Revenue for Telecoms

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118 | Revenue for Telecoms – Issues In-Depth | 6 Step 5: Recognize revenue when or as the entity satisfies a performance obligation 6.2 Performance obligations satisfied over time Requirements of the new standard 606-10-25-24, 25-27 [IFRS 15.32, 35] For each performance obligation in a contract, an entity first determines whether the performance obligation is satisfied over time – i.e. control of the good or service transfers to the customer over time – using the following criteria. 1 2 3 Criterion The customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs The entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced The entity’s performance does not create an asset with an alternative use to the entity (see 5.5.2.1 in Issues In-Depth, Edition 2016) and the entity has an enforceable right to payment for performance completed to date (see 5.5.2.2 in Issues In-Depth, Edition 2016) Example Routine or recurring telecom services – e.g. network services Building a telecom network on a customer’s premises Building an asset to a customer’s specifications, such as a call center built on the telecom entity’s premises 606-10-25-27, 25-30 – 25-31 [IFRS 15.35, 38–39] If one or more of these criteria are met, then the entity recognizes revenue over time, using a method that depicts its performance – i.e. the pattern of transfer of control of the good or service to the customer. If none of the criteria is met, then control transfers to the customer at a point in time and the entity recognizes revenue at that point in time (see 6.4). Criterion 1 606-10-55-5 – 55-6, ASU 2014-09.BC125–BC128 [IFRS 15.B3–B4, BC125–BC128] A customer simultaneously receives and consumes the benefits of the entity’s performance as the entity performs if another entity would not need to substantially reperform the work that the entity has completed to date. When determining whether another party would not need to substantially reperform, the entity also presumes that another party would not have the benefit of any asset that the entity presently controls and would continue to control if that other party took over the performance obligation. Criterion 2 606-10-55-7 [IFRS 15.B5] In evaluating whether a customer controls an asset as it is created or enhanced, an entity considers the guidance on control in the new standard, including the indicators of the transfer of control (see 6.4). 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 | 119 6.2 Performance obligations satisfied over time | Criterion 3 606-10-25-28 [IFRS 15.36] In assessing whether an asset has an alternative use, at contract inception an entity considers its ability to readily direct that asset in its completed state for another use, such as selling it to a different customer. 606-10-55-6, 55-8 – 55-10, ASU 2014-09.BC127 [IFRS 15.B4, B6–B8, BC127] Applying Criteria 1 and 3 Potential contractual restrictions or practical restrictions may prevent the entity from transferring the remaining performance obligation to another entity (Criterion 1) or directing the asset for another use (Criterion 3). The new standard provides guidance on whether these facts or possible termination impact the assessment of those criteria. It provides the following guidance on the assumptions that an entity should make when applying Criteria 1 and 3. Determining whether… Consider contractual restrictions? Consider practical limitations? Consider possible termination? … another entity would not need to substantially reperform (Criterion 1) … the entity’s performance does not create an asset with an alternative use (Criterion 3) No No Yes Yes Yes No Example 47 – Assessing whether telecom network services meet the over-time criteria ASU 2014-09.BC126 [IFRS 15.BC126] Telco M enters into a contract to provide network services to Customer C. Telco M needs to assess whether the network service revenue should be recognized at a point in time or over time. Telco M first considers whether the network services meet Criterion 1 and notes that: – Customer C will receive and consume the benefits of the network services as they are delivered; and – if Customer C changed service providers, then the new service provider would not need to reperform the work performed to date by Telco M. Since it is necessary to meet only one of the criteria to recognize revenue over time, Telco M concludes that it should recognize revenue for the network services over 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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