The IFRIC continued redeliberating the proposed Interpretation in light of comments received on Draft IFRIC Interpretation D20 Customer Loyalty Programmes. The meeting considered a revised draft of an Interpretation, in particular changes made as a result of the March 2007 meeting.

Allocation of consideration to award credits

In March 2007, the IFRIC had requested that the Interpretation not be prescriptive about the how the fair value of the consideration received should be allocated between the goods and services delivered and the award credits received by the customer. The staff proposed that the Interpretation should retain the requirement to use the relative fair value method, but to add application guidance (mandatory material) explaining that the fair value of the award credits might provide an acceptable substitute. The IFRIC disagreed and directed the staff to draft the Interpretation on the basis that the consideration allocated to the award credits shall be measured by reference to their fair value – the amount for which they could be sold separately. There was some discussion about how this method could best be explained in the Interpretation and related Basis.

Awards supplied by third parties

In March 2007, the IFRIC decided to amend the Interpretation:

1. to highlight that the entity might be collecting the consideration allocated to award credits as an agent for a third party supplying awards
2. to explain the consequences for measurement and recognition of revenue if this was the case.

The IFRIC discussed revised wording together with a related Illustrative Example, neither of which was reproduced in the Observer Note.

The IFRIC seemed to agree that, when the seller is acting as agent for the supplier, revenue should be recognised on the basis of the consideration received less the amount payable to the supplier of the award. Recognition would be at the time the entity is obliged to pass the consideration to the third party.

The IFRIC agreed that the type of award should not alter the timing of revenue recognition. Thus, if a hotel awards a voucher supplied by a third party (such as a department store), revenue is recognised when the voucher is given to the customer, not when the customer uses the voucher in a transaction at the department store.

Changes in accounting policy

In March 2007, the IFRIC requested that a comment be added to the transition section to stress that entities that had previously accrued the costs of supplying awards would be changing an accounting policy, rather than an estimate, when they first applied the Interpretation. At this meeting, the IFRIC agreed with a staff analysis that this comment was unnecessary as it should be obvious that accruing a liability and deferring revenue are different accounting policies, even if the effect of the change is not significant.

Other matters

IFRIC members raised a concern that the Interpretation as drafted implied that information would have to be assessed on a transaction-by-transaction basis. The staff amended the discussion of the allocation method in the Basis for Conclusions such that this inference was avoided. The highest level of aggregation would, however, be award credits awarded in an annual period.

IFRIC members also discussed the 'credit card example', agreeing that the Interpretation should clarify that award credits can be awarded by one party (the credit card company) as a result of a transaction between the customer and a third party (the retailer accepting payment by credit card). The staff observed that the Interpretation did suggest this, but agreed to clarify this issue.

An IFRIC member expressed concern with the way in which the guidance on onerous customer loyalty programmes was expressed. There appeared to be an inference that an additional liability would be recognised. The staff agreed to work with the IFRIC member to rectify this inference, which was unintended.

The IFRIC did not think that any additional disclosure requirements were necessary. The existing requirements of IAS 1 Presentation of Financial Statements and IAS 18 Revenue were thought sufficient.

Re-exposure

The IFRIC agreed with a staff analysis that re-exposure was not necessary.

Effective date

The IFRIC agreed that the Interpretation should be effective for financial years beginning on or after 1 January 2008. If implementing the Interpretation required a change in accounting policy, IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors would apply.

Approval

The IFRIC Chairman asked whether, based on the draft Interpretation and the discussions today, whether any IFRIC members would not support the Interpretation. None of the IFRIC indicated their dissent.

Next Steps

The staff will present a revised draft Interpretation to the IFRIC as soon as possible, with the intention that it will be presented to the June 2007 meeting of the IASB for their approval, subject to written ballot. Provided that the IASB approves the Interpretation, it should be issued in July 2007.