IFRIC issues Interpretation on customer loyalty programmes

  • IFRIC (International Financial Reporting Interpretations Committee) (blue) Image

28 Jun 2007

The International Financial Reporting Interpretations Committee has issued an Interpretation, IFRIC 13 'Customer Loyalty Programmes'.

IFRIC 13 addresses accounting by entities that grant loyalty award credits (such as 'points' or travel miles) to customers who buy other goods or services.

Specifically, it explains how such entities should account for their obligations to provide free or discounted goods or services ('awards') to customers who redeem award credits.

Click for the Press Release (PDF 63k). The IFRIC also published some information questions and answers as a simple introduction to IFRIC 13 (available from the IASB's website).


Key provisions of IFRIC 13 Customer Loyalty Programmes
  • An entity that grants loyalty award credits shall allocate some of the proceeds of the initial sale to the award credits as a liability (its obligation to provide the awards). In effect, the award is accounted for as a separate component of the sale transaction
  • The amount of proceeds allocated to the award credits is measured by reference to their fair value, that is, the amount for which the award credits could have been sold separately
  • The entity shall recognise the deferred portion of the proceeds as revenue only when it has fulfilled its obligations. It may fulfil its obligations either by supplying the awards itself or by engaging (and paying) a third party to do so
  • If at any time the expected costs of meeting the obligation exceed the consideration received, the entity has an onerous contract for which IAS 37 would require recognition of a liability
  • IFRIC 13 is effective for annual periods beginning on or after 1 July 2008, with earlier application permitted
  • If IFRIC 13 causes an entity to change its accounting policy for customer loyalty awards, IAS 8 applies.

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