{"id":740,"date":"2018-09-13T14:35:12","date_gmt":"2018-09-13T06:35:12","guid":{"rendered":"http:\/\/ehluar.com\/main\/?p=740"},"modified":"2018-09-13T14:36:23","modified_gmt":"2018-09-13T06:36:23","slug":"frs-115-principal-vs-agent-considerations","status":"publish","type":"post","link":"http:\/\/ehluar.com\/main\/2018\/09\/13\/frs-115-principal-vs-agent-considerations\/","title":{"rendered":"FRS 115: Principal vs Agent Considerations"},"content":{"rendered":"<p><span style=\"color: #000000;\">FRS 115 includes application guidance for an entity to determine whether it is a principal or an agent i.e. based on whether it controls the specified goods or services before the transaction (principal) or not (agent).<\/span><\/p>\n<p><span style=\"color: #000000;\"><strong>Key Learning Point<\/strong><\/span><\/p>\n<p><span style=\"color: #000000;\">When a third party is involved in providing goods or services to a customer, the entity needs to evaluate whether its performance obligation is to provide the good or service itself (ass a principal) or to arrange for another party to provide the good or service (as an agent).<\/span><\/p>\n<p><span style=\"color: #000000;\"><em><u>An entity is a principal<\/u><\/em> if <em><u>it controls<\/u><\/em> the promised good or service before transferring control to the customer.<\/span><\/p>\n<p><span style=\"color: #000000;\"><em><u>An entity is an agent<\/u><\/em> if it <em><u>does not control<\/u><\/em> the promised good or service\u00a0 and arranges for another entity to provide those goods or services.<\/span><\/p>\n<p><span style=\"color: #000000;\">In making assessment as to whether an entity obtains control of a good and service before providing it to the end-customer, the entity must consider the definition of control. Control is the ability of the entity to:<\/span><\/p>\n<ul>\n<li><span style=\"color: #000000;\">direct the use of the asset<\/span><\/li>\n<li><span style=\"color: #000000;\">obtain substantially all of the remaining benefits from the use of the asset<\/span><\/li>\n<li><span style=\"color: #000000;\">prevent others from directing the use of, and receiving the benefit from the asset.<\/span><\/li>\n<\/ul>\n<p><span style=\"color: #000000;\">The evaluation whether an entity is acting as a principal or as an agent is made in relation to <em><u>each specified good and service separately<\/u><\/em>.<\/span><\/p>\n<p><span style=\"color: #000000;\"><strong>Recognition of revenues<\/strong><\/span><\/p>\n<p><span style=\"color: #000000;\">In identifying if the entity is an agent in a contract, the following non-exhaustive list of indicators that a performance obligation involves an agency relationship:<\/span><\/p>\n<ul>\n<li><span style=\"color: #000000;\">Another party has <em><u>primary responsibility for fulfilling the contract<\/u><\/em><\/span><\/li>\n<li><span style=\"color: #000000;\">The entity has <em><u>no inventory risk before or after the goods is transferred<\/u><\/em> to the customer, during shipping or on return<\/span><\/li>\n<li><span style=\"color: #000000;\">The entity <em><u>does not have discretion to establish pricing<\/u><\/em> for the other party\u2019s goods or services (i.e., the benefit the entity can receive from those goods or services is limited)<\/span><\/li>\n<li><span style=\"color: #000000;\">The entity\u2019s <em><u>consideration is in the form of a commission<\/u><\/em><\/span><\/li>\n<li><span style=\"color: #000000;\">The entity is <em><u>not exposed to credit risk for the amount receivable<\/u><\/em> in exchange for the goods or services.<\/span><\/li>\n<\/ul>\n<p><span style=\"color: #000000;\">The entity will be <em><u>recognised revenue when (or as) it satisfies the performance obligations<\/u><\/em>:<\/span><\/p>\n<ul>\n<li><span style=\"color: #000000;\">As <em><u>a principal<\/u><\/em>, recognised revenue when (or as) it transfers the goods to the customer, and it records revenue on a <em><u>gross basis<\/u><\/em>.<\/span><\/li>\n<li><span style=\"color: #000000;\">As <em><u>an agent<\/u><\/em>, recognised revenue when its performance obligation to arrange for goods is complete, and it records as revenue the <em><u>net amount<\/u><\/em> it retains as a commission.<\/span><\/li>\n<\/ul>\n<p><span style=\"color: #000000;\">Impact:\u00a0 Companies will need have proper identification of performance obligation and assess whether they act as principals or agents.<\/span><\/p>\n<p>&nbsp;<\/p>\n<blockquote><p><strong>Important Disclaimer:\u00a0 Any\u00a0 technical updates posted in this website are the personal view of the writer and do not represent the views of our firm, and therefore cannot constitute, or be relied upon as, any professional judgement or advice on any issues. The reader should used in conjunction with the relevant standards.<\/strong><\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"<p>FRS 115 includes application guidance for an entity to determine whether it is a principal or an agent i.e. based on whether it controls the specified goods or services before the transaction (principal) or not (agent). Key Learning Point When a third party is involved in providing goods or services to a customer, the entity [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"nf_dc_page":"","_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[7,6],"tags":[],"class_list":["post-740","post","type-post","status-publish","format-standard","hentry","category-accounting","category-techupdates"],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"http:\/\/ehluar.com\/main\/wp-json\/wp\/v2\/posts\/740","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/ehluar.com\/main\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/ehluar.com\/main\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/ehluar.com\/main\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/ehluar.com\/main\/wp-json\/wp\/v2\/comments?post=740"}],"version-history":[{"count":2,"href":"http:\/\/ehluar.com\/main\/wp-json\/wp\/v2\/posts\/740\/revisions"}],"predecessor-version":[{"id":742,"href":"http:\/\/ehluar.com\/main\/wp-json\/wp\/v2\/posts\/740\/revisions\/742"}],"wp:attachment":[{"href":"http:\/\/ehluar.com\/main\/wp-json\/wp\/v2\/media?parent=740"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/ehluar.com\/main\/wp-json\/wp\/v2\/categories?post=740"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/ehluar.com\/main\/wp-json\/wp\/v2\/tags?post=740"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}