What is Principal vs Agent Consideration?
The principal versus agent assessment determines whether an entity should recognize revenue gross (as principal) or net of pass-through costs (as agent). Under IFRS 15, the key question is whether the entity controls the good or service before transferring it to the customer.
How It Works
- Identify the specified good or service promised to the customer.
- Assess whether the entity controls it before transfer.
- Recognize gross revenue if principal; recognize net commission if agent.
- Document the indicators supporting the conclusion.
Saudi Context
Saudi e-commerce marketplaces and online travel platforms frequently apply this analysis to decide whether to report gross merchandise value or net commission as revenue.
Example
A marketplace that holds inventory and bears delivery risk acts as principal and recognizes gross revenue, while one that simply matches buyers and sellers acts as agent and recognizes only commission.