programme. However, the restaurant is responsible for fulfilling obligations associated with the voucher,
including remedies to a customer for dissatisfaction with the service.
To determine whether the entity is a principal or an agent, the entity identifies the specified good or service
to be provided to the customer and assess whether it controls the specified good or service before that good
or service is transferred to the customer.
A customer obtains a voucher for the restaurant that it selects. The entity does not engage the restaurants to
provide meals to customers on the entity’s behalf as described in the indicator in paragraph B37(a) of
IFRS 15. Therefore, the entity observes that the specified good or service to be provided to the customer is
the right to a meal (in the form of a voucher) at a specified restaurant or restaurants, which the customer
purchases and then can use itself or transfer to another person. The entity also observes that no other goods
or services (other than the vouchers) are promised to the customers.
The entity concludes that it does not control the voucher (right to a meal) at any time. In reaching this
conclusion, the entity principally considers the following:
(a) the vouchers are created only at the time that they are transferred to the customers and, thus, do not exist
before that transfer. Therefore, the entity does not at any time have the ability to direct the use of the
vouchers, or obtain substantially all of the remaining benefits from the vouchers, before they are
transferred to customers.
(b) the entity neither purchases, nor commits itself to purchase, vouchers before they are sold to customers.
The entity also has no responsibility to accept any returned vouchers. Therefore, the entity does not have
inventory risk with respect to the vouchers as described in the indicator in paragraph B37(b) of IFRS 15.
Thus, the entity concludes that it is an agent with respect to the vouchers. The entity recognises revenue in
the net amount of consideration to which the entity will be entitled in exchange for arranging for the
restaurants to provide vouchers to customers for the restaurants’ meals, which is the 30 per cent commission
it is entitled to upon the sale of each voucher.
Paragraph B34 of IFRS 15 clarifies that an entity may be a principal for some specified
goods or services in a contract and an agent for others. The standard includes the
following example of a contract in which an entity is both a principal and an agent.
[IFRS 15.IE248A-IE248F].
Example 28.26: Entity is a principal and an agent in the same contract
An entity sells services to assist its customers in more effectively targeting potential recruits for open job
positions. The entity performs several services itself, such as interviewing candidates and performing
background checks. As part of the contract with a customer, the customer agrees to obtain a licence to access a
third party’s database of information on potential recruits. The entity arranges for this licence with the third party,
but the customer contracts directly with the database provider for the licence. The entity collects payment on
behalf of the third-party database provider as part of the entity’s overall invoicing to the customer. The database
provider sets the price charged to the customer for the licence, and is responsible for providing technical support
and credits to which the customer may be entitled for service down time or other technical issues.
To determine whether the entity is a principal or an agent, the entity identifies the specified goods or services
to be provided to the customer, and assesses whether it controls those goods or services before they are
transferred to the customer.
For the purpose of this example, it is assumed that the entity concludes that its recruitment services and the
database access licence are each distinct on the basis of its assessment of the requirements in paragraphs 27-30
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of IFRS 15. Accordingly, there are two specified goods or services to be provided to the customer – access
to the third party’s database and recruitment services.
The entity concludes that it does not control the access to the database before it is provided to the customer.
The entity does not at any time have the ability to direct the use of the licence because the customer contracts
for the licence directly with the database provider. The entity does not control access to the provider’s
database – it cannot, for example, grant access to the database to a party other than the customer, or prevent
the database provider from providing access to the customer.
As part of reaching that conclusion, the entity also considers the indicators in paragraph B37 of IFRS 15. The
entity concludes that these indicators provide further evidence that it does not control access to the database
before that access is provided to the customer:
(a) the entity is not responsible for fulfilling the promise to provide the database access service. The
customer contracts for the licence directly with the third-party database provider and the database
provider is responsible for the acceptability of the database access (for example, by providing technical
support or service credits).
(b) the entity does not have inventory risk because it does not purchase, or commit itself to purchase, the
database access before the customer contracts for database access directly with the database provider.
(c) the entity does not have discretion in setting the price for the database access with the customer because
the database provider sets that price.
Thus, the entity concludes that it is an agent in relation to the third party’s database service. In contrast, the
entity concludes that it is the principal in relation to the recruitment services because the entity performs those
services itself and no other party is involved in providing those services to the customer.
