Original Research

Illustrative examples of accounting for simple swipe-only credit card rewards programmes

Sophia M. Brink

Received: 20 Jan. 2025; Accepted: 20 May 2025; Published: 30 June 2025

Copyright: © 2025. The Author(s). Licensee: AOSIS.
This is an Open Access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

Orientation: The literature does not provide illustrative examples for simple swipe-only credit card rewards programme (CCRP) transactions.

Research purpose: The study focused on developing and confirming illustrative examples of simple CCRPs after the effective date of International Financial Reporting Standards (IFRS) 15.

Motivation for the study: Credit card rewards programme practitioners expressed a need for illustrative examples of accounting for CCRPs because of the lack of guidance provided in IFRS 15 and existing literature.

Research approach/design and method: This qualitative study employed document analysis to develop illustrative examples, which were subsequently validated through the Delphi technique with input from 10 expert participants. The data were analysed using thematic analysis.

Main findings: The illustrative examples developed included specific scenarios and amounts, which clearly indicated the journal entries to account for the initial recognition and derecognition of award credits in simple CCRP transactions. Specific complexities were addressed in the examples such as those related to derecognising award credits, including the principal versus agent consideration, the treatment of breakage when cardholders do not redeem all their award credits at once and a change in the estimated expected redemption rate over time.

Practical/managerial implications: This study contributes to practice by offering illustrative examples that translate theoretical principles into practical application, thereby supporting CCRP management in accounting for these transactions and reducing associated uncertainty.

Contribution/value-add: This additional guidance could ensure faithful representation of the underlying CCRP transactions, which will enhance comparability between companies, ultimately benefiting the users of financial statements.

Keywords: illustrative examples; credit card rewards programmes; IFRS 15; award credit; simple CCRPs.

Introduction

Credit card rewards programmes (CCRPs) are multi-party agreements that are often considered complex. As these programmes differ in their structure and functioning, each programme is unique (Brink 2017a; Brink, Steenkamp & Odendaal 2023). International Financial Reporting Standards (IFRS) 15 Revenue from Contracts with Customers provides minimum guidance for CCRPs on how to account for award credits in a CCRP transaction, which creates uncertainty regarding the appropriate accounting treatment of these transactions. This in turn leads to inconsistent accounting practices that directly impact the comparability of financial information. There are different practices and views relating to accounting for CCRP transactions (Brink 2017a, 2017b; Chapple, Moerman & Rudkin 2010; Pidduck et al. 2019). Given that the majority of credit card issuers operate customer loyalty programmes, accurately reflecting CCRP transactions in annual financial statements is vital to ensure the provision of decision-useful information.

Illustrative examples accompanying most IFRS offer helpful guidance when management needs to exercise judgement in accounting for a transaction. These examples illustrate aspects covered in a specific IFRS and can assist management in their decision-making process. International Financial Reporting Standards 15, which is a principle-based standard, is an example of an IFRS accompanied by illustrative examples. Illustrative Example 52 of IFRS 15 is the only example that relates to customer loyalty programmes, but it specifically excludes CCRPs (Brink 2017a). No illustrative examples of CCRPs are offered by IFRS.

There have been studies on the effects of the new revenue model for preparers since IFRS 15 came into effect in 2018 (Ali 2022; Davern et al. 2019; Napier & Stadler 2020; Onie et al. 2022). Nevertheless, the impact of IFRS 15 on CCRPs is not covered by these studies. Various other authors (Brink 2017a, 2017b, 2017c; Brink & Steenkamp 2023a, 2023b; Brink et al. 2023; Brink, Steenkamp & Odendaal 2024, 2025) have also conducted research on the accounting treatment of CCRPs. None of these studies developed illustrative examples to provide for various CCRP transactions after the effective date of IFRS 15.

Brink (2023) developed a CCRP accounting model that incorporated accounting theory, relevant literature and the experiences of CCRP management, after the effective date of IFRS 15, and confirmed the model by utilising the opinions of experts in the field. The CCRP accounting model was embedded in a decision tree for application purposes and included all possible alternatives for accounting for CCRP transactions. In the process of confirming the CCRP accounting model, three participants recommended that the model be accompanied by illustrative examples (Brink 2023). There were comments relating to the recommendation of developing illustrative examples. Firstly, it was stated that models are often better illustrated through simplistic examples rather than a decision tree alone. Secondly, to complement the abstract nature of the rules, practical examples should be developed. Thirdly, such examples reinforce and clarify the key messages conveyed by the model. Finally, the model is quite complex and providing examples with journal entries will assist to apply the model and account for CCRP transactions (Brink 2023). These participants highlighted a gap in the existing accounting literature that warrants attention.

Credit card rewards programmes can be structured in a variety of ways, including simple CCRPs (swipe only), complex CCRPs (linked to other products) and co-brand CCRPs (Brink et al. 2023). As a starting point, Brink (2024) developed illustrative examples for co-brand CCRPs and complex CCRPs (including CCRPs offering cash rewards). Brink (2024) discovered that, although CCRP transactions may appear similar, various types – such as simple, complex and co-brand CCRPs – necessitate different accounting treatments because of their unique structure and functioning. The scope of Brink’s (2024) study specifically excluded simple CCRPs. The aim of this study was therefore to develop and confirm illustrative examples for simple CCRPs – the only type of CCRP not previously addressed in the literature – to provide more clarity and certainty to simple CCRPs accounting for award credits after the effective date of IFRS 15.

The illustrative examples were developed for all simple CCRP scenarios (including scenarios in the CCRP accounting model developed by Brink et al. (2024) and other scenarios that were recommended as areas for future research). The scope of Brink et al.’s (2024) study only included the initial recognition and measurement of award credits at the date the award credits are granted, and excluded the derecognition of award credits when award credits are redeemed. In terms of specifically IFRS 15, there are a few complexities when derecognising the award credits’ contract liability and recognising revenue. Brink et al. (2024) therefore recommended that accounting for the CCRP transaction as cardholders redeem their award credits be investigated. This specifically includes the principal versus agent consideration,¹ the treatment of breakage when cardholders do not redeem all their award credits at once and a change in the estimated expected redemption rate over time. The scope of Brink et al.’s (2024) study also did not include CCRPs that only offer redemption opportunities at programme partners, and this scenario was not included in the model. The scenario where the CCRP acts only as an agent in the transaction was therefore also recommended as an area for future research (Brink et al. 2024). These areas for future research and other scenarios not covered by Brink et al. (2024) were incorporated into the illustrative examples.

