IFRIC D20 on customer loyalty programmes

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07 Sep 2006

The International Financial Reporting Interpretations Committee (IFRIC) has released for public comment Draft Interpretation D20 'Customer Loyalty Programmes'.

Customer loyalty programmes are used by entities to provide customers with incentives to buy their products. Examples are airline mileage programmes and hotel and bank points programmes. The customer can redeem the award credits for awards such as free or discounted goods or services.


The fundamental question addressed by the IFRIC is whether the entity's obligation to provide free or discounted goods or services should be recognised and measured by:

  1. Allocating some of the consideration received or receivable from the initial sales transaction to the award credits and deferring the recognition of revenue (i.e. applying paragraph 13 of IAS 18 Revenue); or
  2. Recognising the original revenue in full and, concurrently, recognising a provision for the estimated future costs of supplying the award goods or services (applying paragraph 19 of IAS 18).
In IFRIC D20, the IFRIC has proposed that an entity should:
  • Apply paragraph 13 of IAS 18 and account for award credits as a separately identifiable revenue component of the original sale transaction.
  • Allocate the fair value of the consideration received or receivable from that original sale translation between the goods and services originally sold and the award credits granted based on the relative fair values of the components.



The draft Interpretation would take effect three months after it is published as a final Interpretation, and would be applied retrospectively by restating prior period financial statements. Comment Deadline is 6 November 2006. Press Release (PDF 82k).


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