In May and June 2019, Deloitte published two new interesting publications relating to IFRS. The first publication deals with revenue recognition under IFRS 15, with a focus on an assessment as to whether an entity is acting as a principal or an agent. The other one focuses on IFRS 9 Financial Instruments; specifically, the measurement of expected credit losses for intercompany loan assets.
In June 2019 Deloitte IFRS Global Office issued the short publication: A Closer Look — Revenue recognition – evaluating whether an entity is acting as a principal or as an agent.
The IASB’s new revenue Standard, IFRS 15 Revenue from Contracts with Customers, provides indicators that are similar to those in IAS 18 Revenue to help an entity determine whether it is a principal or an agent in a revenue transaction which involves a third party in providing goods or services to a customer. In such situation the entity must determine whether the nature of its promise to the customer is to provide the underlying goods or services itself (i.e. the entity is the principal in the transaction) or to arrange for the third party to provide the underlying goods or services directly to the customer (i.e., the entity is the agent in the transaction).
However, given the complexities of some arrangements, including those involving three or more parties, the evaluation of whether an entity is acting as a principal or as an agent continues to require significant judgement, and conclusions reached under IAS 18 may not be the same as those reached under IFRS 15.
This publication clarifies how the principal-versus-agent indicators should be evaluated to support an entity’s conclusion that it controls a specified good or service before it is transferred to a customer. It also compares the key principal-versus-agent considerations under IFRS 15 which is based on application of the control principle with the analysis under IAS 18 which was focused on the exposure to the significant risks and rewards associated with the sale of goods or the rendering of services.
The publication is available on www.iasplus.com.
In May 2019 Deloitte IFRS Global Office issued the publication: A Closer Look — Measurement of expected credit losses for intercompany loan assets with no documented contractual term.
In consolidated financial statements, intercompany loans are eliminated. Hence, there is no intercompany loan asset in consolidated financial statements that requires a classification and expected credit loss assessment. However, when entities prepare their separate financial statements these intercompany positions are not eliminated and the reporting entity that is a lender needs to assess any intercompany loan assets for classification and potential measurement of expected credit losses under IFRS 9.
This publication is focused on how to assess the expected credit loss of an intercompany loan asset with no stated terms (loans are interest-free and have no stated maturity) in separate financial statements.
The publication is available on www.iasplus.com.
The article is part of dReport – August 2019, Accounting news.
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