Revenue for Telecoms

Revenue for Telecoms – Issues In-Depth | 73
4.2 Variable consideration (and the constraint) |
– In contrast, the contracted service approach accounts for the customer’s initial
commitment throughout the term of the contract and therefore any changes
in those rights would be accounted for as a contract modification when
they occur.
One example of a contractual right that may determine the accounting for
the contract is the existence of a substantive penalty to move from a higher
service package to a lower service package. That might suggest that there are
enforceable rights and obligations relating to the higher service level. However, all
of the contractual rights and obligations need to be considered in determining the
appropriate accounting.
Practical implications of the contractual minimum commitment approach
or the contracted service approach
Each approach has different practical implications for data requirements and
on the accounting required by other parts of the new standard. For example,
using the contractual minimum commitment requires an entity to gather data to
determine the minimum amount for each service plan. However, there may be
fewer implications for the future accounting if a customer changes the service
plan to the minimum amount.
In contrast, if a customer makes a change to the service plan, under the
contracted service approach, then the change will be accounted for as a contract
modification, which could create complexity in the future accounting for the
contract with commensurate system implications (see Section 7 in Issues In-
Depth, Edition 2016 on contract modifications).
4.2 Variable consideration (and the constraint)
Requirements of the new standard
606-10-32-6 – 32-7
[IFRS 15.51–52]
Items such as discounts, rebates, refunds, rights of return, credits, price concessions,
incentives, performance bonuses, penalties or similar items may result in variable
consideration. Promised consideration also can vary if it is contingent on the occurrence
or non-occurrence of a future event. Variability may be explicit or implicit, arising from
customary business practices, published policies or specific statements, or any other
facts and circumstances that would create a valid expectation by the customer.
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