Making sense of a complex world
Revenue recognition: principal/agent arrangements - issues for media companies under IFRS 15
Principal/agent assessments are becoming increasingly complex as digital transformation results in an ever-increasing variety of content formats and routes to reach the ultimate customers. For the media company – often the ‘content provider’ in such arrangements – the assessment of whether it is selling its content to a retailer, or to consumers via a distributor, has a direct impact on whether it recognizes its revenues net or gross. This in turn affects two key metrics in opposite directions: revenue and percentage profit margin. Careful selection and communication of appropriate revenue recognition accounting policies for potential principal/agent arrangements is therefore a key part of managing capital markets stakeholders.
This paper has considered the assessment of the key principal/agent considerations under IFRS 15 in various scenarios covering physical books, eBooks, television content, and film production.
Our scenarios provide food for thought for media companies when considering the impact of IFRS 15 on new and existing routes to market. The answer for complicated real life arrangements will depend on the specific facts and circumstances in each case. Where transactions are significant, management should include disclosures in the financial statements that enable users to understand the conclusions reached. As always, planning ahead can prevent painful surprises.
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Ennèl van Eeden
Global Entertainment & Media Industry Leader, PwC Netherlands
Tel: +31 (0)65 392 68 20
