Developing illustrative examples for revenue recognition in credit card rewards programmes

Abstract

Orientation: The literature does not provide illustrative examples of specific credit card rewards programme (CCRP) transactions. Research purpose: The objective of the research was to develop and confirm illustrative examples for co-brand CCRPs, complex CCRPs and CCRPs offering cash rewards after the effective date of International Financial Reporting Standard (IFRS) 15. Motivation for the study: Credit card rewards programme management in practice acknowledged the need for illustrative examples of accounting for CCRP transactions. Research approach/design and method: This qualitative study used document analysis to develop the illustrative examples; and to confirm the examples, the Delphi technique was applied. Main findings: Illustrative examples were developed (based on existing literature, including IFRS) that show the differences in accounting treatment based on the type of CCRP. The initial recognition of the award credits liability, the proportionate derecognition of the liability when award credits are redeemed, and a change in the expected redemption rate are included in the examples. The study also clearly indicates the differences in the structure and functioning of each type of CCRP that support the different accounting treatments suggested. Practical/managerial implications: This study contributes to practice by providing CCRPs with illustrative examples that could reduce uncertainty and inconsistencies in practice. The illustrative examples developed make the theory – specifically principle-based IFRS – more practical and could improve faithful representation, as well as make transactions easier to verify (audit). Contribution/value-add: This study underscores the need for educators to train students in applying principle-based standards like IFRS 15 to complex transactions, fostering critical thinking and workplace readiness.