Scientific research in accounting cannot occur in isolation from accounting theory (Mouton 1996; Van der Schyf 2008), underscoring the importance of incorporating theoretical perspectives into scholarly work. This study adopts a prescriptive (normative) accounting theory approach (Schroeder, Clark & Cathey 2011), specifically drawing on the principle-based framework of IFRS to develop the illustrative examples. A prescriptive approach is concerned with recommending what should be done in particular circumstances, rather than explaining or predicting what is done (Deegan 2009). Prescriptive theories are grounded in the values and beliefs of the individuals or institutions proposing them (Oberholster 2013; Vorster 2007) and aim to justify the accounting practices that ought to be adopted. As Godfrey, Hodgson and Homes (2003, p. 9) state: ‘[I]t is impossible to demonstrate empirically what ought to be’. Therefore, prescriptive accounting theories rely on deductive reasoning rather than empirical observation (Deegan 2009). Most current accounting theories are prescriptive in nature, as they are based on the overarching objectives of financial reporting (Schroeder et al. 2011). By applying a normative theoretical lens, this study demonstrates its theoretical contribution by showing how principle-based IFRS guidance can be interpreted and applied to a specific, underexplored complex area of accounting – namely, simple swipe-only CCRPs.

This study directly addresses a practical need identified by accounting practitioners – namely, the need for clearer, more accessible interpretation of complex accounting models through visual and practical means. Specifically, the illustrative examples developed in this study provide a visual representation of the accounting rules governing simple CCRPs under IFRS 15. These examples not only clarify the application of the standard but also help in visualising the financial implications of implementing CCRPs, such as the distinct presentation of CCRP-related revenue for those arrangements that fall within the scope of IFRS 15. This study therefore makes a practical contribution by offering CCRP managers with illustrative examples of the recognition and measurement of simple CCRP transactions to bridge the gap between theory and practice. It also assists CCRP management’s decision-making processes and application of judgement, while simultaneously reducing uncertainty in practice relating to the accounting treatment of simple CCRP transactions. This additional guidance could also ensure faithful representation of the underlying CCRP transaction, thereby improving comparability between similar companies and ultimately benefiting the users of financial statements.

To substantiate the practical contribution of this study, the monetary value and materiality of award credits granted under CCRPs were considered. For example, FirstRand (2024) disclosed CCRP-related expenditure – netted against fee and commission income – of R2362 million, with an associated outstanding liability of R2039 million for the 2024 financial year. These figures suggest that the value of such award credits is substantial and not merely incidental. Furthermore, Brink (2023), through an analysis of the annual financial statements of financial institutions offering CCRPs, found that in some cases, the value of award credits granted met materiality thresholds based on key financial metrics, including revenue, gross profit, and operating profit before tax. Brink (2023) also demonstrated that alternative accounting treatments for these award credits affected key financial ratios disclosed in annual reports. These changes have the potential to influence the decisions of users of financial statements, reinforcing the relevance and material impact of properly accounting for CCRP transactions.

The article begins with an introduction to the study. This is followed by a discussion of the functioning of a card arrangement containing a CCRP and different types of CCRPs. Next, the impact of the key elements of the underlying transaction on accounting for these transactions is discussed. Thereafter, the method and data collection are discussed. Thereafter, the findings from the study are discussed, and lastly, the conclusion and recommendations of the study are presented.

Functioning of a credit card rewards programme and different types of credit card rewards programmes

To develop illustrative examples, one must have a thorough understanding of how a typical credit card arrangement with a CCRP works. The card issuer only pays the merchant a portion of the original credit card transaction value with each credit card purchase transaction made at a merchant, either directly or through intermediate financial institutions. The merchant interchange fee is the amount that is deducted from the initial credit card transaction value and paid to the merchant (Financial Accounting Standards Board [FASB] & International Accounting Standards Board [IASB] 2013). Card issuers may also use a CCRP to reward cardholders for using their credit cards as part of a credit card arrangement. Under this programme, the cardholder receives award credits from the issuer (FASB & IASB 2013).

The structure and functioning of various CCRPs influence accounting for these transactions, and the differences in each programme’s structure and functioning justify different accounting treatments (Brink et al. 2023). To prevent the scope of the study being too wide, only simple CCRPs for purposes of developing illustrative examples were considered. A simple CCRP, also known as a swipe-only CCRP, involves granting award credits for each eligible credit card transaction. Cardholders can redeem award credits for cash or cardholders have a redemption choice between cash and goods or services. Award credits can be redeemed at the programme partners or at the financial institution. The card issuer receives an interchange fee for each credit card transaction. Some simple CCRPs also charge a membership fee to belong to the CCRP (Brink et al. 2023).

Accounting for a credit card rewards programme transaction

Credit card rewards programmes are unique and complex, and clear guidance on accounting for CCRP transactions is not provided in the IFRS, which requires management to apply their judgement when accounting for these transactions (Brink et al. 2024). Management needs to consider the underlying CCRP transaction to faithfully account for the transaction (Amalyan & Amalian 2015; Sava 2014). Management’s view of the key elements of the underlying transaction informs their choice of accounting treatment. Brink (2017a, 2017b) identified the following key elements of an underlying CCRP transaction that management must consider (and apply their judgement to) to identify the most appropriate accounting treatment thereof: the structure and functioning of CCRPs, the nature of the benefits provided and identifying the relevant revenue stream.

Based on the structure and functioning of a CCRP, the transaction can be viewed as a marketing tool or as part of an integrated revenue transaction. How the transaction is viewed is the first step in determining how to account for a CCRP transaction (Brink & Steenkamp 2023a). When the CCRP transaction is viewed as a marketing tool and the nature of the benefits is non-cash rewards, International Accounting Standard (IAS) 37 Provisions, Contingent Liabilities and Contingent Assets is applicable (Brink 2017b; Brink et al. 2024). International Financial Reporting Standards 15 applies when the CCRP transaction is considered part of an integrated revenue transaction and the benefits take the form of non-cash rewards (Brink et al. 2024; Brink & Steenkamp 2023b). Non-cash rewards can be defined as award credits redeemable for cash, as well as for goods or services, for accounting purposes (Brink et al. 2023). International Financial Reporting Standards 9 Financial Instruments applies when the benefits provided by a CCRP is cash only (Brink & Steenkamp 2023b).

Methods and data collection

Coetsee (2019) established that doctrinal research is a viable approach within the accounting discipline. Consistent with this, prior studies such as Klopper and Brink (2023) and Chemhere (2019) employed document analysis to develop accounting treatments in areas with limited guidance. Specifically, Brink (2024) and Coetsee and Van Wyk (2020) applied document analysis to interpret IFRS 15 in the context of complex transactions. Given its doctrinal nature, qualitative document analysis was deemed appropriate for developing the illustrated examples in this study, as it enables detailed exploration and description of specific accounting phenomena (Bowen 2009). The documents analysed primarily included relevant IFRS standards and prior academic and professional literature. Their selection was guided by the study’s aim (Morgan 2022) and informed by Flick’s (2018) four criteria for evaluating documents: credibility, authenticity, meaning and representativeness.

