Revenue for Telecoms

168 | Revenue for Telecoms – Issues In-Depth
| 10 Indirect channel sales
Observations
Move away from a risk-and-reward approach
Under the new standard, a telecom entity typically considers contract-specific
factors to determine whether revenue should be recognized on sale into the
distribution channel or whether the telecom entity should wait until the product is
sold by the dealer to its customer.
SEC SAB Topic 13
[IAS 18.16, IE2(c), IE6]
This assessment may differ from current IFRS and US GAAP as a result of the
shift from a risk-and-reward approach to a transfer of control approach. However,
consideration of whether the significant risks and rewards of ownership have
been transferred is an indicator of the transfer of control under the new standard
(see 6.1) and conclusions about when control of handsets has passed to the
dealer or the end customer are generally expected to stay the same.
10.1.2 Principal versus agent considerations
Requirements of the new standard
606-10-55-36 – 55-36A
[IFRS 15.B34–B34A]
When other parties are involved in providing goods or services to an entity’s
customer, the entity determines whether the nature of its promise is a performance
obligation to provide the specified goods or services itself, or to arrange for them
to be provided by another party – i.e. whether it is a principal or an agent. This
determination is made by identifying each specified good or service promised to the
customer in the contract and evaluating whether the entity obtains control of the
specified good or service before it is transferred to the customer.
Because an entity evaluates whether it is a principal or an agent for each good or
service to be transferred to the customer, it is possible for the entity to be a principal
for one or more goods or services and an agent for others in the same contract.
606-10-55-37 – 55-38
[IFRS 15.B35–B36]
An entity is a ‘principal’ if it controls the specified good or service that is promised to
the customer before it is transferred to the customer.
When another party is involved, an entity that is a principal obtains control of:
– a good from another party that it then transfers to the customer;
– a right to a service that will be performed by another party, which gives the entity
the ability to direct that party to provide the service on the entity’s behalf; or
– a good or a service from another party that it combines with other goods or
services to produce the specified good or service promised to the customer.
If the entity is a principal, then revenue is recognized on a gross basis – corresponding
to the consideration to which the entity expects to be entitled. If the entity is an
agent, then revenue is recognized on a net basis – corresponding to any fee or
commission to which the entity expects to be entitled. An entity’s fee or commission
might be the net amount of consideration that the entity retains after paying other
parties (see 10.3).
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