BC125 IAS 27 and SIC‑12 did not contain requirements or guidance to assess whether a decision maker is an agent or principal. The absence of guidance has allowed divergence to develop in practice. The Board decided to introduce principles that address agency relationships to reduce this divergence.

BC126 ED 10 proposed criteria to identify an agency relationship on the basis of the following assumptions:

(a) Both the principal and the agent seek to maximise their own benefits. Therefore, the principal is likely to introduce additional measures that are intended to ensure that the agent does not act against the interest of the principal. For example, the principal may have rights to remove the agent with or without cause.

(b) A principal has no incentive to remunerate an agent more than what is commensurate with the services provided. Accordingly, remuneration that is not commensurate with the services provided is an indicator that a decision maker is not an agent.

BC127 ED 10 included guidance on dual roles and addressed situations in which an investor holds voting rights, both directly and on behalf of other parties as an agent. The exposure draft proposed that when assessing whether an investor acts as an agent or a principal, the investor would exclude the voting rights that it holds as an agent only if it could demonstrate that it is obliged to act in the best interests of other parties or has implemented policies and procedures that ensure the independence of the decision maker in its role as an agent from that as a holder of voting rights directly.