The methodical presentation of the accounting rules pertaining to CCRP transactions was made feasible via document analysis, which also allowed the researcher to explore the interrelationships between different rules and identify potential areas of concern (Hutchinson & Duncan 2012). Effective and sound conclusions were drawn after the pertinent information about CCRPs was gathered, the specific IFRS requirements were examined, primary sources of information were located and scrutinised, and pertinent issues regarding the accounting for CCRP transactions were synthesised (Hutchinson & Duncan 2012).

Previous research has shown that the Delphi technique is well-suited for the development and validation of models or frameworks (Donohoe & Needham 2009). Accordingly, it was used in this study to confirm and refine the illustrative examples developed through document analysis, thereby enhancing the trustworthiness and credibility of the findings. The Delphi technique has also been employed in other accounting studies, including those by Álvarez, Calvo and Mora (2012), Sena Oliveira and De Andrade Martins (2019), and Calabor, Mora and Moya (2019). The Delphi technique allowed the researcher to gain consensus and to address uncertainty and complexity in an area where knowledge was incomplete, imperfect or unknown (Amos & Pearse 2008; Donohoe & Needham 2009). In terms of the Delphi technique, a panel of experts must be selected (Clayton 1997), and the success of the Delphi technique depends principally on this selection (Chan et al. 2001).

The accounting treatment of CCRPs can be considered as a very specialised and narrow field. Considering the selection of the panel members, only experts who have been directly exposed to accounting for or auditing of simple CCRP transactions could truly contribute to the confirmation of these examples. This selection is supported by Donohoe and Needham (2009), who state that experts may be identified in terms of their closeness to an issue or problem and that panel members who are close to the issue are likely to produce valid and relevant consensus (Donohoe & Needham 2009). This, however, meant that the pool of experts to be invited was quite small.

The researcher decided to select experts from South Africa to confirm the illustrative examples. South Africa can be regarded as a strong starting point for addressing the global issue of accounting for CCRP transactions. South African CCRPs are listed on the Johannesburg Stock Exchange (JSE) and apply IFRS regulations, resulting in sophisticated financial reporting. In addition, the country exhibits features of both a developed and an emerging economy, reflecting a dual economic structure. Furthermore, some research on CCRPs has already been conducted in South Africa, providing a useful point of departure for this study (Brink et al. 2023). A total of 12 CCRPs currently operate in South Africa (Brink et al. 2023). Of the 12 CCRPs, only 3 programmes are simple CCRPs. The accountants and the heads of the CCRPs of 3 South African simple CCRPs and the audit partner responsible for the audit were purposively selected as they could each contribute in a different manner to the development of illustrative examples based on their skills and expertise.

The panel recruitment process involved making initial contact with CCRPs and audit firms through their human resources departments to obtain institutional permission and identify the panel members. Once permission was granted, the identified individuals were invited to participate, and informed consent was obtained from those who agreed to take part in the study. Ethical approval was secured before the commencement of the research. The Delphi technique involved the participation of 10 experts, identified as P1 to P10 (refer to Appendix B for demographic information).

The Delphi technique employed successive rounds, each of which built upon the results of the preceding rounds to produce agreement in the final round (De Villiers, De Villiers & Kent 2005). To assist the panel of experts in working through the illustrative examples and to make it more user-friendly, a video was developed that ‘walked and talked’ the panel of experts through the illustrative examples. The illustrative examples, together with the video and a questionnaire, were sent to the panel of experts, who had agreed to participate for the purposes of Round 1. The questionnaire included questions relating to the accuracy and completeness of the developed examples. Feedback was obtained from 10 experts, the data were analysed, and, where necessary, the illustrative examples were updated.

In Round 2, the revised illustrative examples were presented to the same panel members, along with a detailed explanation of the adjustments made in response to the feedback received during Round 1. The second-round questionnaire asked panel members whether they were satisfied with the revised illustrative examples and, if not, invited suggestions for further adjustments. No additional modifications were requested by any participant. Following two rounds of the Delphi technique, optimal data saturation and consensus were achieved, making a third round unnecessary (Vernon 2008).

Thematic analysis was used for the Delphi technique, which allowed the researcher to recognise and describe themes that were indicated by the experts in the field regarding their views, opinions and perspectives on the accounting treatment of CCRP transactions (Braun & Clarke 2006). Examples of themes identified during the thematic analysis included ‘Agreement with illustrative examples’ and ‘Suggestions for improvement’. Sub-themes emerging under these included, for instance, ‘Include a reference to award credits that are forfeited’ and ‘Consider the possibility of an onerous contract under IAS 37’. These themes informed the revisions and final confirmation of the illustrative examples.

Findings and discussion

Confirming the illustrative examples

The accounting treatments presented in the examples received unanimous agreement from all participants (P1 to P10). The accounting treatment made logical sense (P3; P5; P6), it was accurate in terms of the IFRS (P5), and the theory was sound and very detailed (P1; P2; P5). Participant 3 was impressed with how the researcher ‘knitted the examples together’ and commended the researcher for developing actual examples that included all the core input factors, such as the membership fee, the interchange fee and the possibility of commission in the agreement with the programme partners. Participant 3 thought these examples were ‘absolutely fascinating’. Participants 4 and 5 agreed by stating ‘congratulations on excellent work done’ (P4) and ‘very insightful work’ (P5). Participants 8 and 10 enjoyed working through the examples, and Participant 8 mentioned that the videos were very helpful. Participant 10 stated that the illustrative examples ‘add value to the discussion as well as highlight the complexity of the discussion (IFRS 15 vs. IAS37, agent vs principle etc.)’. Participant 1 appreciated the detail included in the examples and stated that the work done was commendable, because it was clear that developing these examples required a huge amount of work. Participant 5 indicated that ‘it is nice to see the journal entries’ and that it was very interesting how different methods were applied. Participant 3 stated that ‘one of the examples mimics what we do at XYZ’.² Participants 5 and 6 (from another financial institution) also stated: ‘I can see where our rewards programme comes in from an example perspective and it looks accurate’ (P5) and ‘I can see the similarities on how we treat our ABC³’ for accounting purposes (P6).

