The new revenue standard – effective from 1 January 2018 – is having a profound effect across the telecommunications sector with companies around the world wrestling with the implementation challenges.

We look at how IFRS 15 Revenue from Contracts with Customers is affecting companies in the sector, and share our insight on how to navigate the implementation challenges.

Some revenue may be recognised earlier than today, whilst some costs may be deferred. And the new disclosure requirements are extensive. 

However, the impacts are being felt far beyond the accounting function. A number of sector-specific arrangements are affected, including: 

• subsidised handsets; and
• contracts paid over more than one year.
  

For handset sales that are subsidised by ongoing service fees, the revenue recognised is currently usually limited to the amount of cash received.

However, under the new standard you will need to allocate a contract’s transaction price based on the relative stand-alone selling price of each performance obligation. More revenue will be recognised up-front as a result.

You may therefore need to develop new processes, and adjust your systems, to capture, estimate and monitor stand-alone selling prices.

You may also need to assess whether your billing management systems can support the allocation methodology and generation of journals.

However, modifying contract terms or business practices in response to the new standard could give rise to commercial opportunities.

Contracts where a customer pays for equipment in instalments over a period of more than one year – along with ongoing services – may be deemed to have a significant financing component. 

This means you will need to adjust the transaction price to reflect the time value of money.

For all your contracts that are more than one year long, you will need to determine whether a significant financing component exists.

You’ll then need processes for estimating discount rates, and systems that can handle the potentially complex calculations.

It may not be straightforward to develop an implementation plan that addresses IFRS 15 as well as the requirements of IFRS 9 Financial Instruments and IFRS 16 Leases.

You will find it beneficial to develop an overall strategy for transition that incorporates all accounting changes expected in the near future and capitalises on any available synergies.

Read Accounting for revenue is changing: What's the impact on telecommunications companies? (PDF 217 KB) for a high-level overview of how these and other arrangements are affected, and the actions you may need to take.

This short publication also highlights how our cross-functional team of experts can help you with the accounting and operational challenges of the new revenue standard.

For a comprehensive and illustrated understanding of how to apply IFRS 15 to common telecoms transactions, read Revenue for Telecoms – Issues In-Depth. (PDF 1.35 MB) This captures our extensive hands-on experience of how to navigate the challenges that are specific to this sector. 

Please speak to your usual KPMG contact if you would like to find out more about how KPMG can help your business.

For KPMG’s most recent publications on the new standard, visit our IFRS – Revenue hot topics page.