Abstract
Customer Loyalty Programmes (CLPs) have increased in popularity as a result of the complexity of modern business and increased competition. CLPs have been widely adopted in a variety of industries and have evolved into an essential component of Customer Relationship Management (CRM) and have been used as a strategy to improve customer loyalty and enhance long-term profitability. The continuously development of businesses gives rise to new industries with more complex and diverse transactions, including diverse CLPs, which in some cases result in existing accounting standards not providing adequate guidance and principles to comprehend the business and transaction changes. This, therefore, necessitates the development and implementation of new accounting standards that deal with the shortcomings of the current standards.
The International Accounting Standard Board replaced IAS 18 and IFRIC 13, which were explicitly developed to address challenges and uncertainties with revenue recognition and measurement of CLPs, by IFRS 15 to overcome the shortcomings in the previous revenue standards. IFRS 15 is a comprehensive standard, which is neither industry nor transaction specific but provides accounting guidance for all revenue contracts with customers across all industries. As a result, this sparked a debate whether IFRS 15 is adequate in addressing the specific recognition and measurement issues that were dealt with in IFRIC 13. As stated in literature, a new or amended standard comes with unavoidable changes and may necessitate further changes in identification, recognition, measurement, presentation, and disclosure of contracts or transactions.
This study investigates both the challenges that arose in the implementation of IFRS 15 with CLPs and assesses the impact of IFRS 15 on the entity’s revenue recognition and accounting treatment of CLPs. In contrast to most studies and discussions about IFRS 15 that were conducted before IFRS 15 became effective, allowing only a preliminary and superficial assessment of potential challenges and impacts, this study is conducted after the implementation of IFRS 15 and aims to provide details and insights about the challenges that entities faced when implementing IFRS 15. It focusses on whether it adequately adopts the issues addressed in IFRIC 13 read with IAS 18 and further determines whether it resolves the revenue recognition issues that IFRIC 13 read with IAS 18 did not address.
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The research objectives were explored through three different qualitative approaches, namely: (1) a comparative study; (2) semi-structured interviews with the accountants who were involved in the implementation of IFRS 15 of listed entities supplying CLPs in South Africa; and (3) a content analysis of the financial statements of these listed entities. The comparative study compared the revenue recognition guidelines of IFRIC 13 read with IAS 18 with those of IFRS 15 in order to determine if IFRS 15 adequately addresses the issues that were tackled and not addressed in IFRIC 13 read with IAS 18 and identify potential difficulties that may arise as a result of the differences in the new guidelines of IFRS 15. The semi-structured interviews were used to obtain the entities perceptions of IFRS 15 and discuss any challenges experienced with the new guidelines of IFRS 15. The content analysis of the financial statements from 2016 to 2019 of the ten interviewed entities triangulated the findings of the interviews relating to the impact of IFRS 15 on the financial statements, with focus on the revenue recognition, CLPs, accounting policies, and presentation and disclosure in the notes.
The study's findings indicate that IFRS 15 gives better specific guidance for identifying the CLP and on how to measure and recognise CLP transactions. The comparison study revealed that the principles of IFRS 15 adequately attend issues addressed by IFRIC 13 read with IAS 18 and resolves issues not addressed by IFRIC 13 and IAS 18 as outlined in IFRS 15. According to the findings of the semi-structured interviews, the adoption and implementation of IFRS was time-consuming due to its extensive scope and complexities, but it did not pose any challenges to the entity's organisational structures, internal controls, systems and revenue, and CLP contracts. Finally, based on the review of the financial statements, it was determined that IFRS 15 had a negligible impact on the presentation and disclosure of revenue recognition and CLP transaction data. The nature, timing, and amount of the CLP figures reported on the financial statements have not changed considerably from how they were reported under the IFRIC 13 read with IAS 18.