Revenue recognition clarifications affirmed by FASB, IASB

The US Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have reaffirmed amendments they had proposed to clarify principal vs. agent guidance in the new, converged revenue recognition standard.

The boards issued the standard in May 2014 in a united effort to make revenue recognition guidance adhere to the same principles across industries and jurisdictions. Based on feedback received through the boards’ joint transition group, FASB and the IASB have proposed changes to some aspects of the standard, including the principal vs. agent guidance.

During a videoconference meeting Wednesday, the boards affirmed principal vs. agent amendments that were discussed in FASB Proposed Accounting Standards Update, Revenue From Contracts With Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), and IASB Exposure Draft, Clarifications to IFRS 15. The boards had proposed the same amendments.

The boards affirmed:

  • The principle for determining whether an entity is a principal or an agent in Topic 606 and IFRS 15. An entity is a principal when it controls the specified good or service before that good or service is transferred to the customer. An entity is an agent when it does not control the specified good or service before it is transferred to the customer.

  • Clarification to the unit of account for the principal vs. agent evaluation:

    • That an entity determines whether it is a principal or agent for each specified good or service promised to the customer.

    • A specified good or service is a distinct good or service (or distinct bundle of goods or services) to be provided to the customer.

    • Depending on the circumstances, a specified good or service may be a right to an underlying good or service to be provided by another party.


  • Proposals to clarify the application of the control principle in the context of services.

  • Proposals to clarify the role of the indicators of control in Paragraph 606-10-55-39 of Topic 606 and Paragraph B37 of IFRS 15. Effects of these amendments include:

    • Clarification that the indicators assist in the evaluation of control, rather than overriding or replacing the control evaluation.

    • Reframing of the indicators to indicate when an entity is a principal, rather than when an entity is an agent.

    • Clarification of how each indicator relates to the control principle.

    • Clarification that one or more indicators may be more or less relevant to the control evaluation in different contracts.

The boards also decided to eliminate exposure to credit risk as an indicator of whether an entity controls a specified good or service before it is transferred to the customer.

The staffs of the boards will draft final standards for final approval and issuance that will include these clarifications. Additional proposals for clarifications and changes to the revenue recognition standard will be discussed by the boards.

Ken Tysiac ( is a CGMA Magazine editorial director.