The new revenue standard – effective from 1 January 2018 – is likely to affect the way you account for revenue. It is time to engage to meet the expectations of stakeholders and regulator!

We look at how IFRS 15 Revenue from Contracts with Customers will affect companies in the telecommunications sector, and how KPMG can help.

The new standard will result in significant impacts across the telecommunications sector. 

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

However, the impacts will be felt far beyond accounting change. A number of sector-specific arrangements will be 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.

Read Accounting for revenue is changing: What's the impact on telecommunications companies? to further understand how these and other telecommunication sector-specific arrangements are affected, and the actions you may need to take.

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

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