The Financial Reporting Standards Council (FRSC) recently approved the adoption of IFRIC Interpretation 13, Customer Loyalty Programmes, as Philippine Interpretation IFRIC–13, Customer Loyalty Programmes. IFRIC Interpretation 13 was issued by the International Financial Reporting Interpretations Committee (IFRIC), the interpretative arm of the International Accounting Standards Board (IASB).

The Interpretation 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.

The Interpretation requires entities to allocate some of the proceeds of the initial sale to the award credits and recognize these proceeds as revenue only when they have fulfilled their obligations. They may fulfill their obligations by supplying awards themselves or engaging (and paying) a third party to do so.

The effect of the Interpretation will be to ensure that obligations to supply customer loyalty awards are measured the same way, whether the award credits are sold separately or granted to customers as part of a larger sale.

The Interpretation reflects the IFRIC’s view that loyalty awards are separately identifiable goods or services for which customers are implicitly paying. The general standard on revenue recognition, IAS 18 Revenue, requires separately identifiable components of sales transactions to be accounted for separately if necessary to reflect the substance of the transactions.
 

The Interpretation is effective for annual periods beginning on or after July 1, 2008. It will be forwarded to the Board of Accountancy and the Professional Regulation Commission for approval.