PIRATE Wireless: Revenue Recognition in the Telecommunications Industry

• In Event: Revenue Recognition, Valuation, and Corporate Social Responsibility

Abstract

The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) issued a jointly converged standard on the recognition of revenue from contracts with customers in May 2014. The convergence of this standard takes another step in enhancing comparability between U.S. and international financial statements and allows global companies to create one set of financial statements. The new revenue recognition standard will have significant implications for the financial statements of companies of various industries. This case study illustrates the major impacts that the standard will have on the Telecommunications Industry. Jim Bayley, a CIA agent, is home from a top secret mission and must replace the smartphone he had to quickly discard while on assignment. He enters a contract with Pirate Wireless for the ultimate purchase of a smartphone with 1-year warranty, voice and data services, Cryptonite encryption software, and an extended warranty. The case requires students to review the 5 steps of Revenue from Contracts with Customers and determine the appropriate revenue recognition for Pirate Wireless’s contract with Jim Bayley. Students will have to determine the separate performance obligations which exist in the contract, allocate revenue to the various obligations, and recognize revenue as the performance obligations are satisfied. This case contributes to the accounting case literature by providing a thorough analysis of the new converged revenue recognition standard. Student feedback indicates that, overall, the case met its stated learning objectives. This case is appropriate for an undergraduate or graduate level Intermediate Accounting I or II course.

Authors

• Theresa F Henry, Seton Hall University

• David Mest, Seton Hall University

• Mona Safar, Verizon Communications