IFRS 15 provides guidance to help determine whether an entity is acting as a principal or an agent in a transaction. This determination is important because it affects the amount of revenue an entity recognizes:

1. If the entity is a principal in a transaction, it recognizes revenue in the gross amount of consideration to which it expects to be entitled in exchange for the specified goods or services transferred. This is because the principal controls the goods or services before they're transferred to the customer.
2. If the entity is an agent in a transaction, it recognizes revenue in the amount of any fee or commission to which it expects to be entitled in exchange for arranging for the goods or services to be provided by the principal. This is because the agent does not control the goods or services provided.

To determine whether an entity is acting as a principal or agent, IFRS 15 requires entities to identify the specified goods or services to be provided to the customer and assess whether it controls each specified good or service before that good or service is transferred to the customer.

Indicators that an entity is acting as a principal include:

• The entity is primarily responsible for fulfilling the promise to provide the specified good or service.
• The entity has inventory risk before or after the goods have been ordered by a customer, during shipping, or on return.
• The entity has discretion in establishing prices for the specified good or service.

Conversely, if the entity's role is primarily to arrange for another party to provide the goods or services, and it does not control the goods or services before they're transferred to the customer, then the entity would be an agent.