Insights into PFRS 15: Principal versus agent considerations
Revenue recognition is a key principle in financial reporting, underpinning the integrity and comparability of financial statements across industries and global markets.
Our ‘Insights into PFRS 15’ series summarizes the key areas of the Standard, highlighting some areas that are challenging to apply in practice, to assist reporting entities in understanding how to apply PFRS 15’s requirements.
In many revenue transactions, more than one party is involved in delivering the goods and services to the customer. In these situations, it is sometimes difficult for an entity to determine whether it is acting as a principal or as an agent, and an entity must often apply significant judgement to reach a conclusion. While the principal-agent guidance in PFRS 15 does not eliminate the need for judgement, it is intended to make the principal versus agent assessment easier.
PFRS 15 establishes a two-step approach to assessing a principal-agent relationship in cases where a third party is involved in providing the goods or services to the customer. The entity first identifies the specified good or service to be provided to the customer. It then assesses whether it has control over the specified goods or services before they are transferred to the customer. For complete guidance, readers are advised to check the publication.
The full publication is accessible and downloadable below.
The previous releases in this series, which provide foundational discussions on earlier steps and key concepts under PFRS 15, are available below:
