IFRIC 13 Customer Loyalty Programmes. Its effects on the information quality of companies' accounting

Abstract

General description of the research problem: When accounting for customer loyalty programs today, companies have to follow the rules of IAS 18 which offers two ways of accounting. The companies can follow paragraph 13 or paragraph 19 and therefore practice is varying and the companies’ accounting is not comparable. IFRIC has developed IFRIC 13 Customer Loyalty Programmes that regulate these programs so that they can be accounted for in an equal manner. The European Union has not yet approved IFRIC 13 but it is most likely that it will be accepted and implemented. IFRIC has received several comments regarding IFRIC 13 from different companies and organisations that have expressed their dislike for the Interpretation. Purpose of the study: To study how companies account for customer loyalty programs today and then analyse what effects will arise in the information quality of the financial statements when companies will be required to use IFRIC 13. Research methods: In order to achieve our purpose we have interviewed three companies with customer loyalty programs and two accounting specialists with experience from accounting customer loyalty programs. To reach a better understanding of IFRIC 13 we have collected data from books, articles and web pages. When analyzing the empirical material we have been influenced by the chosen theories. Results and conclusion: Three out of four of the companies studied use paragraph 19 when accounting for customer loyalty programs. When implementing IFRIC 13 the reliability of the accounting will decrease since the companies have to make additional estimations. The validity of the information quality will both increase and decrease when implementing IFRIC 13 depending on the point of view. It is not possible to make a conclusion regarding the validity of the companies’ accounting. The result will depend on the nature of the companies’ customer loyalty programs. The comparability will increase when implementing IFRIC 13. However, this result is depending on the interpretation and the implementation of IFRIC 13. The effects on the information quality will be dependent on the value of the revenue amount of the customer loyalty programs. Suggestions for further studies: Since IFRIC 13 is not yet implemented it would be interesting to repeat this study once it has been implemented and been in use for a while. It would also be interesting to carry out a study of the airline industry to see if the effects arising from IFRIC 13 are really as essential as they claim.