Technical Accounting Memo

Issue

Whether Brassfern should present amounts billed to Kettlewick for Cirrovane cloud usage at the Cloud List Price as gross revenue or instead recognize only its 8% Procurement Fee as revenue. The analysis also considers whether Brassfern’s separately priced managed services affect that presentation.

Background

The Managed Cloud Services Agreement between Brassfern and Kettlewick became effective July 1, 2026. The agreement covers two separately offered and priced arrangements:

• Cloud Services. Cirrovane provides the cloud computing, storage, database, networking, and related services used by Kettlewick. Brassfern establishes the Cloud Accounts under its partner billing organization, administers billing, serves as the first contact for billing matters, and submits technical support requests to Cirrovane.
• Managed Services. Brassfern provides monitoring, patching, backup verification, restore testing, incident response, reporting, and service reviews for a fixed monthly fee of $14,500.

Kettlewick accepts Cirrovane’s terms directly and holds the administrator credentials for its Cloud Accounts. Kettlewick determines which cloud services to use, in what quantities, configurations, and regions, and when to start, change, or stop those services. Brassfern cannot make those decisions except at Kettlewick’s direction or through delegated access used to perform managed services.

Cirrovane is solely responsible for operating, maintaining, securing, and delivering the underlying Cloud Services. Brassfern does not host, operate, modify, or warrant those services and makes no cloud service-level commitment. Cirrovane service credits are passed through to Kettlewick in full.

No reserved capacity, minimum spend, or other capacity commitment applies. Upon termination, the Cloud Accounts transfer without interruption to direct Cirrovane billing or another billing partner selected by Kettlewick.

Each month, Brassfern invoices Kettlewick for actual Cirrovane usage at Cloud List Price plus an 8% Procurement Fee. Cirrovane bills Brassfern for the usage at list price, and Brassfern must pay Cirrovane regardless of whether Kettlewick pays Brassfern. The contract’s $95,000 estimated monthly usage is a planning estimate rather than a commitment.

Guidance

When another party participates in providing goods or services to a customer, an entity first identifies each specified good or service and then determines whether it controls that good or service before transfer to the customer. This evaluation is performed separately for each specified good or service. ASC 606-10-55-36 through 55-36A.

An entity is a principal when it controls the specified good or service before transfer. Control may arise when the entity obtains the good, obtains a right to a service that it can direct another party to perform on its behalf, or integrates another party’s goods or services into a combined output for which the entity is responsible. A principal presents the related revenue gross. ASC 606-10-55-37 through 55-37B.

An entity is an agent when its performance obligation is to arrange for another party to provide the specified good or service. An agent recognizes as revenue the fee or commission to which it expects to be entitled, which may be the net amount retained after paying the provider. ASC 606-10-55-38.

Indicators that may assist the control assessment include primary responsibility for fulfillment, inventory or capacity risk, and discretion in establishing price. These indicators support, but do not replace, the control assessment, and their relevance depends on the nature of the specified good or service. ASC 606-10-55-39 through 55-39A.

Amounts collected on behalf of third parties are excluded from the transaction price. ASC 606-10-32-2.

Analysis

Brassfern is an agent for the Cirrovane Cloud Services and should present the cloud usage billings net.

The specified service is Kettlewick’s right to consume Cirrovane cloud computing and related infrastructure services as selected and used through its Cloud Accounts. The billing administration and procurement activities facilitate Kettlewick’s receipt of those services; they do not give Brassfern control of the underlying cloud capacity before Cirrovane transfers it to Kettlewick.

