Principal or agent: gross or net revenue under IFRS 15

Two marketplaces can process the same CU 120 sale and report very different revenue: one shows CU 120, the other CU 18. The difference is not a choice; it depends on who controls the goods. This guide explains the test, the indicators and the effect on the numbers.

By Hamza Fida, Chartered Accountant. Reviewed by Mirza Fahad Baig, Chartered Accountant. Checked against official sources on . 3 minute read.

Short answer

Under IFRS 15 a company is a principal if it controls the specified good or service before it is transferred to the customer, and then reports revenue at the gross amount. If it only arranges for another party to provide the good or service, it is an agent and reports revenue at the net amount of its fee or commission. Indicators of control include being primarily responsible for fulfilling the promise, holding inventory risk and having discretion over the price.

At a glance

Principal
Controls the good or service first
Principal reports
Gross revenue
Agent reports
Net fee or commission
Indicator 1
Primarily responsible
Indicator 2
Inventory risk
Indicator 3
Pricing discretion
Principal or agent: gross or net revenue under IFRS 15Principal: Controls the good or service first; Principal reports: Gross revenue; Agent reports: Net fee or commission; Indicator 1: Primarily responsible; Indicator 2: Inventory risk; Indicator 3: Pricing discretion.KEY FACTS AT A GLANCEPrincipal or agent: gross or net revenue underIFRS 15PrincipalControls the good orservice firstPrincipal reportsGross revenueAgent reportsNet fee or commissionIndicator 1Primarily responsibleIndicator 2Inventory riskIndicator 3Pricing discretionChecked against official sourcesTax BakersPrincipal or agent: gross or net revenue under IFRS 15Principal: Controls the good or service first; Principal reports: Gross revenue; Agent reports: Net fee or commission; Indicator 1: Primarily responsible; Indicator 2: Inventory risk; Indicator 3: Pricing discretion.KEY FACTS AT A GLANCEPrincipal or agent: gross or netrevenue under IFRS 15PrincipalControls the good or service firstPrincipal reportsGross revenueAgent reportsNet fee or commissionIndicator 1Primarily responsibleIndicator 2Inventory riskIndicator 3Pricing discretionChecked against official sourcesTax Bakers
Key facts at a glance, as set out in this guide.

What is the test?

Principal or agent?Principal or agent?Can you identify the specifiedgood or service?NoIdentify itfirstYesDo you control it before itis transferred to the customer?NoAgent: reportnet feeYesPrincipal: report gross revenue
The decision turns on control of the specified good or service before transfer.

First identify the specified good or service the customer receives, such as a product, a right to a service, or a service the company combines with others. Then ask whether the company controls it before it is transferred to the customer. Control means the ability to direct its use and obtain substantially all of its remaining benefits.

What are the indicators of control?

IndicatorPoints to principal when the company
Primary responsibilityIs responsible for fulfilling the promise and for the acceptability of the good or service
Inventory riskBears the risk of holding goods before the sale, or after it, for example if the customer returns them
Pricing discretionSets the price the customer pays

The indicators support the control assessment; they are not a checklist to be scored. Earning a fixed commission, which was a common indicator under older standards, is no longer listed as one.

A worked example: an online marketplace

A customer buys a jacket for CU 120 through a website. The site passes CU 102 to the seller and keeps CU 18.

CUSite is principalSite is agent
Revenue12018
Cost of sales(102)None
Gross profit1818
Gross margin15%100%

Profit is the same either way; revenue and margins are not. If the site buys jackets into its own warehouse, sets the price and handles returns, it is the principal. If independent sellers own the stock, set their own prices and ship directly, and the site only connects buyers and sellers, it is an agent. See the five-step model for how the specified goods are identified in step 2.

Common cases

BusinessUsuallyWhy
Online marketplace for third-party sellersAgentSellers control the goods and set prices
Retailer selling goods from its own stockPrincipalHolds inventory and sets prices
Travel agent booking flightsAgentThe airline provides the flight
Tour operator selling package holidays it designsOften principalIntegrates flights, hotels and transfers into its own product
Telecom operator selling third-party apps through its billingOften agentThe app provider delivers the service

Each case depends on the facts of the contract, so the same kind of business can reach different answers.

Can a company be both?

Yes. The assessment is made for each specified good or service. A company can be the principal for some items in a contract and an agent for others, so a single invoice may contain both gross and net revenue.

What about taxes collected for the government?

Sales taxes, VAT and similar taxes that a company collects from customers on behalf of a tax authority are amounts collected for a third party, so they are excluded from the transaction price and never reported as revenue. A shop selling a jacket for CU 120 including CU 20 of VAT reports revenue of CU 100, whether it is a principal or an agent for the jacket itself. Taxes the company owes on its own account are a different matter and depend on the tax.

How should the judgement be documented?

Auditors and regulators often query this area, because it changes reported revenue so much. A good memo identifies the specified good or service, explains who controls it before transfer and why, works through each indicator with evidence from the contracts, such as who sets prices, who handles returns and who carries stock, and records the conclusion for each revenue stream. Revisit it when contract terms or the business model change.

Is it the same under US GAAP?

Yes. ASC 606 uses the same control principle and the same indicators; see principal vs agent under ASC 606 for US examples. See IFRS vs US GAAP: the key differences.

Need help applying the standards?

Our Chartered Accountants help finance teams and students apply IFRS and US GAAP to real transactions.

Book a call Chat on WhatsApp

Questions people ask

What is the difference between a principal and an agent under IFRS 15?

A principal controls the good or service before transfer and reports gross revenue; an agent arranges for another party to provide it and reports its net fee.

What are the indicators of control?

Primary responsibility for fulfilment, inventory risk and discretion in setting the price.

Does being principal or agent change profit?

No. It changes revenue, cost of sales and margins, but not profit.

Is the principal versus agent test the same under ASC 606?

Yes. Both standards use the same control principle and indicators.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IFRS Foundation: IFRS 15 Revenue from Contracts with Customers

Rules and fees change. If you are reading this long after October 4, 2026, confirm the figures with the source before you rely on them.

IFRS 15The IFRS 15 five-step model with examplesIFRS 15IFRS 15 revenue from contracts with customers explainedIFRS 15Identifying performance obligations under IFRS 15

More in IFRS 15

Previous in this topicAllocating the transaction price using stand-alone selling pricesNext in this topicRevenue over time or at a point in time under IFRS 15TopicAll 10 guides in IFRS 15

This guide is general information. It is not tax or legal advice for your situation.