Participant 3 suggested including subsections for the three examples (e.g. Examples 3.1, 3.2, etc.) to help the reader differentiate between the different scenarios. Participant 4 recommended including a reference to forfeited award credits – for instance, award credits that expire, those left unredeemed by a cardholder who closes their account, or balances remaining when a cardholder passes away. Participant 7 identified a typing error.

Both Participants 1 and 2 felt that in practice it becomes difficult to apply the theory, especially in terms of derecognising the award credits liability. Participant 1 explained:

‘In practice it becomes taxing to determine the amount of award credits to derecognise in terms of award credits already granted – you have to keep track of award credits granted in following years and what was redeemed for all previous years. The volume of transactions is just so big and all happening concurrently. Cardholders are earning, spending at different partners with different reward rates, returning goods, receiving a refund, and re-spending award credits. It is difficult to work out the cumulative impact of the award credits granted and redeemed.’ (P1, CCRP1, Accountant)

Participant 1 and 2 therefore recommended simplifying the derecognition of the award credits liability in the following years. Participant 5 shared the same sentiment and stated: ‘In theory and in principle the accounting entries make sense, but there is complexity in how it can practically be managed … because of the sheer volume of transactions’. Participant 5 suggested considering the portfolio of award credits on a monthly basis to determine the value of the liability (whether it is an IAS 37 provision or an IFRS 15 contract liability):‘Keep track of award credits granted from an overall portfolio perspective rather than trying to track per award credit’. Participant 5 recommended including contract modifications (e.g. when the rewards programme changes the value of award credits granted or when the agreement with programme partners changes) in the examples.

To overcome the complexity of keeping track of specific award credits redeemed (and returned) at various programme partners at diverse reward rates and preventing the exercise from becoming too data intensive, the researcher suggests determining the value of the award credits liability with reference to the expected value of award credits to be redeemed in the future and then adjusting the award credits liability initially recognised (or the current balance of the award credits liability at the end of Year 1, Year 2, etc.). As these examples aim to provide a theoretical starting point for understanding different scenarios in simple CCRP transactions, the examples were not further expanded to provide for award credits granted in following years, redeeming award credits at different programme partners with different reward rates, returning goods, receiving a refund, and re-spending award credits and contract modifications.

Participant 7 stated the following regarding Example 2.2:

‘Careful consideration would be needed to consider whether the commission received from the trading partner is a genuine commission and represents “IFRS 15 revenue from contracts with customers” or whether instead it is just a mechanism to determine the cost to fulfil the contract [expense].’ (P7, Audit firm 1, Auditor)

The researcher’s aim was to include an example of what is explained in IFRS 15, par. B36. This was clarified in Example 2.2 by including the following: The commission represents the commission that the financial institution expects to be entitled to in exchange for arranging for the specified goods or services to be provided, as explained in IFRS 15, par. B36.

Participants 7, 8 and 9 questioned whether the commission retained would represent an onerous contract in terms of IAS 37. An onerous contract liability will only be recognised if the cost to arrange for a programme partner to provide those goods or services exceeds the relevant revenue received under the contract. Therefore, in this scenario, the award credits contract should be viewed as including the contract with the customer (for the part of the interchange fee that relates to the award credits) and the contract with the programme partners (for the commission retained and the consideration payable to the programme partners). This was clarified in the examples.

Participant 10 raised the question of whether the time value of money should be taken into account when determining the value of the award credits: ‘Are you allowed or expected to use discounting (I for example save my rewards and use only once a year). Would that differ under IAS 37 or IFRS 15?’ Some CCRPs offer award credits with no expiry date, making it important to consider whether the time value of money should be factored in. During the development of IFRS 15, the IAS Board noted that customer loyalty programmes are not required to measure award credits at their present value, as the associated cost would exceed the perceived benefit (IFRS 2014; PwC 2016). Therefore, for CCRP transactions accounted for under IFRS 15, the contract liability would not be adjusted for the time value of money. The treatment would, however, differ if IAS 37 is applicable. International Accounting Standard 37 (par. 45) determines that if the effect of the time value of money is material, the expected expenditures must be discounted to their present value. The contra-entry for the provision will be an expense, which will be recognised when the award credits are granted. In practice, it was found that in most cases, award credits granted (and therefore the effect of time value of money) are immaterial (Brink 2023) and were therefore not included in the examples.

Illustrative examples

The three illustrative examples providing more clarity and certainty regarding simple CCRPs accounting for award credits included: initial recognition of the liability, the derecognition of the liability (where applicable including principal versus agent consideration and breakage) and a change in the expected redemption rate. Where the CCRP acts as an agent, it is uncertain whether the agreement with the programme partners provides for a separate commission to be retained; therefore, for the sake of completeness, Example 2.2 included a commission in the agreement and Example 3.2 did not provide for commission. The examples started with a more straightforward scenario and moved to more complex scenarios. All simple CCRP scenarios were included to show how the accounting treatment differed from one to the next.

Example 1: Simple CCRP where the transaction is viewed only as a marketing tool and award credits are not linked to an observable value.

A financial institution that issues a credit card operates a simple CCRP. In terms of the rewards programme, the cardholders earn one award credit (with a 1-year expiry date) for every 1000 currency units (CU) spent on their credit cards. Award credits are not linked to an observable value and can be redeemed for a variety of rewards (including cash and non-cash rewards), as displayed on the financial institution’s website. A 1000 award credit reward can be redeemed for CU890 cashback, a spa voucher worth CU900, a car rental voucher of CU950 or 20% discount on any local flight from FlySave. During the first reporting period, cardholders made purchases with their credit cards amounting to CU100 000 000 and earned 100 000 award credits. Based on historical data, it is expected that 30% of cardholders will redeem their award credits for the cashback reward, 25% of cardholders will redeem their award credits for the spa voucher, 20% of cardholders will redeem their award credits for the car rental voucher and 10% of cardholders will redeem award credits for the 20% discount on a local flight. The remainder (15%) is expected to be forfeited because of cardholders neglecting to exchange award credits before the expiry date, cardholders who close their account without exchanging award credits or deceased cardholders with an award credits balance.

The financial institution’s management considered the structure and functioning of the CCRP. They applied their judgement based on their knowledge of the CCRP and how it functions in the organisation and concluded that the CCRP transaction is viewed as a marketing tool that results in the transaction falling within the scope of IAS 37. When award credits are granted, the CCRP has a present obligation to provide rewards or to pay the programme partners consideration for providing rewards, which will lead to an outflow of economic benefits. There is no certainty regarding when or whether the cardholders will redeem the award credits and for which rewards. The award credits granted therefore meet the definition of a provision (IAS 37, par. 10). In terms of IAS 37, the provision should be recognised at the best estimate of the expenditure required to settle the present obligation (IAS 37, par. 36). Applying the ‘expected value’ method of IAS 37 (par. 39), the value per award credit can be calculated (as illustrated in Table 1).

