Arrangements with multiple parties

Identifying the customer can be more challenging when there are multiple parties involved in a transaction. The analysis should include understanding the substance of the relationship of all parties involved in the transaction. Arrangements with multiple parties

Arrangements with three or more parties, particularly if there are separate contracts with each of the parties, require judgment to evaluate the substance of those relationships. Management will need to assess which parties are customers and whether the contracts meet the criteria to be combined when applying the guidance in IFRS 15.

An entity needs to assess whether it is the principal or an agent in an arrangement that involves multiple parties. Has the entity promised to provide the specified good or service itself (so the entity’s role is act as the principal) or to arrange for those specified goods or services to be provide by another party (so the entity’s role is act as the agent)? Arrangements with multiple parties

This is because an entity will recognize revenue for the gross amount of consideration it expects to be entitled to when it is the principal, but only the net amount of consideration that it expects to retain after paying the other party for the goods or services provided by that party when it is the agent.

An entity also needs to identify which party is its customer in a transaction with multiple parties in order to determine whether payments made to any of the parties meet the definition of ‘consideration payable to a customer‘ under IFRS 15.

In many transactions, a customer is easily identifiable. However, in transactions involving multiple parties, it may be less clear which counterparties are customers of the entity. For some arrangements, multiple parties could all be considered customers of the entity. However, for other arrangements, only some of the parties involved are considered customers.

In certain transactions, a counterparty may not always be a ‘customer’ of the entity but a collaborator or partner that shares in the risks and benefits of developing a product to be marketed. This is common in the pharmaceutical, bio-technology, oil and gas, and health care industries. Arrangements with multiple parties

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