and the notional amounts of the associated hedged items.

6 We designate only the spot element as the hedging item. As at December 31, 2020, the foreign currency basis spread included in the fair value of the derivative instruments, which is used for purposes of assessing hedge ineffectiveness, was $101 (2019 – $38).

7 We designate only the spot element as the hedging item. As at December 31, 2020, the foreign currency basis spread included in the fair value of the derivative instruments, which is used for purposes of assessing hedge ineffectiveness, was $4.

Non-derivative

Our long-term debt, which is measured at amortized cost, and the fair value thereof, are set out in the following table.

	2020				2019
As at December 31 (millions)	Carrying value		Fair value		Carrying value		Fair value
Long-term debt, excluding leases (Note 26)	$	18,451	$	20,313	$	16,813	$	17,930

(i) Recognition of derivative gains and losses

The following table sets out the gains and losses, excluding income tax effects, arising from derivative instruments that are classified as cash flow hedging items and their location within the Consolidated statements of income and other comprehensive income.

Credit risk associated with such derivative instruments, as discussed further in (b), would be the primary source of hedge ineffectiveness. There was no ineffective portion of the derivative instruments classified as cash flow hedging items for the periods presented.

			Amount of gain (loss)						Gain (loss) reclassified from other comprehensive
			recognized in other						income to income (effective portion) (Note 11)
			comprehensive income
			(effective portion) (Note 11)							Amount
Years ended December 31 (millions)	Note		2020			2019			Location	2020			2019
Derivatives used to manage currency risk
Arising from U.S. dollar-denominated purchases			$	(6	)	$	(16	)	Goods and services purchased	$	(9	)	$	11
Arising from U.S. dollar-denominated long-term debt 1		26(b)-(c)		(44	)		(21	)	Financing costs		12			(162	)
Arising from net investment in a foreign operation 2				(67	)		3		Financing costs		—			—
				(117	)		(34	)			3			(151	)
Derivatives used to manage other market risk
Arising from changes in share-based compensation costs and other		14(b)		(6	)		10		Employee benefits expense		1			12
			$	(123	)	$	(24	)		$	4		$	(139	)

1 Amounts recognized in other comprehensive income are net of the change in the foreign currency basis spread (which is used for purposes of assessing hedge ineffectiveness) included in the fair value of the derivative instruments; such amount for the year ended December 31, 2020, was $63 (2019 – $9).

2 Amounts recognized in other comprehensive income are net of the change in the foreign currency basis spread (which is used for purposes of assessing hedge ineffectiveness) included in the fair value of the derivative instruments; such amount for the year ended December 31, 2020, was $4.

 

30 | December 31, 2020 

notes to consolidated financial statements

The following table sets out the gains and losses arising from derivative instruments that are classified as held for trading and that are not designated as being in a hedging relationship, as well as their location within the Consolidated statements of income and other comprehensive income.

		Gain (loss) recognized in income on derivatives
Years ended December 31 (millions)	Location	2020		2019
Derivatives used to manage currency risk	Financing costs	$	11	$	(7	)

5 segment information

General

Operating segments are components of an entity that engage in business activities from which they earn revenues and incur expenses (including revenues and expenses related to transactions with the other component(s)), the operations of which can be clearly distinguished and for which the operating results are regularly reviewed by a chief operating decision-maker to make resource allocation decisions and to assess performance. Effective January 1, 2020, we embarked upon modifying our internal and external reporting processes, systems and internal controls to accommodate the technology convergence-driven cessation of the historical distinction between our wireless and wireline operations at the level of regularly reported discrete performance measures that are provided to our chief operating decision-maker. Prior to the World Health Organization characterizing COVID-19 as a pandemic, we had anticipated transitioning to a new segment reporting structure during 2020, and did not, and do not, anticipate a substantive change to our products and services revenue reporting from such transition; such transition is now anticipated in the first quarter of 2021.

The wireless segment includes network revenues and equipment sales arising from mobile technologies. The wireline segment includes data revenues (which include internet protocol; television; hosting, managed information technology and cloud-based services; customer care and business services; certain healthcare solutions; and home and business security and agriculture), voice and other telecommunications services revenues (excluding wireless arising from mobile technologies), and equipment sales. Segmentation has been based on similarities in technology (mobile versus fixed), the technical expertise required to deliver the services and products, customer characteristics, the distribution channels used and regulatory treatment. Intersegment sales are recorded at the exchange value, which is the amount agreed to by the parties.

The segment information regularly reported to our Chief Executive Officer (our chief operating decision-maker), and the reconciliations thereof to our products and services view of revenues, other revenues and income before income taxes, are set out in the following table.

 

December 31, 2020 | 31

notes to consolidated financial statements

Years ended December 31	Wireless				Wireline				Eliminations				Consolidated
(millions)	2020		2019		2020		2019		2020		2019		2020		2019
Operating revenues
External revenues
Service	$	6,096	$	6,165	$	7,181	$	6,235	$	—	$	—	$	13,277	$	12,400
Equipment		1,809		1,964		255		225		—		—		2,064		2,189
Operating revenues (arising from contracts with customers)		7,905		8,129		7,436		6,460		—		—		15,341		14,589
Other income		9		20