The total value (estimated cost) of award credits granted for the reporting period can then be calculated as CU74 600 (100 000 award credits × CU0.746). This represents a value from the card issuer’s perspective, taking redemption option ratios into account.

At the end of the first reporting period, award credits were redeemed as follows: 25 000 award credits were redeemed for the cashback reward, 10 000 award credits were redeemed for the spa voucher, 20 000 award credits were redeemed for the car rental voucher and 8000 award credits were redeemed for the 20% discount on a local flight. The provision should be derecognised as the award credits are redeemed. The financial institution pays out cash to the amount of CU22 250 (25 000 award credits redeemed × [CU890 ÷ 1000 award credits]) and recognises amounts payable to various programme partners for the vouchers issued to cardholders with the redemption of award credits (10 000 award credits redeemed for the spa voucher × [CU800 ÷ 1000 award credits], 20 000 award credits redeemed for the car rental voucher × [CU920 ÷ 1000 award credits] and 8000 award credits redeemed for the local flight voucher × [CU950 ÷ 1000 award credits]). After derecognising a part of the provision based on award credits redeemed, the balance of the provision amounts to CU18 350 (CU74 600–CU56 250). At the end of the first reporting period, the expected redemption rate is unchanged and no adjustment to the provision is deemed necessary; the provision currently reflects the current best estimate (as required by IAS 37, par. 59).

During the second reporting period, an additional 1000 award credits were redeemed for the cashback reward. At the end of the second reporting period, there was a change in the expected redemption rate and the financial institution expects the following redemption rates relating to the 100 000 award credits originally granted (based on historical data): 2% of cardholders will redeem award credits for the cashback reward and 10% of cardholders will redeem award credits for the spa voucher. In terms of IAS 37 (par. 59):

[P]rovisions shall be reviewed at the end of each reporting period and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision shall be reversed.

The value of the provision, taking the change in the expected redemption rate into account, can be calculated as illustrated in Table 1.

The reviewed value of the provision at the end of the second reporting period amounts to CU9780 (100 000 award credits × CU0.09780). The provision is currently measured at CU17 460 (CU74 600–CU56 250–CU890) and needs to be adjusted to reflect the current best estimate of CU9780. The contra-entry for the provision will be the award credits expense (adhering to IAS 37, par. 61). The journal entries accounting for the award credits of a simple CCRP in the financial institution’s records, where the CCRP is viewed as a marketing tool applying IAS 37 for the relevant reporting periods, are illustrated in Table 2.

Example 2: Simple CCRP where the interchange fee is identified as the relevant revenue stream in an integrated revenue transaction

Example 2.1: Financial institution acts as a principal

A financial institution that issues a credit card operates a simple CCRP. In terms of the rewards programme, the cardholders earn one award credit for every CU1000 spent on their credit cards. Each award credit is redeemable for either CU1 cashback or CU1 discount on future purchases of goods or services offered by the financial institution (as displayed on its website) or offered by programme partners. During the first reporting period, cardholders made purchases with their credit cards amounting to CU100 000 000 and earned 100 000 award credits. Based on historical data, it is expected that 98% of the award credits granted will be redeemed. The financial institution charges cardholders a monthly membership fee to belong to the rewards programme. The total membership fees received for the first reporting period amount to CU180 000. The financial institution also earns an interchange fee on each credit card transaction and the total interchange fee received for the first reporting period amounts to CU200 000.

The financial institution’s management considered the structure and functioning of the CCRP. Management members applied their judgement based on their knowledge of the CCRP and how it functions in the organisation and concluded that the CCRP transaction is viewed as part of an integrated revenue transaction. This results in the CCRP transaction falling within the scope of IFRS 15 (Brink & Steenkamp 2023b). The financial institution identifies the interchange fee as the relevant revenue stream in the CCRP transaction as being the rationale behind the programme (identifying the cardholder as the card issuer’s customer for the interchange fee). When credit card holders swipe their card, the swipe transaction gives rise to the interchange fee revenue and the award credits liability; a direct link therefore exists between the revenue and the award credits liability.

Applying the principles of IFRS 15, the following is applicable: there is an agreement between the cardholder and the financial institution according to which the financial institution is obligated to transfer cash electronically and to grant award credits with each credit card transaction. For the CCRP, there are two performance obligations, namely the service of electronic payment facilitation and the contract under which the financial institution is obligated to grant award credits. International Financial Reporting Standards 15 determines that the transaction price (i.e. the CU200 000 interchange fee) should be allocated to the performance obligations based on relative stand-alone selling prices (IFRS 15, par. 74).

In terms of IFRS 15, the financial institution estimates a stand-alone selling price of CU0.98 (CU1 × 98%) per award credit, totalling CU98 000, based on the discount that the cardholders will obtain when redeeming their award credits (value regarded from the cardholders’ perspective) and the likelihood of the award credits being redeemed (i.e. the expected redemption rate) (IFRS 15, par. B42). The financial institution allocates the transaction price (CU200 000 total interchange fee) to the service of electronic payment facilitation and the award credits granted on a relative stand-alone selling price basis as follows:

• Service of electronic payment facilitation: CU200 000 × (CU200 000 ÷ [CU200 000 + CU98 000]) = CU134 228
• Award credits: CU200 000 × (CU98 000 ÷ [CU200 000 + CU98 000]) = CU65 772.

At the end of the first reporting period, 60 000 award credits were redeemed for goods or services offered by the financial institution (as displayed on its website) and the financial institution continues to expect 98 000 award credits to be redeemed in total at the financial institution (98%). The nature of its promise is a performance obligation to provide the specified goods or services itself and the financial institution collects the consideration allocated to the award credits on its own account; therefore acting as the principal in the transaction (applying IFRS 15, par. B34). As the financial institution satisfies the performance obligation, it recognises revenue as the gross amount of consideration that it expects to be entitled to in exchange for the goods or services transferred (IFRS 15, par. B35). The financial institution is entitled to a breakage amount and recognises the expected breakage amount as revenue in proportion to the pattern of rights exercised by the cardholder (IFRS 15, par. B46). The financial institution recognises revenue for the award credits of CU40 269 ([60 000 award credits redeemed ÷ 98 000 expected award credits redeemed] × CU65 772) in terms of the award credits redeemed.

