Revenue for Telecoms

Revenue for Telecoms – Issues In-Depth | 75
4.2 Variable consideration (and the constraint) |
Observations
Consideration can be deemed to be variable even if the price stated in the
contract is fixed
ASU 2014-09.BC190–BC194
[IFRS 15.BC190–BC194]
The guidance on variable consideration may apply to a wide variety of
circumstances in the telecom industry. The promised consideration may be
variable if an entity’s customary business practices and relevant facts and
circumstances indicate that the entity may accept a price lower than that stated in
the contract – i.e. the contract contains an implicit price concession, or the entity
has a history of providing price concessions or price support to its customers.
In these cases, it may be difficult to determine whether the entity has implicitly
offered a price concession, or whether it has chosen to accept the risk of default
by the customer of the contractually agreed-upon consideration (customer credit
risk). Entities need to exercise judgment and consider all of the relevant facts and
circumstances in making this determination.
Telecom entities may provide other credits that may be viewed as variable
consideration, including one-time credits such as goodwill or retention credits
(see 4.3).
A fixed rate per unit of output may be variable consideration
When an entity enters into a contract with a customer for an undefined quantity
of output at a fixed contractual rate per unit of output, the consideration may be
variable. In some cases there may be substantive contractual terms that indicate
a portion of the consideration is fixed – e.g. contractual minimums.
For contracts with undefined quantities, it is important to appropriately evaluate
the entity’s underlying promise to determine how the variability created by the
unknown quantity should be treated under the new standard. For example,
the entity’s underlying promise could be a series of distinct goods or services
(see 3.4.2), an obligation to provide the specified goods or services, or a standready
obligation (see Example 31). Unknown quantities could also represent
customer options for which the entity will need to consider whether a material
right exists (see Section 8).
Some charges that depend on usage are not considered to be variable
consideration
606-10-55-340 – 55-342 (Example 50)
[IFRS 15.IE254–IE256]
Many telecom consumer contracts allow the customer to elect to purchase usage
in excess of the contractual network service amounts. The price for the excess
usage is specified in the contract. When the amounts charged for the excess
usage are based on the stand-alone selling price of that usage, the amounts are
not estimated and are not included in the determination of the transaction price.
This is because they represent an option to purchase additional distinct goods or
services at their stand-alone selling price (see Section 8).
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