Revenue for Telecoms

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98 | Revenue for Telecoms – Issues In-Depth | 5 Step 4: Allocate the transaction price to the performance obligations in the contract Adjusted market assessment approach Evaluate the market in which goods or services are sold and estimate the price that customers in the market would be willing to pay Expected cost plus a margin approach Forecast the expected costs of satisfying a performance obligation and then add an appropriate margin for that good or service Residual approach (limited circumstances) Subtract the sum of the observable stand-alone selling prices of other goods or services promised in the contract from the total transaction price 606-10-32-43 [IFRS 15.88] After contract inception, an entity does not reallocate the transaction price to reflect subsequent changes in stand-alone selling prices. Observations New standard does not contain a reliability threshold Under the new standard, the stand-alone selling price is determined at contract inception for each performance obligation. There are no circumstances in which revenue recognition is postponed because it is difficult to determine a standalone selling price. If an observable price is available, then it is used to determine the stand-alone selling price; if not, then the telecom entity is required to estimate the amount. The new standard does not require that the amount can be ‘reliably’ estimated, nor does it prescribe another threshold. A telecom entity is required to maximize the use of observable inputs, but in all circumstances will need to arrive at a stand-alone selling price and allocate the transaction price to each performance obligation in the contract. Observable prices may often be available for consumer telecom contracts In a number of cases, observable prices will be available for telecom goods and services, and there will be no need to estimate their stand-alone selling price. Examples of observable prices can include published prices for equipment sold separately (either by the telecom entity or third parties) or ‘bring your own device’ or ‘SIM only’ prices for comparable network service plans. Observable prices may also be different by class of customer (see 8.1). For example, telecom entities may segment their customer base in various ways, such as consumer or enterprise, multi-line users or single-line users, or according to other factors such as geography or distribution channel. Home © 2016 KPMG LLP, a Delaware limited liability partnership and the US member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. © 2016 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
Revenue for Telecoms – Issues In-Depth | 99 5.1 Determine stand-alone selling prices | Judgment may be required for more complex telecom contracts ASU 2014-09.BC269 [IFRS 15.BC269] Prices may not always be observable, particularly for enterprise and wholesale contracts. This is because many contracts are priced based on individual customer needs rather than standard pricing. In addition, there can be a significant variation in price for a good or service between customers. In these case, judgment will be required in estimating the stand-alone selling price. Some telecom entities may already have robust processes in place to determine selling prices, including vendor-specific objective evidence (VSOE). However, others will need to develop new processes with appropriate internal controls for documenting observable selling prices, and estimating stand-alone selling prices of goods or services that are not typically sold separately or for which there is significant price variation. The following framework may be a useful tool for estimating and documenting the stand-alone selling price and for establishing internal controls over the estimation process. Gather all reasonably available data points Consider adjustments based on market conditions and entity-specific factors Consider the need to stratify selling prices into meaningful groups Weigh available information and make the best estimate Establish processes for ongoing monitoring and evaluation If there is a range of observable prices, then a stated contract price within the range may be an acceptable stand-alone selling price In some cases, a telecom entity may sell a good or service separately for a range of observable prices. When this is the case and the stated contract price is within a sufficiently narrow range of observable selling prices, it may be appropriate to use a stated contract price as the estimated stand-alone selling price of a good or service. To determine whether this is appropriate, a telecom entity assesses whether an allocation of the transaction price based on such an estimate would meet the allocation objective (see 5.2). As part of this assessment, a telecom entity considers all information that is reasonably available (including market conditions, entity-specific factors, information about the customer or class of customer, how wide the range of observable selling prices is and where the stated price falls within the observable range). © 2016 KPMG LLP, a Delaware limited liability partnership and the US member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. © 2016 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved. Home
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Revenue for Telecoms

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