Revenue for Telecoms

36 | Revenue for Telecoms – Issues In-Depth
| 2 Step 1: Identify the contract with a customer
Observations
Evaluating ‘at or near the same time’ when determining whether contracts
should be combined
ASU 2014-09.BC68
[IFRS 15.BC68]
The accounting for a contract depends on an entity’s present rights and
obligations, rather than on how the entity structures the contract. The new
revenue standard does not provide a bright line for evaluating what constitutes
‘at or near the same time’ to determine whether contracts should be combined
for the purpose of applying the standard. Therefore, an entity should evaluate its
specific facts and circumstances when analyzing the elapsed period of time.
Specifically, the entity should consider its business practices to determine what
represents a period of time that would provide evidence that the contracts were
negotiated at or near the same time. Additionally, the entity should evaluate why
the arrangements were written as separate contracts and how the contracts
were negotiated (e.g. both contracts negotiated with the same parties versus
different divisions within the entity negotiating separately with a customer).
An entity needs to establish procedures to identify multiple contracts initiated
with the same customer on a timely basis to ensure that these arrangements are
evaluated to determine whether they should be combined into a single contract
for accounting purposes.
In addition, an entity should consider whether a separate agreement is a
modification to the original agreement and whether it should be accounted for
as a new contract or as part of the existing contract. For a discussion of contract
modifications, see Section 7 in Issues In-Depth, Edition 2016.
Definition of related parties acquires new significance
ASU 2014-09.BC74, 850-10-20
[IFRS 15.BC74, IAS 24]
The new standard specifies that for two or more contracts to be combined,
they should be with the same customer or related parties of the customer. The
Boards state that the term ‘related parties’ as used in the new standard has the
same meaning as the definition in current related party guidance. This means
that the definition originally developed in US GAAP and IFRS for disclosure
purposes acquires a new significance, because it can affect the recognition and
measurement of revenue transactions.
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