Revenue for Telecoms

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16 | Revenue for Telecoms – Issues In-Depth | 1 Scope Under the new leases guidance, in practice, a lease may exist when the customer has to return the equipment at the end of the contract and the entity does not have a substantive right to substitute the equipment during the contract term. If the lease criteria are met, then the lease guidance also provides a basis for allocating the overall consideration in the contract between lease and nonlease components. If the lease criteria are not met, then the whole transaction is in the scope of the new standard. Parts of the new standard apply to sales of nonfinancial assets ASU 2014-09.BC57 [IFRS 15.BC57] Parts of the new standard also apply to sales of intangible assets and property, plant and equipment, including real estate in transactions outside the ordinary course of business (see Section 9 in Issues In-Depth, Edition 2016). For telecom entities that sell network assets, the historical accounting under US GAAP, which was otherwise subject to specific real estate sales accounting guidance, no longer applies. Comparison with current IFRS Alternative revenue programs for regulated telecom services [IFRS 14] In some jurisdictions, telecom services are subject to rate regulation. Also, some regulators have alternative revenue programs that allow for an adjustment (increase or decrease) to rates charged to customers in the future based on changes in demand and/or if certain objectives are met (e.g. reducing costs, reaching milestones or improving customer service). Currently, the only specific guidance on the accounting for the effects of rate regulation under IFRS is IFRS 14, an interim standard, which permits – but does not require – first-time adopters of IFRS to continue using previous GAAP to account for regulatory deferral account balances. An entity that applies IFRS 14 will therefore measure movements in regulatory deferral account balances using its previous GAAP. The interim standard requires these movements, as well as the regulatory deferral account balances, to be presented as separate line items in the financial statements, distinguished from assets, liabilities, income and expenses that are recognized under other IFRSs. This is consistent with the new standard’s requirement to disclose revenue arising from contracts with customers separately from the entity’s other sources of revenue. Comparison with current US GAAP Separation and initial measurement 605-25-15-3 – 15-3A, Topics 825, 460 The guidance on separation and measurement for contracts that are partially in the scope of the new standard is consistent with the current guidance on multipleelement arrangements. Examples of guidance in current US GAAP in which an entity first applies that specific separation and measurement guidance before applying the new standard include that on financial instruments and guarantees. 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 | 17 1.4 Portfolio approach | Alternative revenue programs for regulated telecom services 980-605-25-1 – 25-4, 606-10-50-4a As mentioned above, in some jurisdictions, telecom services are subject to rate regulation. Current US GAAP requirements on the recognition of regulatory assets and liabilities from alternative revenue programs are outside the scope of the new standard. However, the new standard requires revenue arising from regulatory assets and liabilities to be presented separately from revenue arising from contracts with customers in the statement of comprehensive income. The new standard only applies to the operations of rate-regulated entities for ordinary activities that are not subject to rate regulation. Entities will continue to follow current US GAAP requirements to account for alternative revenue programs, because these contracts are considered to be contracts with a regulator and not with a customer. This may result in a difference for rateregulated entities with similar alternative revenue programs if they apply IFRS but are not eligible to apply the interim standard on regulatory deferral accounts. 1.4 Portfolio approach Requirements of the new standard 606-10-10-4 [IFRS 15.4] The new standard is generally applied to an individual contract with a customer. However, as a practical expedient, an entity may apply the revenue model to a portfolio of contracts with similar characteristics if the entity reasonably expects that the financial statement effects of applying the new standard to the individual contracts within that portfolio would not differ materially. Example 5 – Portfolio approach applied to costs In April 20X8, Cable A store sold 100 television cable contracts. The store employs several sales agents who will receive a bonus of 10 for each contract they obtain. Cable A determines that each bonus constitutes a cost of obtaining a contract (see 7.1) and should be capitalized and amortized over the life of that underlying contract and any anticipated renewal that the bonus benefits (see 7.3). Cable A determines that the portfolio approach is appropriate because the costs are all related to obtaining a contract and the characteristics of the contracts are similar. The amortization period for the asset recognized related to these costs is expected to be similar for the 100 contracts (see 7.3). Additionally, Cable A documents that the portfolio approach does not materially differ from the contract-by-contract approach. Instead of recording and monitoring 100 assets of 10 each, Cable A records a portfolio asset of 1,000 for the month of April 20X8. © 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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