Revenue for Telecoms

Revenue for Telecoms – Issues In-Depth | 127
6.5 Enterprise contracts – Bill-and-hold and customer acceptance |
Potential challenges may exist in determining the accounting for some
delivery arrangements
SEC SAB Topic 13
[IAS 18.14]
Revenue is not currently recognized if a telecom entity has not transferred to the
customer the significant risks and rewards of ownership. For product sales, the
risks and rewards are generally considered to be transferred when a product is
delivered to the customer’s site – i.e. if the terms of the sale are ‘free-on-board’
(FOB) destination, then legal title to the product passes to the customer when
the product is handed over to the customer. When a product is shipped to the
customer FOB shipping point, legal title passes and the risks and rewards are
generally considered to have transferred to the customer when the product is
handed over to the carrier. However, careful analysis of facts and circumstances
is required.
Indirect channels
Many telecom entities sell through distributors and resellers. These transactions
will require judgment to determine if the transfer of control occurs on delivery to
the intermediary or when the good is resold to the end customer (see Section 10).
6.5 Enterprise contracts – Bill-and-hold and
customer acceptance
Observation
606-10-55-81
[IFRS 15.B79]
Large enterprise telecom contracts often include bill-and-hold arrangements and
the related issues around customer acceptance, usually for equipment sales.
Bill-and-hold arrangements occur when a telecom entity bills a customer for a
product that it transfers at a point in time, but retains physical possession of the
product until it is transferred to the customer at a future point in time – e.g. due
to a customer’s lack of available space for the product or delays in production
schedules.
606-10-55-82 – 55-83
[IFRS 15.B80–B81]
To determine the point in time at which a customer obtains control and therefore
the point in time at which the performance obligation is satisfied, the telecom
entity considers several indicators of the transfer of control, including whether
the customer has accepted the goods or services (see 5.5.8 in Issues In-Depth,
Edition 2016). For further guidance on bill-and-hold criteria, see 5.5.7 in Issues
In-Depth, Edition 2016).
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