Revenue for Telecoms

154 | Revenue for Telecoms – Issues In-Depth
| 8 Customer options for additional goods or services
Exercise of a material right
When a customer exercises a material right for additional goods and services, a
telecom entity may account for it using one of the following approaches.
– Continuation of the original contract: Under this approach, a telecom entity
treats the consideration allocated to the material right as an addition to the
consideration for the goods or services under the contract option – i.e. as a
change in the transaction price.
– Contract modification: Under this approach, a telecom entity applies the
contract modification guidance to evaluate whether the goods or services
transferred on exercise of the option are distinct from the other goods or
services in the contract. The outcome of this evaluation will determine whether
the modification is accounted for prospectively or with a cumulative catch-up
adjustment.
In telecom consumer contracts, the optional goods or services would typically
be distinct from those promised in the original contract. Therefore, the outcome
under either approach will be similar and prospective.
Material rights do not extend the term of a contract
A right to renew a contract may create a material right (i.e. because there is an
incentive for the customer to renew the contract). This material right may be
recognized in a period beyond the contract’s initial term. However, the existence
of a material right does not extend the term of the contract, which is defined by
the enforceable rights and obligations (see Section 2).
Comparison with current IFRS
Treatment of customer loyalty programs broadly similar to current practice
[IFRIC 13]
The current IFRS guidance on customer loyalty programs is broadly similar to the
guidance in the new standard.
However, a telecom entity needs to consider whether the allocation method that
it currently applies remains acceptable under the new standard. Under current
IFRS, a telecom entity can choose which method it wants to use to allocate the
consideration between the sales transaction and the award credits, and many use
the residual method to estimate the stand-alone selling price of award credits.
By contrast, under the new standard the residual approach can only be applied if
certain criteria are met.
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