Revenue for Telecoms

Revenue for Telecoms – Issues In-Depth | 143
7.4 Impairment |
Presentation of costs similar to current SEC guidance
S-X Rule 5-03(b)
SEC guidance on income statement classification requires costs and expenses
applicable to sales and revenues to be separately stated from selling, general
and administrative expenses. The new standard does not change this guidance.
A telecom entity may have costs that are required to be capitalized under the
new standard that are expensed as they are incurred under current US GAAP.
The classification of the amortization cost will be treated the same as the current
classification of the expense. Amortization of costs to obtain a contract will
generally be classified as selling, general and administrative expenses. A telecom
entity will determine the appropriate costs of sales category in which to classify
amortization of its costs to fulfill a contract.
7.4 Impairment
Requirements of the new standard
340-40-35-3
[IFRS 15.101]
An entity recognizes an impairment loss to the extent that the carrying amount of the
asset exceeds the recoverable amount. The ‘recoverable amount’ is defined as:
– the remaining expected amount of consideration to be received in exchange for the
goods or services to which the asset relates; less
– the costs that relate directly to providing those goods or services and that have not
been recognized as expenses.
340-40-35-4
[IFRS 15.102]
When assessing an asset for impairment, the amount of consideration included in
the impairment test is based on an estimate of the amounts that the entity expects
to receive. To estimate this amount, the entity uses the principles for determining the
transaction price, with two key differences:
– it does not constrain its estimate of variable consideration – i.e. it includes its
estimate of variable consideration, regardless of whether the inclusion of this
amount could result in a significant revenue reversal if it is adjusted; and
– it adjusts the amount to reflect the effects of the customer’s credit risk.
Observations
New impairment model for capitalized contract costs
Topics 330, 360
[IAS 2, IAS 36]
The new standard introduces a new impairment model that applies specifically
to assets that are recognized for the costs to obtain and/or fulfill a contract. The
Boards chose not to apply the existing impairment models in US GAAP or IFRS, in
order to have an impairment model that focuses on contracts with customers. A
telecom entity applies this model in addition to the existing impairment models.
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