REVENUE RECOGNITION UPDATEBy
The FASB issued new guidance to help companies address principal vs. agent considerations.
On March 17, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-08, “Revenue From Contracts With Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net).” The update provides clarification on implementing the converged revenue recognition standard, Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, issued by the FASB in tandem with the International Accounting Standards Board (IASB).
When an entity and another party are involved in providing a good or service to a customer, the entity is required by ASC 606 to determine whether it acted as the principal (i.e., provided the good or service) or as the agent (i.e., arranged for the other party to provide the good or service). The result affects how the revenue from the transaction is recognized. ASU 2016-08 includes amendments that “improve the operability and understandability of the implementation guidance on principal versus agent considerations” as well as illustrative examples.
The update is a result of feedback from the FASB-IASB Joint Transition Group for Revenue Recognition (TRG), which was established “to inform the Boards about potential implementation issues that could arise when organizations implement the new revenue standard.” ASU 2016-08 is available on the FASB’s website at http://bit.ly/1SjmhTR.