Immaterial Contract Changes

Immaterial contract changes are contract modifications and variable consideration estimate corrections that involve small amount changes.

These changes can be:

• Termination of a line of an existing contract.
• Addition of a new line to an existing contract.
• Both termination of a line and addition of a new line to an existing contract.

For example, for telecommunications companies, immaterial contract changes include upgrading the data plan, adding additional devices that share the data plan, or early termination of services. You can make immaterial changes to both ledger and nonledger denominated accounting contracts.

For immaterial contract changes, the application reallocates the remaining unrecognized allocated revenue across the existing open and new performance obligations. The application uses prospective accounting treatment for the change rather than retrospective accounting.

When you use the immaterial change feature to terminate a performance obligation, you maintain the revenue recognized in past periods and the application applies the change only to revenue in the current and future periods.

• The revenue that has been recognized until the termination date, which is one day less than the contract revision date, remains intact. It doesn't get reversed or adjusted.
• Any revenue recognized after the termination date is reversed.
• The unrecognized allocated revenue is reallocated among the existing open and new performance obligations as of the contract revision date.

A performance obligation is deemed open if the amount of revenue recognized for that obligation is less than its allocated amount. The amount of unrecognized allocated revenue to be redistributed to the remaining open performance obligations and new performance obligations is the difference between the new total transaction price and the revenue recognized up to the termination date.

For the allocation of this new consideration, the application uses the standalone selling price as of the date of contract inception for all of the existing open performance obligations. For new lines, the application uses the standalone selling price as of the contract revision date

When the unit standalone selling price is imported from the source application, it's used for allocation of revenue. The imported unit standalone selling price can't be revised once the contract is frozen. The changes take effect as of the contract revision date. As a result, the contract revision date is set to the termination date plus one day.

When performing an immaterial change on a nonledger-denominated accounting contract when you are using the default conversion type for your currency translations, enable the Disable Override from Source option in the Manage System Options for Revenue Management page. This ensures that only the default conversion type as defined in the Manage System Options for Revenue Management page is used.

Note: This feature is applicable only when the Satisfaction Measurement Model of the performance obligation is Period and the Satisfaction Plan is Daily Rate Partial Periods.

Refer to the Disable Override from Source Option section for information on how immaterial changes for nonledger accounting contracts are processed.