When is an entity a principal or an agent in an arrangement?

GRAP 109 on Accounting by Principals and Agents should be applied once an entity has established that a binding arrangement exists that outlines that one entity (the agent) represents the interests of another entity (the principal) when that entity (the principal) transacts with third parties

The next step is to assess if an entity is a principal or an agent in an arrangement. If an entity concludes that an arrangement is a principal-agent arrangement, the criteria in GRAP 109.25 are applied to assess if an entity is a principal or an agent:

An entity is an agent when, in relation to transactions with third parties, all three of the following criteria are present, except as outlined in paragraph .26:

a. It does not have the power to determine the significant terms and conditions of the transaction.

b. It does not have the ability to use all, or substantially all, of the resources that result from the transaction for its own benefit.

c. It is not exposed to variability in the results of the transaction.

GRAP 109 provides detailed guidance on the application of each of these criteria.

In analysing these requirements, entities should clearly indicate how each of the criteria are met or not. The analysis should focus on the substantive rights and obligations in contracts, legislation and/or other arrangements. The monitoring and oversight responsibilities of entities should be distinguished from substantive rights and obligations to fulfil the terms and conditions of the arrangement.

The Secretariat has issued FAQ 3.12 on accounting by principals and agents. Access it here.