Revenue – ifrs 15 handbook

 
Additional application examples
Example 5 – Entity is a principal for advertising services provided 
by a subcontractor
Company D provides advertising services to customers. D enters into a 
subcontract with a multinational online video sharing company, F. Under the 
subcontract, F places all of D’s customers’ adverts.
D notes the following.
– D works directly with customers to understand their advertising needs 
before placing adverts. 
– D is responsible for ensuring that the advert meets the customer’s needs 
after the advert is placed. 
– D directs F over which advert to place and when to place it.
– D does not bear inventory risk because there is no minimum purchase 
requirement with F. 
– D does not have discretion in setting the price because fees are charged 
based on F’s scheduled rates.
D considers that it is primarily responsible for fulfilling the promise to provide 
advertising services. Although F delivers the placement service, D directly 
works with customers to ensure that the services are performed to their 
requirements. Although D does not bear inventory risk and does not have 
discretion in setting the price, D considers that it controls the advertising 
services before they are provided to the customer. Therefore, D concludes that 
it acts as a principal.
Example 6 – Entity is a principal for consulting services provided 
by a subcontractor
Investment Management Company P is the fund manager of Fund F.
P engages Advisory Company S to provide it with consulting services in 
implementing F’s investment management policy.
P notes that:
– it independently selected S to help it with fulfilling its obligations under its 
contract with F;
– it entered into a contract with F before selecting and engaging S;
– it is the counterparty to the consulting services contract, rather than F; and
– it has a contractual right to direct how S provides the services and also to 
suspend S’s services.

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10 Other application issues | 253
10.3 Principal vs agent considerations
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P concludes that these factors indicate that it is using S as a subcontractor and 
that it is a principal directing S to provide services on its behalf. In reaching this 
decision, P also considers the indicators of control provided by the standard. 
– P is considered by F as the company with the primary responsibility for 
fulfilling the investment management services contract and the entity 
responsible for the acceptability of those services. 
– P determined the price of the investment management services before it 
signed a contract with S.