The FASB’s standard allows an entity to make an accounting policy choice to present
revenue net of certain types of taxes collected from a customer (including sales, use,
value-added and some excise taxes). The FASB included this policy choice to address
a concern expressed by stakeholders in the US as to the operability of the
requirements under US GAAP. IFRS 15 does not provide a similar accounting policy
choice for the following reasons: it would reduce comparability; the requirements in
IFRS 15 are consistent with those in legacy IFRS; [IAS 18.8] and it would create an
exception to the five-step model. [IFRS 15.BC188D]. Since entities do not have a similar
accounting policy choice under IFRS, differences could arise between IFRS and
US GAAP.
Another difference relates to determining the transaction price when an entity is the
principal, but is unable to determine the ultimate price charged to the customer. In the
Basis for Conclusions on its May 2016 amendments, the FASB stated that, if uncertainty
related to the transaction price is not ultimately expected to be resolved, it would not
meet the definition of variable consideration and, therefore, should not be included in
the transaction price.49 Stakeholders had raised a question about how an entity that is a
principal would estimate the amount of revenue to recognise if it were not aware of the
amounts being charged to end-customers by an intermediary that is an agent. The IASB
did not specifically consider how the transaction price requirements would be applied
in these situations (i.e. when an entity that is a principal does not know and expects not
to know the price charged to its customer by an agent), but concluded in the Basis for
Conclusions that an entity that is a principal would generally be able to apply judgement
and determine the consideration to which it is entitled using all information available to
it. [IFRS 15.BC385Z]. Accordingly, we believe that it is possible that IFRS and US GAAP
entities will reach different conclusions on estimating the gross transaction price in
these situations.
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5.4.5
Implementation questions on principal versus agent considerations
5.4.5.A
Presentation of amounts billed to customers (e.g. shipping and handling,
expenses or cost reimbursements and taxes or other assessments)
In July 2014, the TRG members were asked to consider how an entity would determine
the presentation of amounts billed to customers (e.g. shipping and handling,
reimbursement of out-of-pocket expenses and taxes) under the standard (i.e. as revenue
or as a reduction of costs).50
The TRG members generally agreed that the standard is clear that any amounts not
collected on behalf of third parties would be included in the transaction price
(i.e. revenue). As discussed at 6 below, paragraph 47 of IFRS 15 says that ‘the transaction
price is the amount of consideration to which an entity expects to be entitled in
exchange for transferring promised goods or services to a customer, excluding amounts
collected on behalf of third parties (for example, some sales taxes)’. Therefore, if the
amounts were incurred by the entity in fulfilling its performance obligations, the
amounts will be included in the transaction price and recorded as revenue.
Shipping and handling
The appropriate presentation of amounts billed to customers for shipping and handling
activities would depend on whether they entity is a principal or an agent in the shipping
arrangement (see 11.2.1 below for further discussion on presentation of shipping and
handling costs incurred by the entity).
Expense or cost reimbursements
Many service providers routinely incur incidental expenses, commonly referred to as
‘out-of-pocket’ expenses, in the course of conducting their normal operations. Those
expenses often include, but are not limited to, airfare, other travel-related costs (such
as car rentals and hotel accommodation) and telecommunications charges. The entity
(i.e. the service provider) and the customer may agree that the customer will reimburse
the entity for the actual amount of such expenses incurred. Alternatively, the parties
may negotiate a single fixed fee that is intended to compensate the service provider for
both professional services rendered and out-of-pocket expenses incurred.
Out-of-pocket expenses are often costs incurred by an entity in fulfilling its
performance obligation(s) (i.e. the out-of-pocket expenses are fulfilment costs) and do
not transfer a good or service to the customer. In these situations, reimbursement for
such costs generally should be included in the entity’s estimate of the transaction price
and recognised as revenue when (or as) the performance obligation(s). Alternatively,
if an entity concludes that the costs do transfer a good or service to the customer, it
should consider the principal-versus-agent application guidance when determining
whether reimbursement amounts received from its customer need to be recorded on
a gross or net basis.
In some cases it may be appropriate to recognise the reimbursement as revenue when
the applicable expense is incurred. That is, an entity may not have to estimate out-of-
pocket expenses in its determination of the transaction price at contract inception.
