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.

RESOURCES

Keeping you informed and prepared amid the coronavirus crisis

We’re gathering the latest news stories along with relevant columns, tips, podcasts, and videos on this page, along with curated items from our archives to help with uncertainty and disruption.

SPONSORED REPORT

Getting leases in line

ASC Topic 842 is a relatively simple standard that can mean profound changes for organizations with leases. This report examines what makes this standard challenging and describes new ways for CPAs to add value.