Revenue for Telecoms

Revenue for Telecoms – Issues In-Depth | 61
3.7 Incentives and promotional giveaways |
Comparison with current US GAAP
Administrative tasks
SEC SAB Topic 13
The notion of an administrative task exists in current SEC guidance and refers to
activities that do not represent discrete earnings events – i.e. selling a membership,
signing a contract, enrolling a customer, activating telecommunications services
or providing initial set-up services. Current SEC guidance distinguishes between
deliverables and these activities. It states that activities that do not represent
discrete earnings events are typically negotiated in conjunction with the pricing of
the deliverables to the contract, and that the customer generally views these types
of non-deliverable activities as having significantly lower or no value separate from
the entity’s overall performance under the contract.
In general, entities are unlikely to reach a substantially different conclusion under
the new standard when they attempt to identify administrative tasks from that
reached under current SEC guidance in identifying activities that do not represent
discrete earnings events.
3.7 Incentives and promotional giveaways
Incentives and promotional giveaways are performance obligations if they meet the
‘distinct’ criteria. Even if the intent of the entity in offering the incentive is solely
to entice customers to subscribe to a telecom service by, for example, giving free
equipment or gift cards, that does not negate the requirement to evaluate whether
the incentives are performance obligations (see 3.1).
Example 27 – Free handset case and gift card
Customer C purchases a wireless handset and a two-year service contract (both
identified as separate performance obligations) from Telco A. Telco A offers
Customer C a free handset case and a gift card for a local electronics store. These
items are not typically included at contract inception.
Telco A determines that, although the handset case and gift card are incremental
goods provided to Customer C as a marketing incentive to enter the wireless
contract, they represent promises made by Telco A to Customer C. Therefore,
there are four promised goods and services, as follows:
– wireless handset;
– handset case;
– gift card; and
– service contract.
Telco A concludes that the handset case and gift card are distinct because
Customer C could have purchased them separately, can benefit from these items
separately and they are not highly interrelated with the handset and wireless
services. Therefore, Telco A accounts for four performance obligations.
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