Of all the things that IFRS has resolved, one problem appears to be only just
being cleared up.
Retailers and other companies who offer loyalty schemes have at last been
advised on how to book them in their accounts.
‘IFRS lacks detailed guidance on how these businesses should account for
their obligations, and practices vary,’ Robert Garnett, the International
Financial Reporting Interpretations Committee chairman, said. Garnett’s body has
just issued guidance on how loyalty programmes are to be handled.
‘The proposed interpretation would standardise practice in a way that
reflects our view that loyalty awards are separate goods or services for which
customers are implicitly paying,’ he said.
IFRIC suggests that the revenue from these can only be stated when the goods
or services are provided, if and when customers choose to redeem such points.
The implication is that revenue from points not redeemed cannot be recognised.
There have so far been two approaches to such a problem. Some companies had
booked an expense when the loyalty credits were awarded, the idea being that the
expense to the business was part of the original sale.
But IFRIC has gone for the second common approach. That is to recognise the
revenue from the award of the loyalty points, but to record a deferred liability
That liability is then booked when the actual expense is incurred.
Garnett, also an International Accounting Standards Board member, added that
such programmes are now widespread in a range of businesses, including retail,
airline and consumer finance.
Comments from interested businesses have been invited, and are due by 6
November. The French national standards body, Conseil National de la
Comptabilité, assisted the IFRIC with the project.
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