Revenue for Telecoms

116 | Revenue for Telecoms – Issues In-Depth
| 6 Step 5: Recognize revenue when or as the entity satisfies a performance obligation
Observations
Use of control concept to recognize revenue aligns with the accounting for
assets
ASU 2014-09.BC118
[IFRS 15.BC118]
The new standard is a control-based model. First, a telecom entity determines
whether control of the good or service transfers to the customer over time based
on the criteria in the new standard and, if it does, the pattern of that transfer. If it
does not, then control of the good or service transfers to the customer at a point
in time, with the notion of risks and rewards being retained only as an indicator of
the transfer of control (see 6.4).
Assessing the transfer of goods or services by considering when the customer
obtains control may result in different outcomes – and therefore significant
differences in the timing of revenue recognition. The Boards believe that it can
be difficult to judge whether the risks and rewards of ownership have been
transferred to a customer, so applying a control-based model may result in more
consistent decisions about the timing of revenue recognition.
The new standard extends a control-based approach to all arrangements,
including service contracts. The Boards believe that goods and services are
assets – even if only momentarily – when they are received and used by the
customer. The new standard’s use of control to determine when a good or service
is transferred to a customer is consistent with the current definitions of an asset
under both US GAAP and IFRS, which principally use control to determine when
an asset is recognized or derecognized.
New conceptual basis for revenue recognition
The new standard takes a conceptually different approach to revenue recognition
from current US GAAP and IFRS. Although the basic accounting outcomes –
recognition of revenue at a point in time or over time – are similar, they may
apply in different circumstances. However, this change is not expected to have a
significant effect for most telecom arrangements because telecom services are
consumed as they are provided, and revenue is currently recognized when the
services are provided.
Comparison with current IFRS
Move away from a risk-and-reward approach
[IAS 11.23, IAS 18.14, 20, IFRS 15.BC118,
IFRIC 15]
Currently, revenue from the sale of goods that are in the scope of IAS 18 is
recognized based on when, among other criteria, the telecom entity has
transferred to the buyer the significant risks and rewards of ownership. Under this
approach, which is unlike the new standard, revenue is typically recognized at the
point in time at which risks and rewards pass, rather than control transfers.
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