Hello, the auditors at a client of mine are making a big thing about Principal versus Agent for reporting of revenue in the final accounts, and suggesting that they should be margin accounting, rather than gross revenue invoicing. Having investigated it at some depth with the client, about 20% - 30% of their business is finding stock held by other sellers, and advertising it to their own client base, at their own price, then dealing with the sale, shipment, often adding pre-delivery inspections to the machine/asset they are supplying. In reality it is no different from any re-seller that doesnt hold stock of a product line or range, and draws from a suppliers stock, but only when they get an order from their customer. The buyer always deals through my clients business, not direct with the stock-holder/supplier. The Auditors are insisting this is acting as an agent, because there is no stock risk before the order has been placed, and wish to reduce the company revenue to the margin gained on these sales, and are challenging the whole business model thereby.
So I have two questions,
So I have two questions,
- Is this not a clear cut case of Principal (not agent) and therefore the revenue is reported gross?
- is there any particular reason/governance in the FRS that says that Auditors should err towards Agent, and revenue being reported as margin, rather than gross, when there is a 50/50 weighting, with evidence, to both sides of the argument. (in this instance we feel the Client has 80% weighting toward Principal, but the Auditors are digging their heels in)