An online marketplace lists third-party sellers' products, processes customer payments, and arranges shipping, but the marketplace never takes title to the products, cannot direct that the products be transferred to anyone other than the customer who ordered them, and bears no inventory risk if a product goes unsold. Under IFRS 15's control-based principal-versus-agent guidance, how should the marketplace account for revenue from these transactions?
- As a principal, recognizing the gross transaction price as revenue and the amount remitted to the seller as cost of sales, because it processes the payment and controls the customer relationship
- As an agent, recognizing revenue only for the commission or fee it retains for arranging the sale, because it does not control the specified good before it is transferred to the customer
- As an agent, but still recognizing the gross transaction price as revenue, because IFRS 15 permits gross revenue reporting for any party that facilitates a transaction between two other parties
- As a principal, because it bears credit risk on the customer's payment, and credit risk is IFRS 15's sole determinative indicator of control for the principal-versus-agent assessment
Why B? And why not the others?
Correct answer: B. As an agent, recognizing revenue only for the commission or fee it retains for arranging the sale, because it does not control the specified good before it is transferred to the customer
IFRS 15 paragraph B35 identifies control of the specified good or service before it is transferred to the customer as the determining factor for principal status; the marketplace never takes title, cannot redirect the products to anyone but the ordering customer, and bears no inventory risk, so it does not control the products before transfer and is an agent, recognizing only its commission. The option treating processing payments and controlling the customer relationship as making the marketplace a principal is wrong because those facts are not, by themselves, indicators of control over the specified good under paragraph B35; a party can process payment and own the customer relationship while still acting as an agent. The option allowing an agent to nonetheless recognize gross revenue is wrong because IFRS 15 requires an agent to recognize revenue in the amount of the fee or commission it retains, not the gross transaction price. The option elevating credit risk to the sole determinative indicator is wrong because IFRS 15's control assessment weighs multiple indicators together, including who is responsible for fulfilling the promise and who has discretion over pricing, rather than resting on credit risk alone.
Source: IFRS 15 Revenue from Contracts with Customers, paragraphs B34-B36 (principal versus agent considerations)