Workshops for Telecommunication companies

1. IFRS 15
Revenue recognition from
Contracts with Customers
Workshops for Telecommunication companies
www.pwc.com
6 June 2016

2. PwC
Agenda
I. Where the industry is in terms of IFRS 15?
How is the process of IFRS 15 implementation organized?
Would an IT implementation be a big issue?
How would IFRS 15 impact operations?
II.
Practical aspects of IFRS 15 application
- discussion
2
Examples enclosed in this publication do not represent the official opinion of PwC regarding given
issue. We are aware of the fact that other solutions than shown below exist.
This publication has been prepared for general guidance on matters of interest only, and does not
constitute professional advice. You should not act upon the information contained in this publication
without obtaining specific professional advice. No representation or warranty (express or implied) is
given as to the accuracy or completeness of the information contained in this publication.

3. PwC 3
Where are the responses coming from?
2 2 2
1
4 4
2
6
1
3
1 1 1
0
1
2
3
4
5
6
7
Total responses
Total answers: 30

4. PwC 4
I
Where the industry is
in terms of IFRS 15?

5. PwC
Most of the companies would not use the option
to apply the standard earlier
5
When does the company intend to start applying IFRS 15?
(first day of the financial year when the standard will be applied)
• from 1st January 2018
• from 1st January 2017
17 of 30 respondents
7 of 30 respondents
PwC

6. PwC
2 years after the standard issuance only 1/3
of companies feel well prepared…
6
To what extent is your company prepared to implement
changes in revenue accounting?
0
7
12
4
7
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14
I cannot estimate at this point
Not very good
Somewhat
Well
Very well
Number of respondents

7. PwC
Significant part of the market is still at the very
beginning of the route
7
At what stage of implementation process is your company
at the moment?
Preliminary work Implementation
Not started yetNot started yet Accounting
analysis
Accounting
analysis
Preliminary
analysis of IT
systems
Preliminary
analysis of IT
systems
IT systems
requirements
IT systems
requirements
Implementing
IT solutions
Implementing
IT solutions
7
8
4 5
Testing IT
solutions
Testing IT
solutions
7
3

8. PwC
Once initial stages are ready it should be much
easier to complete the implementation
8
How difficult do you believe the specific stages of IFRS 15
implementation to be? (1=very easy, 10=very difficult)
4,5
6,23
6,64
6,3
6,85
6,97
6,31
0 2 4 6 8
Other (please specify)
Explanations to investors
Preparing estimates
Process of procedures reorganisation
Implementation of IT system
Data sources & gathering
Accounting solutions and models
Other: Opening balance sheet accounts

9. PwC
How is the process of IFRS 15
implementation organized?

10. PwC
Unlike other new standards, IFRS 15 requires not
only accounting attention
10
How many people are involved in
the process of IFRS 15
implementation?
17%
10%
40%
13%
3%
17%
1-2 employees
3-4 employees
5-9 employees
10-14 employees
15-19 employees
We have not appointed a dedicated implementation team yet
Are there any external
advisors/specialists involved?
• accounting advisors:
15 companies
• information systems specialists:
9 companies
• project management specialists:
2 companies
• no external specialist involved:
4 companies
• no decision made: 8 companies

11. PwC 11
Which departments are involved in implementation?
* IFRS Metodology, BI, Accounting and Revenue Controlling, IFRS
Methodology
Financial Reporting
IT
Controlling
Sales and marketing
Billing
Others*
27 companies
17 companies
13 companies
6 comp.
17 companies
21 companies
Companies involve many different departments
in IFRS 15…

12. PwC
Would an IT implementation
be a big issue?

13. PwC
Complexity of IT architecture cause that
off-the-shelf solutions are not attractive for typical
telco
13
How the company will develop IT solutions that support
revenue accounting according to IFRS 15 standards?
7
1
12
12
0 5 10 15
No decision made
The purchase of existing applications and systems
Mix model
Internal solutions development
Number of companies
14 of 30 respondents have already chosen IT solutions / supplier
that support revenue accounting according to IFRS 15 standard

14. PwC
Quality of data sources would be the biggest issue
in IT implementation
14
How do you assess the following challenges facing IT
solutions regarding IFRS 15?
5,23
5,35
5,92
5,37
6,44
5,46
Maintenance of information and data of performance
obligations for contracts
Data volume to be processed
Link between different data sources
Auditability of data
Process quality of data sources
Finding a solution to calculate/allocate revenue
0 2 4 6 8
(1=easy to be solved, 10=very difficult to be solved)

15. PwC
Calculating revenue on individual contract basis
would be more common, although tougher
15
Which approach will you chose for revenue adjustments
in contracts?
Numberofrespondents
9
7
4
10
7
5
7
11
0
1
2
3
4
5
6
7
8
9
10
11
12
Contract-by-contract Portfolio Mixed model No decision made
How the company will apply adjustments to B2C contracts?
How the company will apply adjustments to B2B contracts?

