Barter and advertising swaps

What are barter transactions in media?

A barter transaction exchanges goods or services for other goods or services, with little or no cash. In media, the most common forms are advertising given to a hotel, airline, car dealer or event in exchange for its products or services, often used as prizes or for the media company's own events; advertising exchanged for advertising with another media company; and advertising given to a start-up in exchange for its shares, sometimes called media for equity. See media accounting and advertising revenue.

How are barter transactions measured under IFRS 15?

IFRS 15 treats goods, services or shares received in exchange for the company's goods or services as non-cash consideration. The company measures it at fair value. If it cannot reasonably estimate that fair value, it measures the consideration indirectly, by reference to the standalone selling price of the goods or services it provides, here the advertising. IFRS 15 replaced an earlier interpretation, SIC-31, that dealt specifically with barter of advertising and required revenue to be measured by reference to similar advertising sold for cash. Revenue is recognised as the advertising runs, in the same way as for cash sales. See variable consideration.

Barter transactions: radio airtime for hotel services

A radio station agrees to broadcast 200 spots for a hotel group, which would normally cost US$ 400 each, 80,000 in total. In return, the hotel provides rooms and event space for the station's listener events and competition prizes. Based on the hotel's published prices for comparable group bookings, those services have a fair value of 70,000. The station airs 120 spots in the first quarter and 80 in the second, and uses hotel services worth 20,000 in the first quarter and 50,000 in the second.

Revenue is measured at 70,000, the fair value of the hotel services received, not the 80,000 list price of the spots, because the fair value of what is received can be reasonably estimated. Each quarter, the station recognises revenue for the spots aired and an expense for the hotel services it uses. At the end of the first quarter it has earned 42,000 of services but used only 20,000, so it holds a right to receive the remaining 22,000 as an asset. Over the two quarters, revenue and expense are equal, so profit is unaffected, but both lines are grossed up.

How is advertising paid for in shares treated?

When a media company provides advertising to a start-up in exchange for shares, the shares are non-cash consideration. The media company recognises revenue as the advertising runs, measured at the fair value of the shares, usually based on a recent funding round with cash investors. If the start-up's shares cannot be reasonably valued, the standalone selling price of the advertising is used instead. The shares are then a financial asset under IFRS 9, typically measured at fair value through profit or loss unless the company elects to present changes in other comprehensive income. Later changes in the shares' value are investment gains or losses, not revenue. Advertising paid for in crypto is measured the same way, and the crypto is then accounted for as described in crypto assets. See IFRS 9 classification.

When does a barter create no revenue at all?

IFRS 15 applies only to contracts with commercial substance, meaning the risk, timing or amount of the company's future cash flows is expected to change as a result of the contract. Two websites that swap banners of equal value, where neither would otherwise have bought the other's advertising and neither gains any customers or cash, may have no commercial substance, so neither recognises revenue. Separately, IFRS 15 excludes non-monetary exchanges between businesses in the same line of business made to facilitate sales to customers. Grossing up such swaps would inflate revenue without any economic gain, which is why auditors and regulators look closely at barter revenue.

When is non-cash consideration measured?

IFRS 15 does not say whether non-cash consideration is measured when the contract starts, when the goods or services are received, or when the performance obligation is satisfied, and practice varies; the company should choose a policy and apply it consistently. The question matters most for shares, whose value can change significantly between signing and the adverts running.

How should barter revenue be disclosed?

Where barter revenue is material, companies disclose the amount and how it was measured, because it brings in no cash and relies on estimates of fair value. Investors often look at it separately when assessing the quality of a media company's revenue and cash conversion.

How does US GAAP differ?

ASC 606 also measures non-cash consideration at fair value, but specifies that it is measured at contract inception; changes in fair value after that date because of the form of the consideration, such as a change in share price, are not revenue. Before ASC 606, US GAAP allowed revenue from advertising barter only if the company had a history of selling similar advertising for cash. See subscriptions in publishing.

This guide is general information. It is not tax or legal advice for your situation.