Summary
AT&T Inc. announced a significant change in its accounting policy for customer set-up and installation costs, effective for the quarter ending September 30, 2015. Previously, AT&T expensed these costs beyond the amount covered by deferred revenues. The new policy, adopted retrospectively, allows for deferral of these costs and amortization over the expected customer life (approximately four years), provided they are recoverable. This change aims to better reflect the contractual customer relationship as an asset and enhance comparability with the cable entertainment industry, particularly following the DIRECTV acquisition.
Key Highlights
- 1AT&T is changing its accounting policy for customer set-up and installation costs.
- 2New policy allows deferral and amortization of costs over approximately four years, reflecting customer lifetime value.
- 3This change is applied retrospectively to all prior periods.
- 4The cumulative effect as of January 1, 2015, increased Retained Earnings by approximately $3.3 billion.
- 5Total Assets increased by approximately $4.4 billion, with a corresponding increase in deferred tax liabilities of $1.1 billion.
- 6The new accounting method will be applied to video, broadband internet, DSL, and wireline voice services.
- 7This change is intended to improve comparability with industry peers, especially in the video and broadband sectors.
Frequently Asked Questions
AT&T is changing its accounting policy for customer set-up and installation costs. Previously, these costs were expensed if they exceeded deferred revenues. Now, the company will defer these costs and amortize them over the expected customer life of approximately four years, subject to recoverability.
The change is effective for reporting the quarter ended September 30, 2015. It is being applied retrospectively, meaning all prior periods will be adjusted to reflect the new accounting method. The cumulative impact as of January 1, 2015, was an increase in Retained Earnings of $3.3 billion.
As of January 1, 2015, the change resulted in a cumulative increase of approximately $3.3 billion to Retained Earnings, an increase of about $4.4 billion to Total Assets, and an increase of about $1.1 billion in deferred tax liabilities on AT&T's consolidated balance sheets.
AT&T is making this change to better reflect the contractual customer relationship as an asset and to enhance comparability with companies in the cable entertainment industry, especially after the DIRECTV acquisition. The new policy applies to video, broadband internet, DSL, and wireline voice services; it does not affect domestic or international wireless results.