Principal or Agent? Voucher Revenue, an IAS 8 Correction and a Covenant Cliff

Framework. IFRS 15 requires the agent/principal judgement to be made before the transaction price is allocated, and it turns on whether Baraka controls the specified good or service before it is transferred to the customer. The standard's control indicators (IFRS 15.B37) are the test, not the invoicing format.

Applying the indicators:

Indicator	Evidence	Points to
Primary responsibility for fulfilment	Vocha issues and fulfils; Baraka only handles complaints	Agent
Inventory risk	Baraka never holds or commits to buy vouchers	Agent
Pricing discretion	Face value fixed by Vocha; Baraka earns a stated 8%	Agent
Credit risk on the customer	Baraka collects cash	Weak principal indicator

Credit risk alone is not control. Baraka does not obtain the right to direct the use of, or obtain substantially all the benefits from, the voucher before transfer.

Conclusion: agent. Revenue is the commission only.

• Correct revenue: KES 240.0m (goods) + KES 4.8m (8% x 60m) = KES 244.8m
• Cost of sales falls by the KES 55.2m previously recorded as voucher cost; gross profit is unchanged
• Reported 300.0m overstates revenue by KES 55.2m (18.4% of reported revenue - material by any benchmark)

Covenant. The test is on audited revenue: KES 244.8m against a KES 250m threshold. Headroom of KES 50m flips to a shortfall of KES 5.2m. The 'industry practice' argument does not survive because IFRS 15 is mandatory and a covenant is a legal, not a presentational, test.

Classify the event correctly. IAS 8 distinguishes three things: a change in accounting policy (new principle), a change in estimate (new information about an uncertain outcome), and a prior period error (omission or misstatement from failure to use reliable information that was available).

Here the facts were fully known at the transaction date: the contract with Vocha, the 8% commission, and Vocha's responsibility for fulfilment. Applying gross presentation is a misapplication of IFRS 15, not a new estimate and not a discretionary policy choice. IAS 8.5 and 8.41–8.42 therefore govern.

But the period matters. The vouchers began on 1 January 2025 and the error is discovered before the 2025 financial statements are authorised for issue. IAS 8.41 requires prior period errors to be corrected retrospectively in the first set of financial statements authorised for issue after their discovery. Where the error arises and is corrected within the same reporting period, there is no prior period error to restate - the 2025 figures are simply presented correctly, with no restatement of the 2024 comparative (there were no vouchers in 2024).

Required disclosure and action:

1. Present 2025 revenue at KES 244.8m and state that the draft had included vouchers gross.
2. Disclose the nature of the correction and the amount (KES 55.2m revenue and equal cost of sales) - materiality means silence is not an option.
3. Prospective treatment is not available: IAS 8.36 permits prospective treatment for estimates only. Applying it here would carry the error forward and misstate future margins.

Refusal point. Prospectivity would also conceal the covenant breach from users, which raises the further question of whether the financial statements are intentionally misleading.

Classification under IAS 1. IAS 1.74 requires a liability to be classified as current when the entity has breached a long-term loan covenant at or before the end of the reporting period, and the effect is that the loan becomes repayable on demand. The right to defer settlement must exist at the reporting date.

• Restated revenue KES 244.8m < KES 250m threshold → breach exists at 31 December 2025
• Unless the lender had, before 31 December 2025, granted a waiver or a 12-month grace period, the KES 800m must be reclassified to current liabilities
• A waiver agreed in January 2026, before the statements are authorised, does not cure the classification (IAS 1.75) - the right did not exist at the reporting date. It is disclosed as a non-adjusting event under IAS 10.

Knock-on effects to assess:

1. Liquidity. Current liabilities rise by KES 800m against current assets that exclude the loan. Compute the current ratio on restated figures; a swing from comfortably above 1 to below 1 is a red flag.
2. Going concern (IAS 1.25–26). Management must prepare a cash-flow forecast covering at least 12 months from authorisation, showing whether the group can repay or refinance. If the lender has signalled acceleration, a material uncertainty exists and IAS 1.25 requires disclosure even where the going concern basis remains appropriate.
3. Cross-default. Check the loan agreement for cross-default clauses affecting other facilities.
4. Communication with the lender. The covenant certificate must be submitted on the restated figures. Presenting the certificate on gross revenue while filing net revenue is a misrepresentation that may constitute a breach of the facility and, if done knowingly, a criminal and professional-ethics issue.

Recommended course: correct the revenue, reclassify the loan (or obtain a dated pre-year-end waiver if one genuinely exists), disclose the covenant breach and any waiver, and notify the lender before the covenant certificate is due. Advise TCWG in writing that the finance director's 'don't panic the bank' instruction cannot be followed.