Revenue for Telecoms

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124 | Revenue for Telecoms – Issues In-Depth | 6 Step 5: Recognize revenue when or as the entity satisfies a performance obligation Observations Determining which measure of progress to apply is not a free choice ASU 2014-09.BC159 [IFRS 15.BC159] The new standard requires a telecom entity to select a method that is consistent with the objective of depicting its performance. A telecom entity therefore does not have a free choice of which method to apply to a given performance obligation – it needs to consider the nature of the good or service that it promised to transfer to the customer (see 3.4.2). Accordingly, judgment is required when identifying an appropriate method of measuring progress. Most telecom network services will be recognized using an output measure Output measures such as minutes, texts, amount of data consumed or time elapsed will usually prove to be appropriate measures of progress for telecom network services. Telecom entities need to consider carefully the nature of the promises in the contract – e.g. those promises made in prepaid contracts or contracts with rollover minutes. When the billing to the customer does not directly correspond to the telecom entity’s performance in these types of plans, the telecom entity may need to adjust any contract assets, contract liabilities or accounts receivable related to the contract. Some telecom network services may be recognized as they are billed 606-10-55-18 [IFRS 15.B16] Telecom services billings are often based on output measures, as described above. However, as a practical expedient, a telecom entity may recognize revenue using the amount that it has the right to invoice, if this amount directly corresponds with the value that is transferred to the customer. The amount that the telecom entity has the right to invoice does not need to be based on a fixed amount per unit for this practical expedient to be applied. If a contract includes fixed fees in addition to per-unit invoicing, substantive contractual minimums or payments to the customer such as rebates, discounts or signing bonuses, then the use of the practical expedient may be precluded because the invoiced amounts do not correspond to the value that the customer receives. Furthermore, to apply the practical expedient to a contract, all goods and services in the contract will need to qualify. When the practical expedient is used, the telecom entity is not required to disclose the remaining transaction price to be received under the contract. See 12.1.3 in Issues In-Depth, Edition 2016 for further details on disclosures required by the new revenue standard. 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 | 125 6.4 Performance obligations satisfied at a point in time | Customers’ unexercised rights (breakage) 606-10-55-46 – 55-49 [IFRS 15.B44–B47] Telecom entities may receive a nonrefundable prepayment from a customer that gives the customer the right to receive goods or services in the future. Common telecom examples include rollover minutes (see Example 49) or prepaid phone cards. Typically, some customers do not exercise their right – this is referred to as ‘breakage’. The new standard contains guidance to determine the timing of revenue related to breakage (see 10.5 in Issues In-Depth, Edition 2016 for further discussion). 6.4 Performance obligations satisfied at a point in time Requirements of the new standard 606-10-25-30 [IFRS 15.38] If a performance obligation is not satisfied over time, then an entity recognizes revenue at the point in time at which it transfers control of the good or service to the customer. The new standard includes indicators of when the transfer of control occurs. Indicators that control has passed include a customer having ... ... a present obligation to pay ... physical possession ... legal title ... risks and rewards of ownership ... accepted the asset Relevant considerations include the following. – In some cases, possession of legal title is a protective right and may not coincide with the transfer of control of the goods or services to a customer – e.g. when a seller retains title solely as protection against the customer’s failure to pay. – In consignment arrangements (see Section 10 and 5.5.6 in Issues In-Depth, Edition 2016) and some repurchase arrangements (see Section 11), an entity may have transferred physical possession but still retain control. Conversely, in bill-and-hold arrangements (see 6.5 and 5.5.7 in Issues In-Depth, Edition 2016), an entity may have physical possession of an asset that the customer controls. – When evaluating the risks and rewards of ownership, an entity excludes any risks that give rise to a separate performance obligation in addition to the performance obligation to transfer the asset. – An entity needs to assess whether it can objectively determine that a good or service provided to a customer conforms to the specifications agreed in a contract (see 6.5 and 5.5.8 in Issues In-Depth, Edition 2016). © 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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