16. PwC
How would IFRS 15 impact
operations?

17. PwC
There is still a lot of uncertainty with regard
to impact on business models
17
Do companies plan to perform changes in their business
models?
19
4
2
5
0 5 10 15 20
Not decided yet
We don't want to disclose this information
Yes
No
PwC

18. PwC
The industry did not yet worked out the approach
to typical performance measures
18
What approach does your company intend to apply in relations
to the calculation of ARPU upon the implementation of IFRS 15?
26
0
0
1
2
3
0 10 20 30
We haven't yet decided
Based on service + hardware revenue (IFRS 15)
We intend to stop using ARPU
Other method
Based on billing
Based on service revenue (IFRS 15)

19. PwC
In most cases, management accounts would
probably follow IFRS 15 rules
19
Do companies intend to carry out the managerial/internal
reporting according to IFRS 15 after implementation
of standard?
16
0
2
4
10
0
0 5 10 15
We have not made the decision yet
Other approach (please specify)
Yes, but we will additionally carry it out using the current
accounting rules
Yes, but with some adjustments (corrections)
Yes, without any exceptions
No,we will not perform allocations using IFRS 15

20. PwC 20
II Practical aspects of IFRS 15
application - discussion

21. PwCPwC 21
Step 2
Step 3
Step 4
Step 5
Revenue recognition according to IFRS 15
standards requires application of 5 steps approach
Identification
of separate
performance
obligations
Determination
of the
transaction
price
Allocation of
the transaction
price
Revenue
recognition
Step 1
Identification
of contract

22. PwC 22
In case of framework contracts with B2B Customers the
company plans to consider a contract according to IFRS 15 as:
Step 1 Step 2 Step 3 Step 4 Step 5
There is no obvious answer on what constitutes
a contract in B2B framework agreements
9
3
14
2
2
0 2 4 6 8 10 12 14 16
We have not decided yet
We do not have such contracts
Depends on contract requirements
Individual contract, on each SIM
Framework contract

23. PwCPwC 23
Step 2
Step 1
Step 3
Step 4
Step 5
5 steps to Revenue recognition
Identification of separate performance
obligations
Identification of
separate
performance
obligations
Identification
of contract
Determination
of the
transaction
price
Allocation of
the
transaction
price
Revenue
recognition

24. PwC 24
How the company will recognise additional services, that will
be provided free of charge for first months and will be charged
in following months (if a customer does not resign)?
Krok 2 Step 3 Step 4 Step 5
Accounting for freebies would not be consistent
Step 2Step 1
15
5
2
1
5
0 2 4 6 8 10 12 14 16
No decision made
Other approach (What approach?)
Both solutions will be applied - depending on
the type of company (agent versus principal)
Material right considered as an additional
performance obligation
A component that reduce transaction price

25. PwC 25
In case of multiplay offers:
Krok 2 Step 3 Step 4 Step 5
For simplicity reasons, multiplay offers can
sometimes be accounted for as a one performance
obligation
Step 2Step 1
12
1
4
3
4
4
0 2 4 6 8 10 12
No decision made yet
We don't have such offers
Depends on the offer
All services are one performance obligation
Similar services are grouped into one performance
obligation
Each service is a separate performance obligation

26. PwC 26
Krok 2 Step 3 Step 4 Step 5
Majority of companies would recognize at least
one type of material rights
Step 2Step 1
Right to use
a budget to buy
equipment
according
to framework
contract
Rights to
reduce service
price
Right to extend
contract with
more profitable
conditions
Points granted
as part of loyalty
program
Not applicable
Material rights identified as a distinct performance
obligations
PwC
10 of 30 respondents have not decided on material rights yet
9
companies
5
companies
2
companies
5
companies
1
company
4
companies
OtherRight to extend
contract with
more profitable
conditions

27. PwCPwC 27
Step 3
Step 1
Step 2
Step 4
Step 5
5 steps to Revenue recognition
Determination of the transaction price
Determination
of the
transaction
price
Identification
of contract
Identification of
separate
performance
obligations
Allocation of the
transaction
price
Revenue
recognition

28. PwC 28
Which period shall be considered on the need to estimate an amount
of revenue at the signing time:
Step 2 Step 4 Step 5
5 steps to Revenue recognition
Step 1 Step 3
15
5
5
2
original contract duration
contract duration shortened – until
contact with Customer to extend the
contract
contract duration and the most
probable time of extension
other

29. PwC 29
Step 2 Step 4 Step 5Step 1 Step 3
1
6
11
0
2
4
6
8
10
12
Other Contracts for the services with
subsidised equipment
Instalment payment contracts
(equipment plus services)
Which type of contracts the significant financing
component was identified in?
32% of surveyed companies would recognize
a significant financing component in their
contracts, 43% have not decided yet

30. PwC 30
Recognition of budgets granted for Customers:
Step 2 Step 4 Step 5
There is no consistency on how to approach
the quota budgets for B2B customers
Step 1 Step 3
Separate performance obligation 44% (12 of 27 companies)
19% (5 of 27 companies)Not applicable
PwC
37% (10 of 27 companies)Reduction of the transaction price

31. PwCPwC 31
Step 4
Step 1
Step 2
Step 3
Step 5
5 steps to Revenue recognition
Allocation of the transaction price
Allocation of
the transaction
price
Identification
of contract
Identification of
separate
performance
obligations
Determination
of the
transaction
price
Revenue
recognition

32. PwC
Allocation of the transaction price to separate performance
obligations (equipment)
32
Step 1 Step 2 Step 3 Step 4 Step 5
The price in separate own offer would be the best
indicator of SSP for equipment…
14
2
7
8
14
2
9 9
0
2
4
6
8
10
12
14
16
Based on standalone
offer
Price in electronic
equipment stores
Cost plus a margin No decision made
How does the company plan to determine SSP regarding equipment in B2C contracts?
How does the company plan to determine SSP regarding equipment in B2B contracts?

33. PwC
Allocation of the transaction price to separate performance
obligations (services)
33
Step 1 Step 2 Step 3 Step 4 Step 5
14
3 3
4
7
14
2
3
5
8
0
2
4
6
8
10
12
14
16
The price of service
in SIM only offer
Cost plus margin Residual value Other No decision made
How does the company plan to determine SSP regarding equipment in B2C contracts?
How does the company plan to determine SSP regarding equipment in B2B contracts?
…and for the service

34. PwC 34
Step 1 Step 2 Step 3 Step 4 Step 5
There is no clear response on what level the SSP
would be determined in multiplay offers
With regard to multiplay offers, at what
level is the standalone selling price
determined?
26%
30%11%
33%
On the level of a single service
included in the package
On the level of service package
(e.g. fixed and mobile voice, data,
broadband)
Other (service and equipment
separately; mixed model)
No decision made yet

35. PwC 35
Step 5
Step 1
Step 2
Step 3
Step 4
5 steps to Revenue recognition
Revenue recognition
Revenue
recognition
Identification
of contract
Identification of
separate
performance
obligations
Determination
of the
transaction
price
Allocation of the
transaction
price
PwC

36. PwC 36
Step 1 Step 2 Step 3 Step 4 Step 5
Most of telcos would not change their principal
vs. agent accounting
a) Revenue recognition in agent
versus principal transactions:
b) In the case of selling through
an agent (dealer) at which point
does your company plan
to recognize revenue:
3
16
9
0
2
4
6
8
10
12
14
16
We will apply
changes
We will not
apply changes
We have not
decided yet
10
1
5
2
9
0
1
2
3
4
5
6
7
8
9
10
At the time
of sale by
dealer
At the time
of delivery
to a dealer
Both cases
are
possible
Other We have
not make
the
decision
yet

37. PwC
Majority of telcos would capitalize
only material costs
37
What kind of costs of obtaining and fulfilling contract is the company
going to capitalise?
6
3
2
7
4
1
1
15
20
0 5 10 15 20 25
We haven't decided yet
None
Other
Cost of installation
Costs of subsiding equipment
Couriers costs
SIM card costs
Employees' bonuses directly related to
acquisition/retention of a customer
Dealers' commissions

38. PwC
Analyzing EBITDA would require cautios reading
of accounting policies
How EBITDA will be calculated?
14
7
8
1
0 2 4 6 8 10 12 14 16
No decision made
SAC depreciation below EBITDA
SAC depreciation above EBITDA
We would not capitalise SAC
PwC 38

39. PwC
Contact us
39
Gabor
Balazs
Radomił
Maślak
Partner, member of the regional global
Accounting Consulting Services (ACS) team.
He is constantly providing IFRS advice to
several large IFRS clients in the region. As part
of his regional responsibilities, Gabor is also
the reviewer of the PwC IFRS Manual of
Accounting and the representative of the CEE
region in PwC’s Telecommunication Industry
Accounting Group (TIAG).
Director in Audit and Assurance Services.
Expert in IFRS with 19 years of experience
in accounting and financial reporting advisory.
He has held training on IFRS for numerous
entities and employees of PwC. Radomił is also
the author of newspaper articles devoted to
IFRS.
gabor.balazs@hu.pwc.com
+36 306 89 54 55
radomil.maslak@pl.pwc.com
+48 502 18 42 23

40. PwC 40
Thank you!
This publication has been prepared for general guidance on matters of interest only, and
does not constitute professional advice. You should not act upon the information
contained in this publication without obtaining specific professional advice. No
representation or warranty (express or implied) is given as to the accuracy or
completeness of the information contained in this publication, and, to the extent
permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do
not accept or assume any liability, responsibility or duty of care for any consequences of
you or anyone else acting, or refraining to act, in reliance on the information contained in
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© 2016 PricewaterhouseCoopers Ltd.. All rights reserved. In this document, “PwC”
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