1 Accounting policies continued Assurance continued
Timing of satisfaction of performance obligations and significant payment terms
Revenue recognition policies, including determination of transaction price and rationale
Revenue stream
Nature
Software Resilience Escrow contract services
Revenue is recognised over time on a straight- line basis representing the service delivery agreement. The nature of the agreement gives rise to the customer having the benefit of software resilience if and when required over the contract period. Revenue is recognised on a straight-line basis as the pattern of benefit to the customer as well as the Group’s efforts to fulfil the contract are generally even throughout the period. The transaction price is determined by a contract price. Set-up time is not considered distinct and a separate performance obligation due to the administrative nature and therefore is recognised over the period of the contract. Revenue is recognised on completion of the verification services. Transaction price is determined by fixed contract rates based upon day rates and number of verification days.
The customer benefits from the escrow service evenly over a contract period, usually at least a year and potentially up to three years. The service represents one performance obligation. Invoices are raised based on an agreed invoicing profile with the customer. Invoices are usually payable within 30 days. The customer benefits from the verification service on completion because the source code will only have been fully verified/validated at that point. The service represents one performance obligation. Invoices are raised monthly or based on an agreed invoicing profile with the customer. Invoices are usually payable within 30 days.
These services securely maintain in “escrow” the long-term availability of
business critical software and applications while protecting the intellectual property rights (IPR) of technology partners. The service will include set-up time, which is administrative in nature.
Verification services
These services verify source code based upon an agreed scope between all parties and provide a fully managed secure service and result validation, typically delivered over a short period of time (days). These include SaaS services and ICANN services.
Contract costs Contract costs comprise incremental sales commissions paid to sales agents or external third parties, which can be directly attributed to an acquired or retained contract. Capitalised commission costs are amortised on a systematic basis that is consistent with the transfer to the customer of the services when the related revenues are recognised. In all other cases, all internal and external costs of obtaining the contract are recognised as incurred. Costs directly incurred in fulfilling a contract with a customer, which comprise labour hours on long-term contracts, are recognised as an asset to the extent they are recoverable. Such costs are amortised on a systematic basis that is consistent with the transfer to the customer of the services when the related revenues are recognised. Accrued income (contract asset) Accrued income represents the Group’s rights to consideration for work completed but not billed at the reporting date. Remaining balances are transferred to receivables when the rights become unconditional. Deferred revenue (contract liability) Deferred revenue represents advanced consideration received from customers, for which revenue is recognised over time. Long-term loss-making contracts Long-term contracts are reviewed annually to establish if the contract is onerous in nature. In particular, the long-term contract becomes an onerous contract when the unavoidable costs (i.e. the lower of the cost of fulfilling the contract and any compensation or penalties arising from failure to fulfil it) exceed the economic benefits expected to be received under the contract. The assessment of cost to fulfil includes costs that relate directly to the contract and includes direct costs of production, direct costs of supplies/hardware from external suppliers (materials), direct labour in relation to performance obligations and if appropriate any potential contractual fine dependent on items (performance obligations) not being delivered/performed. Any assets dedicated to the specific contract are also tested for potential impairment.
NCC Group plc — Annual report and accounts for the year ended 31 May 2022
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