Revenue for Telecoms

Revenue for Telecoms – Issues In-Depth | 173
10.2 Combining contracts in the indirect channel |
10.2 Combining contracts in the indirect channel
Section 2.3 discusses the requirements of the new standard on when contracts
are combined. That guidance should also be applied to sales through distribution
channels.
Observations
The service and the handset sale contracts may not always be combined in
the indirect channel
When selling goods and services through a distribution channel, telecom entities
often enter into multiple contracts with multiple parties. The telecom entity needs
to assess if these contracts should be combined and therefore accounted for as
one contract. One condition for combining contracts is that the contracts are with
the same customer (or related parties of the customer). It is therefore key that a
telecom entity determines who the customer is under the contracts (see 10.1).
For example, in an indirect sale of a wireless handset and service plan, the
customer for the sale of the handset could be the dealer (i.e. when the dealer is
acting as a principal), while the customer in the network service contract is the
end customer. In this case, because the dealer and the end customer are not
related parties, these contracts (the initial sales contract for the handset to the
dealer and the subsequent network service contract with the end customer) are
not combined. These contracts are therefore treated as separate contracts for the
purposes of the remainder of the analysis under the new standard. Accounting
for these contracts separately may lead to differences in the amount and timing
of revenue recognition in the indirect and the direct channel. However, this will
depend on the specific facts and circumstances and conclusions related to the
accounting for any payments in the indirect channel (see 10.3).
Alternatively, if the dealer is the agent in the resale of the handset, then the
end customer is considered the customer for both sales and the contracts are
combined (provided the other criteria for combination are met). In this case,
combining the contracts implies that the combined transaction price, including
any discount, will be allocated to the performance obligations (handset and
network service) in the combined contract, as explained in Step 4 (see 5.2).
Therefore, the accounting for this indirect channel arrangement could be closer, if
not similar, to the accounting for the same arrangement in a direct channel sale.
© 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