During the second reporting period, an additional 35 000 award credits are redeemed at the financial institution for goods or services (cumulative award credits redeemed are 95 000) and the financial institution now expects that all the award credits granted will be redeemed (100%). The increase in the expected redemption rate (from 98% to 100%) is taken into account when the portion of deferred revenue to be recognised is calculated. The cumulative revenue that the financial institution recognises is CU62 483 ([95 000 cumulative award credits redeemed ÷ 100 000 expected award credits redeemed] × CU65 772). The financial institution recognised CU40 269 of the deferred revenue in the first reporting period; it therefore recognises revenue for the award credits of CU22 214 (CU62 483–CU40 269) in the second reporting period.

In the third reporting period, the remaining 5000 award credits are redeemed (cumulative award credits redeemed are 100 000). The financial institution has already recognised CU62 483 of the deferred revenue; it therefore recognises the remaining revenue for the award credits of CU3289 (CU65 772–CU62 483). The journal entries accounting for the award credits of a simple CCRP in the financial institution’s records, where the interchange fee is identified as the relevant revenue stream and the financial institution acts as the principal applying the deferred revenue model of IFRS 15, are illustrated in Table 3.

Example 2.2: Financial institution acts as an agent and the agreement with programme partners provides for a commission to be retained

Assume the same information as in illustrative Example 2.1, except that award credits are redeemed at the programme partners. The nature of the financial institution’s promise is a performance obligation to arrange for a programme partner to provide those goods or services and the financial institution collects the consideration allocated to the award credits on behalf of the programme partner; therefore acting as the agent in the transaction (applying IFRS 15, par. B34).

The agreement with the programme partners determines that the consideration of CU0.60 per award credit redeemed is payable to the programme partner when award credits are redeemed, and the benefits are provided by the programme partner. This means that the initial recognition remains unchanged, because only when award credits are redeemed will the financial institution be able to determine whether it acts as a principal (collecting consideration on its own account) or an agent (collecting consideration on behalf of the programme partner) in the transaction. The agreement with the programme partners also determines that the financial institution retains a 10% commission income⁴ of the consideration payable to the programme partners (i.e. CU0.06 per award credit redeemed). As award credits are redeemed at the programme partners, the financial institution recognises revenue in the amount of any fee or commission that it expects to be entitled to in exchange for arranging for the programme partner to provide its goods or services. The financial institution’s commission is the net amount of consideration that the financial institution retains after paying the programme partner the consideration received in exchange for the goods or services that were provided by that programme partner (IFRS 15, par. B36). The net amount payable to the programme partner will be accounted for as a contract cost expense, as it is a cost that relates to a partially satisfied performance obligation (IFRS 15, par. 98(c)).⁵ The journal entries accounting for the simple CCRP’s award credits in the financial institution’s records, where the interchange fee is identified as the relevant revenue stream and the financial institution acts as the agent applying IFRS 15, are illustrated in Table 3.

Example 2.3: Financial institution acts only as an agent and the agreement with programme partners provides for a commission to be retained

Assume the same information as in illustrative Example 2.1, except that award credits can only be redeemed at the programme partners. The nature of the financial institution’s promise is a performance obligation to arrange for programme partners to provide goods or services and the financial institution collects the consideration allocated to the award credits on behalf of the programme partner; therefore acting as the agent in the transaction (applying IFRS 15, par. B34). Unlike in the previous scenarios of Example 2, the financial institution can only act as agent (and not as principal). This will have implications for the initial recognition of the CCRP transaction because the financial institution already knows that it acts as an agent in the transaction when the award credits are granted.

For the financial institution, there are two performance obligations, namely the service of electronic payment facilitation and the contract under which the financial institution is obligated to grant award credits and to arrange for a programme partner to provide those goods or services. International Financial Reporting Standards 15 determines that the transaction price (i.e. the CU200 000 interchange fee) should be allocated to the performance obligations based on relative stand-alone selling prices (IFRS 15, par. 74). The objective when allocating the transaction price is for the entity to allocate the transaction price to each performance obligation in an amount that depicts the amount of consideration that the entity expects to be entitled to (IFRS 15, par. 73).

In terms of IFRS 15, the financial institution estimates a stand-alone selling price of CU0.00558 (CU0.06 × 98%) per award credit, totalling CU5880 commission retained based on the amount the financial institution expects to be entitled to in exchange for arranging for a programme partner to provide goods or services (taking into account the expected redemption rate) (IFRS 15, par. 73). The financial institution allocates the transaction price (CU200 000 total interchange fee) to the service of electronic payment facilitation and the service of arranging for a programme partner to provide goods or services on a relative stand-alone selling price basis as follows:

• Service of electronic payment facilitation: CU200 000 × (CU200 000 ÷ [CU200 000 + CU5880]) = CU194 288
• Commission: CU200 000 × (CU5880 ÷ [CU200 000 + CU5880]) = CU5712.

The financial institution’s commission is the net amount of consideration that the financial institution expects to be entitled to in exchange for arranging for a programme partner to provide those goods or services (IFRS 15, par. B36). When the entity satisfies its performance obligation to arrange for a programme partner to provide those goods or services, the financial institution recognises revenue in the amount of the commission that it is entitled to (IFRS 15, IE233).

When award credits are granted, a present obligation arises to pay a programme partner consideration for providing benefits with the redemption of the award credits. The original credit card transaction and granting of the award credits indicate the event in the past. When the cardholder redeems the award credits and the financial institution pays a programme partner consideration for providing benefits, an outflow of economic benefits will occur. As there is no certainty about when or whether the cardholder will redeem the award credits, the timing and amount are uncertain. Therefore, when award credits are granted, it meets the requirements of the definition of an IAS 37 provision (IAS 37, par. 10). In terms of IAS 37, the provision should be recognised at the best estimate of the expenditure required to settle the present obligation (IAS 37, par. 36).

At initial recognition, the provision can be calculated applying IAS 37’s ‘expected value’ method (IAS 37, par. 39) as CU52 920 (100 000 award credits × 98% expected redemption rate × CU0.54 amount payable to programme partners). At the end of each reporting period, the award credits provision will be derecognised with reference to the award credits redeemed (Year 1: 60 000 award credits; Year 2: 35 000 award credits; and Year 3: 5000 award credits, each multiplied by CU0.54, representing the amount payable to programme partners per award credit). At the end of the second reporting period, the provision should also be adjusted for the change in the expected redemption rate (from 98% to 100%) (IAS 37, par. 59). At the end of the second reporting period, the best estimate of the expenditure to settle the present obligation amounts to CU2700 ([100 000–95 000] award credits × 100% expected redemption rate × CU0.54 amount payable to programme partners) (IAS 37, par. 36). At the end of the second reporting period, the balance of the provision amounts to CU1620 (CU5290–CU32 400–CU18 900) and should therefore be increased with CU1080 (CU2700–CU1620). The journal entries accounting for the simple CCRP’s award credits in the financial institution’s records, where the interchange fee is identified as the relevant revenue stream and the financial institution acts as the agent applying IFRS 15, are illustrated in Table 3.

