Revenue for Telecoms

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114 | Revenue for Telecoms – Issues In-Depth | 6 Step 5: Recognize revenue when or as the entity satisfies a performance obligation Is the performance obligation satisfied over time – i.e. is one of the criteria met? (see 6.2) Yes No Identify an appropriate method to measure progress (see 6.3) Recognize revenue at the point in time at which control of the good or service is transferred (see 6.4) Apply that method to recognize revenue over time Comparison with current IFRS Over-time recognition retained, but with new criteria [IAS 11, IAS 18.21] Construction contracts, and some contracts for the rendering of services, are currently accounted for under the stage-of-completion method – e.g. some telecom enterprise contracts that include the construction of networks or facilities that will be owned by the customer. The new standard may result in a broadly similar profile of revenue to that under current stage-of-completion accounting, but introduces new criteria to determine when revenue should be recognized over time. Some contracts that are currently accounted for under the stage-of-completion method may now require revenue to be recognized on contract completion. However, for other contracts, over-time recognition may be required for the first time under the model. Comparison with current US GAAP Over-time recognition retained, but with criteria rather than guidance based on type of activity 605-35-25-57 Currently, construction-type contracts in the scope of Subtopic 605-35 are generally accounted for under the percentage-of-completion method and, although service contracts do not fall in the scope of Subtopic 605‐35, revenue from services is generally recognized under the proportional performance or straight-line method. 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 | 115 6.1 Transfer of control | Under the new standard, a telecom entity currently applying these methods can continue to recognize revenue over time only if one or more of three criteria are met (see 6.2). Unlike current industry- and transaction-specific guidance, the requirements in Step 5 of the model are not a matter of scope, but rather are applied consistently to each performance obligation in a contract. When applying the new criteria, some telecom entities may determine that revenue currently recognized at a point in time should be recognized over time, or vice versa. 6.1 Transfer of control Requirements of the new standard 606-10-25-23 – 25-24 [IFRS 15.31–32] A good or service is transferred to a customer when the customer obtains control of it. ‘Control’ refers to the customer’s ability to direct the use of, and obtain substantially all of the remaining benefits from, an asset. It also includes the ability to prevent other entities from directing the use of, and obtaining the benefits from, an asset. Potential cash flows that are obtained either directly or indirectly – e.g. from the use, consumption, sale or exchange of an asset – are benefits of an asset. Control is … the ability to direct the use of – the customer has a present right – the right enables the customer to: - deploy the asset in its activities - allow another entity to deploy the asset in its activities - prevent another entity from deploying the asset and obtain the remaining benefits from – the right also enables the customer to obtain potential cash flows directly or indirectly – for example, through: - use of the asset - consumption of the asset - sale or exchange of the asset - pledging the asset - holding the asset … an asset. © 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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