Oct 20, 2015
From the Financial Reporting View
KPMG LLP recently commented on the proposed FASB ASU, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which is intended to clarify how the principal versus agent guidance should be applied to determine whether revenue should be presented gross (as a principal) or net (as an agent) when an entity adopts FASB ASC Topic 606, Revenue from Contracts with Customers. The effective date and transition requirements of this proposed ASU would be the same as the effective date and transition in ASC Topic 606.
KPMG supports the proposal, which more clearly articulates the unit of account in the principal-agent analysis and links it with the guidance about identifying performance obligations. KPMG also supports the proposal to clarify how an entity can control a good or service that is combined with other goods or services, and replace the indicators of when the entity is an agent with indicators of when an entity controls a specified good or service as a principal. However, KPMG does not believe that credit risk should be an indicator of whether a principal obtains control of a good or service and suggested that the Board not include this indicator in the final ASU.
Finally, KPMG believes that the discussion in the Basis for Conclusions about estimating gross revenue as a principal when the principal does not know the price an intermediary charges to the end customer, may lead to diversity in practice. KPMG suggested the Board incorporate into its guidance the same language that the IASB included in its Basis for Conclusions to its proposed amendments to IFRS 15, Revenue from Contracts with Customers.