IAS 18 - Determining whether an entity is acting as a principal or as an agent

At its September 2007 meeting, the IFRIC decided not to develop an Interpretation of IAS 18 determining whether an entity is acting as a principal or as an agent, agreeing instead to remove the issue from its agenda. The IFRIC also decided to recommend to the Board that implementation guidance should be added to the Appendix to IAS 18 to help constituents to determine whether an entity is acting as a principal or as an agent.

The Board tentatively agreed with the IFRIC recommendation and, subject to editorial corrections, agreed that the following proposed implementation guidance should be included in the Appendix to IAS 18 as part of the Annual Improvements 2008 project:

Paragraph 8 states that 'in an agency relationship, the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity. The amounts collected on behalf of the principal are not revenue. Instead, revenue is the amount of commission.'

Determining whether an entity is acting as a principal or an agent depends on facts and circumstances and requires judgement. An entity is acting as a principal when it has exposure to the significant risks and rewards associated with the sale of goods or the rendering of services. Features that, individually or in combination, may indicate that an entity is acting as a principal include:

• (a) the entity has the primary responsibility for providing the goods or services desired by the customer or for fulfilling the order, for example by being responsible for the acceptability of the products or services ordered or purchased by the customer;
• (b) the entity has inventory risk before or after the customer order, during shipping or on return;
• (c) the entity has discretion in establishing prices directly or indirectly, such as by providing additional goods or services;
• (d) the entity has credit risk.

Disclosures required for non-current assets (or disposal groups) classified as held for sale or discontinued operations under IFRS 5

At its September 2007 meeting, the IFRIC considered a request to clarify whether the disclosure requirements of other standards, in the absence of specific exclusion, would apply to non-current assets (or disposal groups) classified as held for sale or discontinued operations in accordance with IFRS 5. The IFRIC concluded that this issue could be resolved efficiently through an amendment to clarify IFRS 5 and decided to draw the issue to the attention of the Board rather than taking the item on to its own agenda.

The Board considered two potential alternative approaches to addressing this issue:

• View A: IFRS 5 and other standards that specifically relate to non-current assets (or disposal groups) classified as held for sale or discontinued operations set out all the disclosures required in respect of those assets or operations. Disclosures required by other standards do not apply to such assets (or disposal groups).
• View B: Disclosures required by IFRSs, whose scope does not exclude non-current assets (or disposal groups) classified as held for sale or discontinued operations, continue to apply to such assets (or disposal groups).

The Board discussed the two approaches and noted that splitting out disclosures as proposed by View B would present practical difficulties. The Board did not make a final decision on which approach is preferable. It requested staff to perform further analysis to be presented at a future Board meeting.