Example 3: Simple CCRP where the membership fee is identified as the relevant revenue stream in an integrated revenue transaction

Example 3.1: Financial institution acts as a principal

A financial institution that issues a credit card operates a simple CCRP. In terms of the rewards programme, the cardholders earn one award credit for every CU1000 spent on their credit cards. Each award credit is redeemable for either CU1 cashback or CU1 discount on future purchases of goods or services offered by the financial institution (as displayed on its website) or offered by programme partners. During the first reporting period, cardholders made purchases with their credit cards amounting to CU100 000 000 and earned 100 000 award credits. Based on historical data, it is expected that 98% of the award credits granted will be redeemed. The financial institution charges cardholders a monthly membership fee to belong to the rewards programme. The total membership fees received for the first reporting period amount to CU180 000. The financial institution also earns an interchange fee on each credit card transaction and the total interchange fee received for the first reporting period amounts to CU200 000.

The financial institution’s management considered the structure and functioning of the CCRP and applied their judgement based on their knowledge of the CCRP and how it functions in the organisation and concluded that the CCRP transaction is viewed as part of an integrated revenue transaction. This results in the CCRP transaction falling within the scope of IFRS 15 (Brink & Steenkamp 2023b). The financial institution identifies the membership fee as the relevant revenue stream; this is what funds the CCRP. The merchant is identified as the customer for the interchange fee, which results in the interchange fee not being regarded as the relevant revenue stream (IFRS 15, par. 6).

For the membership fee (being the relevant revenue stream), there are two distinct goods or services that must be provided by the financial institution, namely the service of running the rewards programme⁶ and the granting of award credits. The running of the rewards programme is distinct because the customer can benefit from being a member by receiving soft benefits (e.g. access to airport lounges) and the CCRP provides the service of arranging with programme partners to provide goods or services (IFRS 15, par. 26(f) and 27). IFRS 15 determines that the transaction price (i.e. the CU180 000 membership fee) should be allocated to the performance obligations based on relative stand-alone selling prices (IFRS 15, par. 74).

In terms of IFRS 15, the financial institution estimates a stand-alone selling price of CU0.98 (CU1 × 98%) per award credit, totalling CU98 000, based on the discount that the cardholders will obtain when redeeming the award credits (the value regarded from the cardholders’ perspective) and the likelihood of the award credits being redeemed (i.e. the expected redemption rate) (IFRS 15, par. B42). The financial institution allocates the transaction price (CU180 000 total membership fee) to the service of running the rewards programme and the award credits granted on a relative stand-alone selling price basis as follows:

• Service of running a rewards programme (membership fee received): CU180 000 × (CU180 000 ÷ [CU180 000 + CU98 000]) = CU116 547
• Award credits: CU180 000 × (CU98 000 ÷ [CU180 000 + CU98 000]) = CU63 453.

At the end of the first reporting period, 55 000 award credits were redeemed for goods or services offered by the financial institution (as displayed on its website) and the financial institution now expects that only 95 000 award credits will be redeemed in total at the financial institution (95%). The nature of its promise is a performance obligation to provide the specified goods or services itself and the financial institution collects the consideration allocated to the award credits on its own account; therefore acting as the principal in the transaction (applying IFRS 15, par. B34). As the financial institution satisfies the performance obligation, it recognises revenue as the gross amount of consideration that it expects to be entitled to in exchange for the goods or services transferred (IFRS 15, par. B35). The financial institution is entitled to a breakage amount and recognises the expected breakage amount as revenue in proportion to the pattern of rights exercised by the cardholder (IFRS 15, par. B46). The financial institution recognises revenue for the award credits of CU36 736 [(55 000 award credits redeemed ÷ 95 000 expected award credits redeemed) × CU63 453] in terms of the award credits redeemed.

During the second reporting period, an additional 30 000 award credits are redeemed at the financial institution for goods or services (cumulative award credits redeemed are 85 000) and the financial institution continues to expect that 95 000 award credits will be redeemed (95%). The cumulative revenue that the financial institution recognises is CU56 774 [(85 000 cumulative award credits redeemed ÷ 95 000 expected award credits redeemed) × CU63 453]. The financial institution recognised CU36 736 of the deferred revenue in the first reporting period; it therefore recognises revenue for the award credits of CU20 038 (CU56 774–CU36 736) in the second reporting period.

In the third reporting period, in line with management’s expectation, 10 000 award credits are redeemed (cumulative award credits redeemed are 95 000). The financial institution has already recognised CU56 774 of the deferred revenue; it therefore recognises the remaining revenue for the award credits of CU6679 (CU63 453–CU56 774). The journal entries accounting for the award credits of a simple CCRP in the financial institution’s records, where the membership fee is identified as the relevant revenue stream and the financial institution acts as the principal applying the deferred revenue model of IFRS 15, are illustrated in Table 4.

Example 3.2: Financial institution acts as an agent

Assume the same information as in illustrative Example 3.1, except that the award credits are redeemed at the programme partners. The nature of the financial institution’s promise is a performance obligation to arrange for a programme partner to provide those goods or services and the financial institution collects the consideration allocated to the award credits on behalf of the programme partner; therefore acting as the agent in the transaction (applying IFRS 15, par. B34).

The agreement with the programme partners determines that consideration of CU0.55 per award credit redeemed is payable to the programme partner when award credits are redeemed, and the benefits are provided by the programme partner. This means that the initial recognition remains unchanged, because only when award credits are redeemed will the financial institution be able to determine whether it acts as a principal (collecting consideration on its own account) or an agent (collecting consideration on behalf of the programme partner) in the transaction. The agreement with the programme partners does not provide for any separate commission to be retained. As award credits are redeemed at the programme partners, the financial institution recognises the amount payable to the programme partners as a contract cost expense, as it is a cost that relates to a partially satisfied performance obligation (IFRS 15, par. 98(c)). The journal entries accounting for the simple CCRP’s award credits in the financial institution’s records, where the membership fee is identified as the relevant revenue stream and the financial institution acts as the agent applying IFRS 15, are illustrated in Table 4.

Example 3.3: Financial institution acts as a principal and an agent

Assuming the same information as in illustrative Example 3.1, except that a portion of the award credits is redeemed for goods or services offered by the financial institution (as displayed on its website) and a portion of the award credits is redeemed at the programme partners.