The following facts are decisive:

• Kettlewick directs the cloud usage. Kettlewick holds the administrator credentials and determines the services, quantities, configurations, regions, and timing of use. Brassfern cannot redirect the cloud services to another customer or otherwise determine their use before transfer.
• Cirrovane performs and is responsible for the Cloud Services. Cirrovane operates, maintains, and secures the infrastructure and delivers the services under terms accepted directly by Kettlewick. Cloud service failures and related remedies are governed by Cirrovane’s terms, and Brassfern disclaims responsibility and warranties for the Cloud Services.
• Brassfern does not control cloud capacity. Brassfern does not purchase or reserve capacity before Kettlewick’s use and has no minimum-spend or unsold-capacity exposure. Usage arises only from Kettlewick’s decisions within its Cloud Accounts.
• Brassfern does not control pricing or provider credits. Cirrovane establishes the Cloud List Price, and changes apply automatically. Brassfern adds a separately stated 8% Procurement Fee but cannot adjust the underlying cloud price. Cirrovane service credits are passed through in full.
• The Cloud Services continue independently of Brassfern. Upon termination, Kettlewick’s accounts, data, and resources remain in place and transfer to direct Cirrovane billing or another billing partner without interruption. This further demonstrates that Brassfern administers procurement and billing rather than controls the Cloud Services.

Accordingly, Brassfern does not obtain the cloud service or a right that enables it to direct Cirrovane to provide that service on Brassfern’s behalf. Nor does Brassfern integrate Cirrovane’s service with its own activities into a single combined cloud service. Brassfern’s promise for this element of the arrangement is to arrange access and administer billing. That promise is an agency service under ASC 606-10-55-38.

Brassfern’s obligation to pay Cirrovane regardless of Kettlewick’s collection does not change the conclusion.

The unconditional provider-payment obligation exposes Brassfern to Kettlewick credit risk, but it does not give Brassfern inventory or capacity risk in the specified Cloud Services. Brassfern does not commit to cloud capacity before Kettlewick uses it, cannot redirect usage, and does not bear the risk of unsold capacity. Credit risk on the customer receivable is therefore not persuasive evidence that Brassfern controls Cirrovane’s service before transfer.

Cloud-related revenue equals the 8% Procurement Fee, not the full customer billing.

The Cirrovane list-price amount is collected for remittance to Cirrovane and is excluded from Brassfern’s revenue. Brassfern recognizes the Procurement Fee as revenue as the related arranging and billing service is provided, measured as 8% of actual monthly Cloud List Price usage.

Using the contract’s illustrative monthly usage:

The $95,000 illustration is not a contractual commitment. Actual monthly cloud-related revenue is:

Procurement Fee revenue = Actual Cirrovane Cloud List Price usage × 8%

The gross receivable from Kettlewick and Brassfern’s payable to Cirrovane do not alter the net revenue presentation. Payment of the list-price amount to Cirrovane settles the third-party amount rather than representing a cost of cloud services sold by Brassfern as principal.

The managed services are a separate performance obligation for which Brassfern is the principal.

The managed services are separately offered and priced, may be purchased independently of cloud billing through Brassfern, and may support environments procured directly from Cirrovane or other providers. Brassfern controls and is responsible for those services through its personnel and subcontractors. The managed services do not significantly integrate with or modify the underlying Cirrovane Cloud Services.

Consequently, Brassfern should present the $14,500 monthly managed services fee as gross revenue, subject to any applicable service-level credit. That treatment is separate from, and does not change, the net presentation of the Cirrovane cloud usage billings.

Conclusion

Brassfern should account for itself as an agent for the Cirrovane Cloud Services. It should exclude the Cirrovane Cloud List Price amount from revenue and recognize only the 8% Procurement Fee as cloud-related revenue as the related monthly usage and arranging service occur.

For example, if actual monthly Cirrovane usage is $95,000, Brassfern should recognize $7,600 of cloud-related revenue rather than $102,600. Brassfern’s obligation to pay Cirrovane regardless of customer collection creates credit exposure but does not establish control of the Cloud Services.

The separately priced $14,500 managed services fee should be presented gross because Brassfern controls and performs those services as principal.

This memo is for research and drafting purposes only and does not constitute professional accounting advice. Final positions should be reviewed by a qualified accounting professional.