Liability Management & Accounting Practices for Loyalty
When it comes to loyalty programs, engagement gets the spotlight—but what about the financial obligations behind the scenes? Every point issued creates a liability that can affect profitability, compliance, and even investor confidence.
Managing this liability isn’t just an accounting exercise—it’s essential for sustaining program value and avoiding costly surprises.
To help you get it right, here are three must-read articles on how to manage loyalty program liabilities and keep your financial reporting clean:
1. Financial Accounting for Loyalty Program Liability
Estimating breakage rates and forecasting redemptions are critical to maintaining accurate financial statements and avoiding overstated liabilities. This article explains the accounting principles behind loyalty program liability, including how unredeemed points create future obligations on your balance sheet. It highlights compliance requirements under IFRS 15 and ASC 606 and the importance of accurate revenue deferral.
2. Guide to Loyalty Program Liability
A structured liability management framework ensures better planning, cost control, and program profitability. This guide provides a practical overview of calculating and managing loyalty program liabilities. It covers why liabilities build up, how to track them, and strategies for mitigating financial risks associated with unredeemed rewards.
3. Accounting for Loyalty Programs
Accurate allocation of transaction price and correct timing of revenue recognition are essential for compliance and financial integrity. It explains how loyalty programs, discounts, and promotions should be recorded in financial records to comply with accounting standards. It details how deferred revenue and separate performance obligations should be handled under ASC 606 and IFRS 15.
