Revenue for Telecoms

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112 | Revenue for Telecoms – Issues In-Depth | 5 Step 4: Allocate the transaction price to the performance obligations in the contract Telco G does not regularly provide those credits and therefore customers do not expect them to be granted. Therefore, Telco G concludes that this is a change in the transaction price and not variable consideration (see 4.2). Because the credit does not relate to a satisfied performance obligation, the change in transaction price resulting from the credit is accounted for as a contract modification and recognized over the remaining term of the contract (see Section 7 in Issues In- Depth, Edition 2016). If, in this example, rather than providing a one-time credit, Telco G grants a discount of 5 per month for the remaining contract term, Telco G would also conclude that it is a change in the transaction price. It would apply the contract modification guidance and recognize the credit over the remaining term of the contract (see Section 7 in Issues In-Depth, Edition 2016). Observations Change in transaction prices may also be assessed as variable consideration Judgment is required at contract inception to determine if customer credits constitute variable consideration (see 4.2). Customer credits that are not variable consideration constitute a change to the transaction price and are accounted for under the contract modification guidance. The accounting varies depending on whether the credit relates to satisfied or unsatisfied performance obligations, such as telecom services, at the time the credit is granted. Comparison with current IFRS Introduction of guidance on reallocation Current IFRS is largely silent on the allocation of revenue to components, and is therefore silent on the reallocation of revenue. Under the new standard, if some of the performance obligations to which the transaction price was initially allocated have already been satisfied when the change in transaction price takes place, then this results in an adjustment to the amount of revenue recognized to date – including revenue on completed performance obligations. Comparison with current US GAAP Introduction of guidance on reallocation ASU 2014-09.BC287–BC293, 605-25-30 The allocation of arrangement consideration to delivered items is currently limited to amounts of revenue that are not contingent on a telecom entity’s future performance. Therefore, there is limited current guidance on changes in contingent amounts. The new standard introduces more discipline around the accounting for changes in transaction price. 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 | 113 6 Step 5: Recognize revenue when or as the entity satisfies a performance obligation | 6 Step 5: Recognize revenue when or as the entity satisfies a performance obligation Overview A telecom entity recognizes revenue when or as it satisfies a performance obligation by transferring a good or service to a customer, either at a point in time (when) or over time (as). Generally, a telecom entity recognizes revenue for equipment sales at a point in time, usually at contract inception, when control of the equipment is transferred to the customer. Service revenue is recognized over time as the services are provided. This is not in itself a change from current practice. However, the allocation methodology in the new standard (see Section 5) is a change in practice. This change will often increase the amount of revenue allocated to, and accelerate revenue recognition on, the equipment, particularly for subsidized wireless handsets. Options for additional services, such as usage, generally result in revenue recognition only once the customer exercises the option (see Section 8). Requirements of the new standard 606-10-25-24 [IFRS 15.32] At contract inception, an entity first evaluates whether it transfers control of the good or service over time – if not, then it transfers control at a point in time. © 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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