IFRIC interpretation on customer loyalty programmes

In June, the International Financial Reporting Interpretations Committee (IFRIC) issued Interpretation IFRIC 13 Customer loyalty programmes. IFRIC 13 addresses revenue recognition when, as part of a sales transaction, companies grant their customers loyalty award credits (often called 'points') that can be redeemed for free or discounted goods or services. The interpretation requires companies to estimate the fair value of the award credits and to defer this amount of revenue as a liability until they have fulfilled their obligations to supply awards. This is in line with the position in the UK, where the accounting for such transactions is covered by FRS 5 Application Note G Reporting the Substance of Transactions: Revenue Recognition, which includes guidance on accounting for redeemable vouchers that are given to customers as part of a sale transaction.

IFRIC Interpretation on pensions

In July, IFRIC issued IFRIC 14 IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction. IFRIC 14 provides guidance on how to assess the limit in IAS 19 Employee Benefits on the amount of surplus that can be recognised as an asset. It also explains that when a plan is operated in an environment of statutory or contractual minimum funding requirements, and there are restrictions over the amounts that the employer can recover from the plan, an obligation to pay contributions may give rise to a liability additional to the liability that is recognised in respect of the IAS 19 deficit. IFRIC 14 is mandatory for annual periods beginning on or after 1 January 2008.

Draft interpretation on revenue recognition from real estate sales

Also in July, IFRIC issued draft Interpretation IFRIC D21 Real Estate Sales. D21 provides guidance on when revenue should be recognised on real estate sales when properties (mainly residential) are sold 'off plan', i.e. before construction is complete. It sets out features that indicate whether a sale agreement is a construction contract (when IAS 11 Construction Contracts applies and revenue is recognised as construction progresses) or a sale of goods (when IAS 18 Revenue applies and revenue is recognised on completion). The comment deadline is 5 October 2007.

Draft interpretation on hedges of a net investment in a foreign operation

In July, IFRIC issued draft Interpretation D22 Hedges of a Net Investment in a Foreign Operation. D22 deals with the accounting for hedging foreign currency risk within a company and its foreign operations. It clarifies what qualifies as a risk in the hedge of a net investment in a foreign operation and where within a group the instrument that offsets the risk may be held. The comment deadline is 19 October 2007.