This was discussed in a US Private Company Council meeting under US GAAP.
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The FASB staff observed in the related staff paper the following situations in which
this would be the case:51
• The entity is an agent as it relates to the specified good or service identified (see 5.4
above). That is, in cases in which the entity is an agent and the reimbursement is
equal to the cost, the net effect on revenue would be zero and, therefore, no
estimation would be required.
• The variable consideration is constrained (see 6.2.3 below). That is, if a portion of
the transaction price related to reimbursements of out-of-pocket expenses is
constrained, an entity would not include an estimate in the transaction price for
that amount until it becomes highly probable that a significant revenue reversal
will not occur, which may be when the underlying out-of-pocket expenses are
incurred in some cases. For example, an entity may not be able to make reliable
estimates of expenses and the related reimbursements that will not be subject to a
significant revenue reversal due to a lack of historical evidence.
• The variable consideration relates specifically to a performance obligation or a
distinct good or service in a series and the entity meets the variable consideration
exception (see 7.3 below).
• The entity qualifies to apply the ‘right to invoice’ practical expedient (see 8.2.1.A below).
• The entity applies a costs incurred measure of progress when recognising revenue
for over-time performance obligations (see 8.2 below). That is, if an entity selects
a cost incurred method, the timing of the cost being incurred and the revenue
recognition associated with those costs would align.
Taxes or other assessments
Several TRG members noted that this would require entities to evaluate taxes collected
in all jurisdictions in which they operate to determine whether a tax is levied on the
entity or the customer. TRG members generally agreed that an entity would apply the
principal versus agent application guidance when it is not clear whether the amounts
are collected on behalf of third parties. This could result in amounts billed to a customer
being recorded as an offset to costs incurred (i.e. on a net basis), even when the amounts
are not collected on behalf of third parties.
The issue of how an entity allocates the transaction price in a contract with multiple
performance obligations in which the entity acts as both a principal and an agent is
discussed at 7.2.1 below.
5.5 Consignment
arrangements
The standard provides specific application guidance for a promise to deliver goods on
a consignment basis to other parties. See 8.5 below.
5.6
Customer options for additional goods or services
Many sales contracts give customers the option to acquire additional goods or services.
These additional goods or services may be priced at a discount or may even be free of
charge. Options to acquire additional goods or services at a discount can come in many
forms, including sales incentives, volume-tiered pricing structures, customer award
credits (e.g. frequent flyer points) or contract renewal options (e.g. waiver of certain fees,
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reduced future rates). [IFRS 15.B39]. As discussed in 6.8 below, the exis
tence of a non-
refundable upfront fee may indicate that the contract includes a renewal option for future
goods or services at a reduced price (e.g. if the customer renews the contract without the
payment of an additional upfront fee). An entity would need to evaluate the renewal
option to determine whether it is a material right.
When an entity grants a customer the option to acquire additional goods or services, that
option is only a separate performance obligation if it provides a material right to the
customer that the customer would not receive without entering into the contract (e.g. a
discount that exceeds the range of discounts typically given for those goods or services to
that class of customer in that geographical area or market). Refer to 5.6.1.F below for
further discussion on the evaluation of class of customer. If the option provides a material
right to the customer, the customer has, in effect, paid in advance for future goods or
services. As such, the entity recognises revenue when those future goods or services are
transferred or when the option expires. [IFRS 15.B40]. In the Basis for Conclusions, the IASB
indicated that the purpose of this requirement is to identify and account for options that
customers are paying for (often implicitly) as part of the current transaction. [IFRS 15.BC386].
The Board did not provide any bright lines as to what constitutes a ‘material’ right. However,
the standard requires that an option to purchase additional goods or services at their stand-
alone selling prices does not provide a material right and, instead, is a marketing offer. This
is the case even if the customer has obtained the option only as a result of entering into a
previous contract. However, an option to purchase additional goods or services in the future
at the current stand-alone selling price could be a material right if prices are highly likely to
significantly increase. The standard states that this is the case even if the option can only be
exercised because the customer entered into the earlier transaction. An entity that has made
a marketing offer accounts for it in accordance with IFRS 15 only when the customer
exercises the option to purchase the additional goods or services. [IFRS 15.B41].
Legacy IFRS did not provide application guidance on how to distinguish between an
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