FASB to issue final standard on improvements to principal-versus-agent guidance

Published on: 17 Dec 2015

At their joint meeting yesterday, the FASB and IASB discussed feedback received on their proposals to clarify certain aspects of the principal-versus-agent guidance in their new revenue standard (ASC 606 and IFRS 151). Respondents were largely supportive of the boards’ efforts to improve the understandability and operability of the standard’s principal-versus-agent guidance. During the meeting, the boards completed their redeliberations, and the FASB directed its staff to draft a final Accounting Standards Update for a vote by written ballot.

The boards affirmed amendments in their proposals that would:2

  • Clarify that a specified good or service is the unit of account for which an entity would determine whether it is a principal or an agent and that the specified good or service may be a right to an underlying good or service to be provided by another party.
  • Clarify “the application of the control principle in the context of services.”
  • Reframe the indicators in ASC 606-10-55-39 and paragraph B37 of IFRS 15 to clarify when an entity is a principal.
  • “Clarify how each indicator relates to the control principle” for the evaluation.
  • “Clarify that one or more indicators may be more or less relevant to the control evaluation in different contracts.”

In addition, the boards decided to eliminate credit risk as an explicit indicator of whether an entity controls a specified good or service before it is transferred to the customer.


1 FASB Accounting Standards Codification Topic 606 [and IFRS 15], Revenue From Contracts With Customers.

2 Quoted text is from the tentative Board decisions posted on the FASB’s Web site.

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