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www.pwc.comThe impact of IFRS15on Telecoms
Management is ecstatic!M Telecoms Plc signs 100.000 newsubscribers to its new unlimited 24month mobile plan during the firstquarter of 2016A freefall for M Telcos MarketCap as the Company reportslosses during the first quarterof 2016.In a press conferencemanagement says that IAS18 is toblame for the reported results!Investors remain unconvinced!PwC
Smart phone and Service f0r 100 upfront and 40 * 24 monthsWholesale cost of the handset 400PwC
IAS 18: Reported Revenue Generallyfollows billingSmart phone and Service f0r 100 upfront and 40 * 24 months The “contingent cap” Little revenue to handset saleWholesale cost of the handset 400T0 Revenue: 100PwCT0 Cost: 400T0 Loss: 300
IFRS15 – The 5 step mode1.Contract: aggregate if negotiated together,or performance of one depends on another2.Performance obligations:Identify/ determine if distinct3&4.Transaction price:Determine/ Allocate (RFV, SSP)5.Recognise Revenue: as benefits are consumed:Over time/ at point in timePwC
IFRS15 – The 5 step mode1.Contract: aggregate if negotiated together,or performance of one depends on another2.Performance obligations:Identify/ determine if distinct3&4.Transaction price:Determine/ Allocate (RFV, SSP)5.Recognise Revenue: as benefits are consumed:Over time/ at point in timePwC
IFRS15 - In practice2.Performance obligations:Identify/ determine if distinct12- Is it of benefit on its own? Yes- Can it be used with other services inthe market?YesPwC
IFRS 15 - In practice Transaction price 1.060 Service SSP 30* 24 720 Handset SSP 500 Total discount 160 (or 15%) IFRS15 Handset revenue 435 IFRS 15 Service revenue 6263&4.Transaction price:Determine/ Allocate (RFV, SSP)PwC
IFRS 15 - In practice IFRS15 Handset revenue 435On the date the handset is provided to thecustomer IFRS 15 Service revenue 626Over the 24 month period (most likely 26per month)5.Recognise Revenue: as benefits are consumed:5.Recognise Revenue: as benefits are consumed:Over time/ at point in timeOver time/ at point in timePwC
IFRS 15 - In practiceSummary: 2 distinct performance obligations IFRS15 Handset revenue 435 at T0 IFRS 15 Service revenue 26 per monthT0 Revenue: 435T0 Cost: 400T0 Profit: 355.Recognise Revenue: as benefits are consumed:Over time/ at point in timePwC
Implications for telecoms industry preparersVast amount of data involved/ new systems and processesClient base size/complexity of bundles/ portfolio apprachJudgment: Direct vs. Indirect channelJudgment: contract Modification/ TerminationJudgment when observable data is not availablePwC
When is it applicable?Periods starting 1 January 2018 or laterRetrospective application (2 options)Option 1 – In line with IAS 8Option 2 – Cumulative effect is recognised in the current yearContracts which are longer than 12 monthsPwC
Where are you with IFRS 15?Survey from the PwC Global SummitPwC25% of respondents are considering changingtariff structures to simplify IFRS 15accounting57% of respondents think current systemswill be unable to provide all the datarequired by IFRS 1540% of respondents are still at the impactassessment stage75% of respondents are thinking about theirexternal communication. 13% have haddiscussions with external stakeholders
Where are you with IFRS 15?Revenue recognition survey report from US 78% of respondentshave not yetattempted toquantify thefinancial statementimpact50% ofrespondents do notthink that IFRS 15will have a materialimpact on theirfinancialstatements 66% of respondentsplan to takeadvantage of theboards deferralPwC335 respondentsAcross various industries67% believethe level of effortrequired toimplement thestandard will besignificant ormoderate and 53% ofrespondents expectsystem changes aregoing to benecessary
PwC perspectivesPwC
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IFRS 15 - In practice 5.Recognise Revenue: as benefits are consumed: Over time/ at point in time 5.Recognise Revenue: as benefits are consumed: Over time/ at point in time IFRS15 Handset revenue 435 On the date the handset is provided to the customer IFRS 15 Service revenue
