IFRS 15 ‘Revenue from Contracts with Customers’ was jointly developed by the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) to harmonise revenue reporting under IFRS and US GAAP. Rather than redefining what constitutes revenue, the Standard focuses on establishing a consistent framework for recognising revenue at the correct point in time and at a reliable amount.
The Standard provides comprehensive guidance on accounting for revenue recognition – however, the detailed requirements of IFRS 15 can still be challenging for preparers of financial statements to apply.
In many revenue transactions, more than one party is involved in delivering the goods and services to the customer. In those 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 IFRS 15 does not eliminate the need for judgement, it is intended to make the principal versus agent assessment easier. This article deals with the principal versus agent considerations of IFRS 15.