20 November 2006
Comment Letters
International Accounting Standards Board
30 Cannon Street
London EC 4M 6 XH
UNITED KINGDOM
Dear Sir/Madam
D20 Customer Loyalty Programs
The Group of 100 (G100), which represents the interests of chief financial
officers of Australia’s largest business enterprises, is pleased to provide
comments on IFRIC Draft Interpretation D20 ‘Customer Loyalty Programs’.
While acknowledging that D20 is seeking to interpret IAS 18 ‘Revenue’ and IAS
37 ‘Provisions, Contingent Liabilities and Contingent Assets’ the G100 is
concerned that in view of the IASB/FASB convergence project there is guidance on
the extent to which the requirements are consistent with those of US GAAP. It is
suggested that the Basis for Conclusions in the resulting interpretation also
include a brief discussion/comparison with the US GAAP requirements.
Our comments on the specific proposals in D20 are:
- Scope: The G100 suggests that the scope of the project should be
expanded to include those arrangements where an entity’s obligation is
discharged other than by providing goods and services (see para 3). For
example, under some loyalty programs participants can use loyalty points to
repay amounts outstanding on their accounts.
- Basis of Approach: The G100 supports the approach described as
View 3(BC6). We believe that View 3 is the approach consistent with adopting
a principles-based approach to applying standards because the method of
accounting applied will reflect the underlying fact pattern of each loyalty
program and the judgment of the preparers. To mandate View 1 or View 2 would
potentially involve forcing a particular accounting outcome which does not
reflect the nature of the arrangements.
- Measuring Fair Value: The G100 is concerned that the diverse
nature of programs, the discretion to vary them and the range of other
variables and uncertainties including their taxation status will present
significant practical difficulties in measuring the fair value of the award
component of a sale. The G100 believes that these difficulties preclude
mandating the proposals in paragraphs 5 of D20 for all loyalty programme. In
addition, D20 is deficient in providing guidance on the appropriate
accounting in those circumstances where reliable measurement is not
achievable. The expected frequency of occurrence of this outcome strengthens
the case for adopting an approach similar to View 3.
Yours sincerely
Tom Honan
National President