IFRIC - Approval of Interpretations:

Date recorded:

The Board was asked to ratify two Interpretations approved by the IFRIC at its May meeting.


IFRIC X Customer Loyalty Programs (formerly D20)

The IFRIC had reached a consensus on how entities should apply IAS 18 Revenue if they grant loyalty award credits (air miles, points etc.) to customers who buy other goods or services and had voted to confirm that consensus at its May 2007 meeting. The consensus supports a 'separate component approach', because "In the IFRIC's view, loyalty awards are not costs that directly relate to the goods or services already delivered-rather, they are separate goods or services delivered at a later date."

This point was reiterated during the discussions. A number of changes had been made to the original draft in response to concerns voiced by constituents. One Board member asked the staff to clarify if the consensus meant that IFRIC had rejected a 'mixed approach', which the staff agreed it had. That member also asked for clarification on the methodology described in paragraph 8(b) of the draft interpretation. One Board member took issue with the examples used in IE 9 and 10 of the draft interpretation on a conceptual level.

In response to a request from another Board member, the staff clarified that in the example the transaction affected the current period (for points redeemed to date) and future periods (for points not yet redeemed). The staff was also asked (and agreed) to clarify that the interpretation does not apply to extended warranties.

One Board member remarked that, given the magnitude of the accounting changes involved in the implementation of this interpretation for a number of industries with substantial customer loyalty programmes, particularly for the airline industry, the transition period should be extended from the usual 90 days after ratification by the Board to 12 months. Moreover, it was argued that the transitional provisions should talk of earlier application being 'permitted' rather than 'encouraged'. Even though it is not normal Board procedure, 9 Board members agreed send the Interpretation back to IFRIC in order to change it, so as to 'permit' earlier application and extend the transition period to 12 months in a hands-up vote. The Board then proceeded to unanimously approve IFRIC X.


IFRIC X IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction (formerly D19)

The IFRIC had reached a consensus that:

  • An economic benefit, in the form of a refund of surplus or a reduction in future contributions, is available if the economic benefit will be realisable at some point during the life of the plan or will be realisable when the plan liabilities are finally settled.
  • The economic benefit available as a refund shall be determined on the basis of any of three stated ways of getting a refund.
  • If there is no minimum funding requirement, an entity shall determine the economic benefit available as a reduction in future contributions as the higher of
    • the surplus in the plan and
    • the present value of the future service cost to the entity, that is, excluding any part of the future cost that will be borne by employees, for each year over the shorter of the expected life of the plan and the expected life of the entity.
  • If there is a minimum funding requirement for contributions relating to the future accrual of benefits, an entity shall determine the economic benefit available as a reduction in future contributions as the present value of:
    • the estimated future service cost in each year in accordance with c) less
    • the estimated minimum funding contributions required in respect of the future accrual of benefits in that year.
  • If the limit on a defined benefit asset makes an obligation under a minimum funding requirement onerous, the entity shall recognise a liability when the obligation arises.

The IFRIC had made a number of clarifications since issuing the first draft D19, including a clarification of when an entity controls an asset arising from the availability of a refund and to the requirements relating to assumptions underlying the measurement of a reduction in future contributions.

While some Board members complained about the length of the document, the Board unanimously agreed to issue it as a final Interpretation. The staff pointed out that some of the length was due to the insertion of practical examples. However, the staff was of the opinion that the interpretation would be unintelligible to without these examples. Some constituents had, moreover, expressly asked for them to be kept in the interpretation.

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