Revenue – ifrs 15 handbook

Example 10 – Entity is an agent in providing a service
ABC Corp contracts with consumer products companies and content 
developers to create video content (published on the internet) that promotes 
products sold by the consumer products companies. 
ABC enters into a contract with Customer D (a consumer products company) 
to provide the services of Provider P (a content developer) to create videos 
that promote the use of D’s products. The contract with D specifies that ABC is 
entering into the agreement on behalf of P (identified in the contract).

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10 Other application issues | 257
10.3 Principal vs agent considerations
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ABC is not involved in developing the specifications for what P will produce. 
ABC is not responsible if D is unsatisfied with P’s end product. D has no 
recourse against ABC, unless ABC has not satisfied its obligations in the 
contract – generally limited to the responsibility for co-ordination between the 
content developer and the consumer products company.
ABC has contracts with multiple content developers, including P, to create 
video content. ABC separately negotiates a fee with each content developer 
for creating the content. ABC and D set the price for the content development 
and P does not have visibility into that price. However, D must pay P for costs 
incurred plus a reasonable margin if it terminates the contract for reasons other 
than P’s failure to perform. 
ABC concludes that there is only a single specified service in this contract, 
which is the service to produce the video content that promotes D’s consumer 
products. ABC considered the following in evaluating whether it controls the 
specified service. 
1. Is the service combined with other goods or services into a combined 
output that is the specified good or service? 
No. There are no other promised goods or services in the contract.
2. Does ABC direct P to provide services on its behalf? 
No. ABC did not first enter into a contract with D and then engage P. D 
and ABC entered into a contract that specified P’s involvement, so P 
was engaged concurrently with ABC and D concluding their contract. 
Furthermore, ABC does not control the services because it does not define 
the services to be performed by P and is not involved with the fulfilment of 
the product.
3. Does ABC control a right to the specified service before it is provided to D? 
No. ABC did not obtain the rights to the content, the content itself or commit 
to purchasing the finished content before entering into the contract with D. 
Therefore, ABC cannot direct the use of or benefit from P’s finished content 
because it cannot use, resell or consume the content on its own.
Furthermore, ABC cannot benefit from the service in the contract for its own 
purposes. 
ABC observes that its agent conclusion is further supported by the control 
indicators. 
– 
Primary responsibility for fulfilment:
P is primarily responsible for providing 
the content to D. ABC is only responsible for co-ordinating between P and D. 
– 
Price discretion:
ABC sets the price and contract with D and P. However, this 
does not change the conclusion based on the other evidence provided. 
– 
Inventory risk:
ABC does not have inventory risk, which supports a conclusion 
that it does not obtain control of the content before it is transferred to D.
Based on the above, ABC concludes that it is the agent for the specified service 
and recognises revenue on a net basis.

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258 | Revenue – IFRS 15 handbook