FASB ASU Clarifies Principal vs. Agent Revenue Recognition Considerations

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AAFCPAs would like to make clients aware of a recent accounting standards update (ASU) issued by the Financial Announcing Standards Board (FASB) which clarifies the implementation guidance related to principal versus agent considerations.  ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), issued March 17th, 2016, does not change the core principle of principal vs. agent revenue recognition guidance; it does provide illustrative examples to assist in the application of principal vs. agent revenue recognition in the context of the new revenue guidance, Revenues from Contracts with Customers, and clarifies the following:

  • How an entity determines whether it is a principal or an agent for each specified good or service (the unit of accounting) to be provided to the customer
  • How an entity determines the nature of each specified good or services (e.g. whether it is a good, a service, or a right to a good or service) provided to the customer
  • How an entity applies control principle to certain type of transactions, such as service arrangements
  • Interaction of the control principle with the indicators provided to assist in the principal versus agent evaluation

This ASU’s effective date and transition requirements are the same as those of the new revenue standard, which is effective for nonpublic entities for annual reporting periods beginning after December 15, 2018.  Click here to read AAFCPAs’ regulatory update on FASB’s Deferral of the Revenue Recognition Standard.>>
This ASU is one of the projects added to the FASB’s technical agenda based on the feedback from FASB-IASB Joint Transition Resource Group (TRG) to address various implementation issues related to the new revenue standard.   The following additional proposed ASUs are expected to be finalized in the first half of 2016.

  • Identifying Performance Obligations and Licenses
  • Narrow Scope Improvements and Practical Expedients

AAFCPAs will continue to follow the Board’s deliberations closely.  As always, we will keep you informed and provide further updates as they become available.
If you have any question about how the ASU 2016-08 will impact you directly, please contact your AAFCPA partner, or Jeffrey Mead, CPA, CGMA at 774.512.4131, jmead@nullaafcpa.com.


About the Author

Jeffrey Mead

Jeffrey Mead, CPA, CGMA

Jeffrey is a Partner in the Commercial Assurance Division at AAFCPAs, where he provides technical accounting advisory solutions and concurring partner reviews. This includes guidance on standards implementation and interpretation. He is a leader of the firm’s Accounting and Assurance (A&A) Committee, Revenue Recognition and Lease Accounting Task Forces, as well as AAFCPAs’ Risk Committee. Jeffrey brings empathy, patience, respect, and the will to inspire into his work as coach and mentor for the company’s pioneering …