Our views on IFRIC D20 Customer Loyalty Programmes

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07 Nov 2006

Deloitte has submitted to the IASB comments on IFRIC's Draft Interpretation D20 Customer Loyalty Programmes.

Overall, we believe that the draft Interpretation addresses an issue for which we believe there is need for an interpretation. An excerpt from our comments:

We support the consensus in the Draft Interpretation, in so far that it applies to customer loyalty programmes that represent multiple sales, as we think the logic set out for identification and measurement of separately identifiable components in a transaction is irrefutable. We believe the IFRIC has interpreted the distinction between paragraph 13 and paragraph 19 in IAS 18 Revenue appropriately. Paragraph 13 of IAS 18 applies when a single contract requires two or more separate goods or services to be delivered at different times. In contrast, paragraph 19 of IAS 18 applies when an entity has to incur further costs related to items already delivered. An entity would not normally incur costs related to award credits at the time of the initial transaction because the entity has not provided the goods or the services to the customer at that time but rather when the customer redeems the award credits. Award credits that are provided as part of a transaction should therefore follow the accounting requirements in paragraph 13 and revenue accounted for when the entity deliver the goods or services, as a result of the award credits, to the customer.

However, we want to highlight that we have concerns regarding the scope of the Draft Interpretation. We believe that the IFRIC should clarify further the distinction between customer loyalty programmes and marketing expenses, as we believe guidance in the Draft Interpretation is not sufficient.

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