Revenue for Telecoms

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170 | Revenue for Telecoms – Issues In-Depth | 10 Indirect channel sales – Retail Store X does not have a right to return handsets and, further, Retail Store X must manage and insure its own inventory and bears the risk for any inventory obsolescence, shrinkage and overstocking; and – Telco A is solely responsible for providing network services to the end customer, under the wireless service plans. Telco A first analyzes whether the dealer is agent or principal in reselling the wireless service plans. Retail Store X does not obtain the benefits from the service, nor does Retail Store X obtain a right to the service. Telco A contracts with the end customer directly and is responsible for satisfying the network service performance obligation. Therefore, Telco A concludes that the dealer is acting as an agent. Therefore, Telco A recognizes revenue for the network services when (or as) those services are provided. Telco A then analyzes whether the dealer is agent or principal in reselling the handsets. Telco A first considers whether control of the handsets transfers to Retail Store X. If that is unclear, then Telco A considers the principal versus agent indicators from the perspective of Retail Store X. Consideration Does Retail Store X control the handset before transferring it to the end customer? Is Retail Store X primarily responsible for fulfilling the promise to provide the handset to the end customer? Does Retail Store X have inventory risk? Does Retail Store X have discretion in establishing prices? Assessment Unclear. Retail Store X obtains legal title to the handsets. However, because the answer is unclear given the other terms and conditions of the arrangement with the dealer, the following indicators should be considered. Retail Store X provides the handsets to the end customer and can resell the handsets with or without service plans. Telco A cannot recall the handsets. However, any issues related to the handset are corrected by the manufacturer. Retail Store X takes legal title and insures the inventory. Retail Store X is also responsible for maintaining the appropriate inventory levels and for inventory obsolescence. Telco A does not accept returns of handsets. Retail Store X has no discretion in setting the prices of the handsets when they are sold with a service. It has pricing discretion if the handsets are sold stand-alone. 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 | 171 10.1 Determining who the customer is and when control transfers | On balance, and after applying judgment, the analysis above indicates that Retail Store X is acting as a principal in the sale of the handsets, primarily because Retail Store X takes legal title and bears the inventory risk. This means that Telco A transfers control of the handset to Retail Store X at the time of delivery. Therefore, Telco A recognizes the sale of the handset at the time control transfers to Retail Store X. Observations The agent versus principal analysis is performed from the dealer’s perspective In distribution networks, the telecom entity will typically be acting as principal in the transfer of goods or services to the dealer. Therefore, the principal versus agent analysis is applied to the dealer, to determine if the dealer takes control of the goods or services before they are resold to the end customer, and if the dealer is the agent or the customer of the telecom entity. 606-10-55-36, ASU 2016-08.BC29 [IFRS 15.B34, BC385Q] Unit of account is the specific good or service The evaluation focuses on the promise to the customer, and the unit of account is the specified good or service. A ‘specified good or service’ is a distinct good or service (or a distinct bundle of goods or services) to be provided to the customer. For telecom entities, the specified good or service would be the handset or the network service. If individual goods and services are not distinct from one another, then they represent inputs into a combined promise that is the specified good or service that the telecom entity assesses. Control of the good or service is the focus of the analysis The telecom entity needs to determine if and when control of the goods and services transfers to the dealer before transferring to the end customer. This analysis is key for the telecom entity to identify its customer and determine the amount and timing of its revenue. Generally, the dealer does not take control of the telecom network services, or the right to those services; therefore, the emphasis of the control analysis is on the equipment, such as handsets in wireless sales. When it is clear that the dealer obtains control of the goods or services (e.g. the handsets) before transferring them to the end customer, no further analysis is required. However, if it is unclear if control transfers, then the telecom entity should consider the new standard’s indicators in the agent versus principal guidance. If the dealer obtains legal title to a good or service only momentarily before legal title transfers to the end customer, then obtaining that legal title is not in itself determinative. However, if the dealer has substantive inventory risk, for example, then this may indicate that the dealer obtains control of the goods or services. In performing the analysis of whether the dealer has substantive inventory risk, telecom entities consider to what extent the dealer is exposed to technological obsolescence, shrinkage and changes in market price, and whether the dealer can return the inventory to the telecom entity (for any reason other than nonworking according to specifications). © 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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