Accounting Treatment for Agent-Based Transactions in Sovereign Crude Oil Sales

When an entity sells and purchases goods on behalf of another entity, based on the latter’s instructions, it must assess whether its role constitutes a performance obligation to directly provide those specified goods or services (indicating it acts as a principal) or to facilitate their provision by the other party (indicating it acts as an agent). To determine the nature of its role, the entity should identify the specified goods or services to be delivered to the customer and evaluate whether it has control over each specified good or service before it is transferred to the customer.

In this story, we have explored the appropriate accounting treatment opined by EAC for the company’s transactions in sovereign crude oil as an agent for LG Limited. It focuses on whether such transactions should be recorded as revenue or inventory in the company’s financial statements and the necessary disclosures to reflect this arrangement accurately.

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