IFRS 15Chapter 11Lesson 2
Principal or agent: who controls the good or service?
Step 1 of 8Learning objectives
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When a third party is involved in providing goods or services to a customer, the entity must determine whether it provides the specified good or service itself (principal, gross revenue) or merely arranges for the third party to provide it (agent, fee or commission). The test is control of the good or service before it is transferred to the customer, assessed for each specified good or service and supported by indicators.
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Learning objectives
- Identify the specified goods or services in a contract and explain why the principal / agent analysis is performed for each of them.
- Assess whether the entity controls the specified good or service before it is transferred to the customer, including when a third party is involved.
- Use the indicators of control (primary responsibility, inventory risk, pricing discretion) to support the conclusion, weighing their relevance.
- Recognise revenue at the gross amount (principal) or at the net fee or commission (agent) and record the entries.