Making sense of a complex world
Revenue recognition: payments to customers - issues for media companies under IFRS 15
Payments to customers can present accounting challenges in many sectors, but particularly in a fast-evolving media and technology landscape where two companies are frequently both supplier to, and customer of, each other.
While a media company’s assessment of whether payments to its customers are distinct from, or directly linked to, sales transactions will still determine whether the company recognizes these payments as costs or deductions from revenue, IFRS 15 provides explicit guidance when making this assessment. Whether or not such payments are presented net or gross of revenue affects two key metrics in opposite directions: revenue and percentage profit margin. Careful communication of appropriate revenue recognition accounting policies for payments to customers is therefore a key part of managing capital markets stakeholders.
This paper has considered the assessment of payments to customers in various practical examples, covering the purchase of advertising space, physical and digital ‘slotting fees’, outsourced advertising sales and payments in tripartite arrangements.
Our scenarios will provide food for thought for media companies when considering how to account for payments to their customers under IFRS 15. The answer for complicated real life arrangements will depend on the specific facts and circumstances in each case. Where transactions are significant, management should include disclosures in the financial statements that enable users to understand the conclusions reached. As always, planning ahead can prevent painful surprises.
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Ennèl van Eeden
Global Entertainment & Media Industry Leader, PwC Netherlands
Tel: +31 (0)65 392 68 20
