Revenue for Telecoms

Revenue for Telecoms – Issues In-Depth | 39
3.1 Criteria to identify performance obligations |
Observations
Identifying the separate performance obligations is key for telecom entities
Telecom entities evaluate goods and services promised to customers to
determine if they are performance obligations that should be accounted for
separately. Identifying the performance obligations in the contract is key because
it may impact the amount and timing of revenue recognition.
Examples of common telecom offerings and activities that are evaluated to
determine whether they are goods or services promised to the customer or
merely activities that do not transfer goods or services to the customer, include,
but are not limited to:
– equipment – e.g. set-top boxes, wireless handsets, modems, routers, tablets
(see 3.3);
– cable services – e.g. basic, premium and pay-per-view services (see 3.4);
– internet services, broadband or other capacity arrangements (see 3.4);
– wireless services – e.g. voice, data and text plans (which may include a SIM
card) and various add-on services (see 3.4);
– landline voice services (see 3.4);
– rights to purchase additional goods or services (see 3.4 and Section 8);
– installations for home phone, internet and television, including inside and
outside wiring (see 3.5);
– activation of wireless handsets, set-top boxes or other equipment and services
(see 3.6);
– other customer services – e.g. support and other activities that may or may not
result in fees charged to the customer (see 3.6);
– incentives, including gift cards, or other free goods or services (see 3.7); and
– warranties (see 3.8).
This evaluation is performed for all goods or services promised and activities
explicitly stated in arrangements with the customer. The evaluation also takes
into account implicit promises arising from customary business practices – e.g.
incentives and discounts for early renewal.
Materiality assessment
Under both IFRS and US GAAP, when entities perform their assessment of the
performance obligations in the contract, they may consider materiality (that is,
whether a performance obligation is immaterial and therefore is not accounted
for separately) (see below). The examples in this section illustrate the required
analysis to determine whether a promise in a contract represents a performance
obligation, without considering the application of materiality.
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