FASB tackles principal vs. agent guidance

The proposal would amend the revenue recognition standard to clarify rules.

FASB proposed changes to the new revenue recognition standard that are meant to clarify how to determine whether an entity is a principal or an agent in a contract.

Under the standard, an entity is required to determine whether it has promised:

  • To provide a good or service to a customer, which makes the entity a principal.
  • To arrange for the good or service to be provided to the customer by another party, which makes the entity an agent.

The determination is based on whether the entity controls the good or service before it is transferred to the customer, and the new standard includes indicators to assist in this evaluation.

Constituents have voiced concerns about the guidance through the joint transition resource group that is helping FASB and the International Accounting Standards Board (IASB) evaluate implementation concerns regarding the new, converged standard.

The proposed amendments are a response to those concerns. The proposal would not change the core principle of the guidance but is designed to clarify implementation guidance.

The proposal is aligned with clarifications proposed July 30 by the IASB in an exposure draft, Clarifications to IFRS 15. Comments on the FASB proposal were due Oct. 15.

SPONSORED REPORT

Revenue recognition: A complex effort

Implementing the new standard requires careful judgment. Learn how to make significant accounting judgments and document them and collaborate with peers for consistent application.

VIDEO

How to Excel pivot a general ledger

The general ledger is a vast historical data archive of your company's financial activities, including revenue, expenses, adjustments, and account balances. J. Carlton Collins, CPA, shows how to prepare data for, and mine data with, PivotTables.

QUIZ

News quiz: Taking an economic snapshot and looking to the future

Recent news included IRS actions that affect individuals and partnerships and a possibly influential move by a Big Four accounting firm.Take this short quiz to see how much you know about the news.