Revenue for Telecoms

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176 | Revenue for Telecoms – Issues In-Depth | 10 Indirect channel sales Observations No specific guidance on allocating a discount when dealer is principal for part of the arrangement and agent for the other part of the arrangement The new standard does not include specific guidance on how a telecom entity allocates a discount in an arrangement in which it is a principal for some goods or services and an agent for others. This may apply to telecom entities selling through a distribution channel when the dealer acts as a principal in the sale of the handset and an agent in the sale of the service (see 10.1). In these arrangements, a telecom entity needs to consider the guidance on determining and allocating the transaction price (see Sections 4 and 5). Payments in the indirect channel may be accounted for differently Arrangements with dealers for sales in the indirect channel often include a number of different payments. When the dealer is acting as a principal in the sale of handsets, the accounting for these payments may vary, depending on the terms and conditions related to the payments. For example, if payments are not directly linked to the discount provided to the end customer, then it may be difficult to conclude that the payments are something other than a commission paid to the dealer and therefore should be accounted for as a cost of obtaining a contract. However, in determining the accounting for these payments, telecom entities also should consider the guidance on consideration payable to a customer, as well as other factors, such as a comparison of cash flows between the direct and indirect channel and differences in payments when the dealer sells only a service plan, as compared with when the dealer sells a handset and a service plan. In addition, telecom entities may need to consider whether the payments to dealers effectively represent a subsequent discount on the handset. In this case, the discount would represent variable consideration and would need to be estimated at the time the handset is delivered. Determining the appropriate accounting for these payments requires judgment. 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 | 177 11 Repurchase agreements | 11 Repurchase agreements Overview A telecom entity has executed a repurchase agreement if it sells an asset to a customer and promises, or has the option, to repurchase it. If the repurchase agreement meets the definition of a financial instrument, then it is outside the scope of the new standard. If not, then the repurchase agreement is in the scope of the new standard and the accounting for it depends on its type – e.g. a forward, call option or put option – and on the repurchase price. Given the rapid change in technology, telecom entities commonly offer their customers upgrades or trade-ins on their equipment – e.g. their wireless handsets. Indirect channel sales may also give the telecom entity the right or obligation to buy back the equipment from the dealer. These arrangements may fall under the repurchase guidance and should be analyzed with care. Requirements of the new standard A forward or a call option 606-10-55-68 – 55-69 [IFRS 15.B66–B67] 606-10-55-70 – 55-71, 55-78 [IFRS 15.B68–B69, B75] If an entity has an obligation (a forward) or a right (a call option) to repurchase an asset, then a customer does not have control of the asset. This is because the customer is limited in its ability to direct the use of and obtain the benefits from the asset, despite its physical possession. If the entity expects to repurchase the asset for less than its original sales price, then it accounts for the entire agreement as a lease. Conversely, if the entity expects to repurchase the asset for an amount that is greater than or equal to the original sales price, then it accounts for the transaction as a financing arrangement. When comparing the repurchase price with the selling price, the entity considers the time value of money. In a financing arrangement, the entity continues to recognize the asset and recognizes a financial liability for any consideration received. The difference between the consideration received from the customer and the amount of consideration to be paid to the customer is recognized as interest, and processing or holding costs if applicable. If the option expires unexercised, then the entity derecognizes the liability and the related asset, and recognizes revenue. © 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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