At the end of the first reporting period, 55 000 award credits were redeemed in total: 300 00 award credits for goods or services offered by the financial institution (as displayed on its website) and 25 000 award credits for goods or services offered by the programme partners. As the financial institution satisfies the performance obligation (whether it is to provide goods or services itself or to arrange for a programme partner to provide those goods or services), the financial institution recognises revenue as the gross amount of consideration that it expects to be entitled to in exchange for the goods or services transferred (IFRS 15, par. B35). The financial institution is entitled to a breakage amount and recognises the expected breakage amount as revenue in proportion to the pattern of rights exercised by the cardholders (IFRS 15, par. B46). As award credits are redeemed at the programme partners, the financial institution recognises the amount payable to the programme partners as a contract cost expense, as it is a cost that relates to a partially satisfied performance obligation (IFRS 15, par. 98(c)).

During the second reporting period, an additional 30 000 award credits are redeemed: 10 000 award credits for goods or services offered by the financial institution (as displayed on its website) and 20 000 award credits for goods or services offered by the programme partners. In the third reporting period, 10 000 award credits are redeemed: 6000 award credits for goods or services offered by the financial institution (as displayed on its website) and 4000 award credits for goods or services offered by the programme partners. The journal entries accounting for the simple CCRP’s award credits in the financial institution’s records, where the membership fee is identified as the relevant revenue stream and the financial institution acts as the principal and the agent by applying IFRS 15’s deferral model, are illustrated in Table 4.

Examples 2 and 3 illustrate how CCRP transactions that fall within the scope of IFRS 15 – specifically, those forming part of an integrated revenue transaction rather than serving merely as a marketing tool – are aligned with its guidance. These examples demonstrate the application of the standard’s five-step model for revenue recognition in accordance with IFRS 15’s core principle.

To clarify the differences between examples within the scope of IFRS 15 (Examples 2 and 3), the following distinctions have been identified: In a simple CCRP where the financial institution is acting as a principal (Example 2.1 and 3.1) compared to the financial institution acting as an agent (Example 2.2 and 3.2), the only difference is that when the financial institution is acting as an agent and award credits are redeemed at the programme partners a contract cost expense, commission income (if commission is separately stipulated in the agreement) and an amount payable to programme partners are recognised. In contrast, in a CCRP transaction where the financial institution acts solely as an agent (Example 2.3), the accounting treatment differs from both the principal (Examples 2.1 and 3.1) and agent (Examples 2.2 and 3.2) scenarios. In this case, all revenue is recognised upfront (i.e. no deferral of revenue occurs). In addition, an IAS 37 provision is recognised when award credits are granted and is only derecognised upon redemption of the award credits.

Conclusion and recommendations

A gap exists in the current literature, as there are no illustrative examples showing how a simple CCRP should account for a CCRP transaction. To ensure the faithful and consistent accounting of CCRPs in annual financial statements, CCRP practitioners have expressed a need for such examples, citing the lack of guidance provided in the IFRS (Brink 2023). The aim of this study was therefore to address this need and to develop and confirm illustrative examples for simple CCRPs after the effective date of IFRS 15. The illustrative examples developed included specific scenarios and amounts, which clearly indicated the journal entries to account for the initial recognition and derecognition of award credits in simple CCRP transactions. The examples also provided explanations and justifications for the various journal entries and calculations, citing the relevant standards.

The difference between viewing the CCRP transaction as a marketing tool (and applying IAS 37) and as part of an integrated revenue transaction (applying IFRS 15) was illustrated. Calculating the IAS 37 provision using the ‘expected value’ method for a CCRP that offers various benefits was included, using the various options’ cost prices and expected redemption rates. The examples also illustrated the two different revenue streams, namely interchange fees and membership fees, that can be identified in an integrated CCRP revenue transaction and how they affect the application of IFRS 15. Specific complexities were addressed in the examples such as those related to derecognising award credits, including the principal versus agent consideration, the treatment of breakage when cardholders do not redeem all their award credits at once, and a change in the estimated expected redemption rate over time. A scenario where the cardholder only has redemption options at programme partners and where the financial institution acts only as an agent was included. This example clearly indicated how the accounting differs from a scenario where the cardholder has redemption options at the financial institution and at programme partners. The illustrative examples were limited to simple CCRPs and benefits in the form of a non-cash reward.

The illustrative examples were validated through two rounds of the Delphi technique. The expert panel comprised CCRP heads, accountants, and auditors. The panel members’ comments only led to minor adjustments to the illustrative examples. These minor adjustments included a reference to award credits that are forfeited, the correction of a minor typing error, and including subheadings.

Accounting for a CCRP transaction requires management to apply their judgement, given the lack of guidance provided by IFRS. For the first time, managers of simple CCRPs have illustrative examples to assist them in their decision-making process regarding the accounting treatment of these transactions. The illustrative examples could provide clarity and certainty to CCRPs and ensure that CCRPs faithfully account for their CCRP transactions. In assisting CCRP management in accounting for CCRP transactions, comparability between similar CCRPs can be enhanced, which will solve comparison problems and increase the decision-usefulness of financial information making a clear practical contribution. This study also makes a theoretical contribution by applying a normative theoretical lens to demonstrate how principle-based IFRS guidance can be interpreted and practically applied to the underexplored yet complex area of simple CCRPs. In terms of methodological contribution, the use of the Delphi technique to validate the proposed treatments ensures the rigour and credibility of the illustrative examples. Although prior literature has called for illustrative guidance in this domain, no prior study has systematically developed and empirically validated such examples for simple CCRPs. Finally, by comparing the findings with those of Brink (2024) related to complex and co-brand CCRPs, the study shows that different types of CCRPs warrant distinct accounting treatments. This further reinforces the study’s contribution to the literature by highlighting the need for a differentiated approach based on the nature of the CCRP.

Acknowledgements

This article builds on a previous publication by Brink (2024) ‘Developing and confirming illustrative examples for revenue recognition in credit card rewards programmes’.

The author declares that she has no financial or personal relationships that may have inappropriately influenced her in writing this article.

S.M.B. declares that they are the sole author of this research article.

Ethical approval to conduct this study was obtained from Stellenbosch University, Social, Behavioural and Education Research Ethics Committee (Reference no: REC-050411-032) for final ethics clearance, which was also granted prior to commencing with the study (Project number: 17134).

This research received no specific grant from any funding agency in the public, commercial or not-for-profit sectors.

The author confirms that the data supporting the findings of this study are available within the article.

The views and opinions expressed in this article are those of the author and are the product of professional research. The article does not necessarily reflect the official policy or position of any affiliated institution, funder or agency, or that of the publisher. The author is responsible for this article’s results, findings and content.

References