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August 4, 2015

Will Revenue Recognition Changes Signal the End of Customer Loyalty Programs?

Impending accounting changes may mean more businesses decide to reconsider their customer loyalty programs. Initiatives that provide incentives to returning customers allow companies to track client purchasing activity but can also trigger unclaimed property exposure, cybersecurity liabilities and other risks. A recent article by CBIZ MHM Managing Director, Brad Hale, discusses the new revenue recognition guidelines, which begin to roll out in 2018, and how they may have more businesses deciding their customer loyalty programs are not worth the risk.

Entities currently have two options to account for loyalty programs: the cost/provision method or the revenue deferral method. The favorable cost/provision method however, will soon be going away. The new revenue recognition guidance makes the revenue deferral accounting method mandatory, leaving companies with the difficult decision of whether or not they want to take on the liability of recognizing the revenue associated with the customer loyalty program.

The new revenue recognition guidance is complex and organizations should review the new standard now to prepare for the implementation date. Public entities will adopt the guidance for annual periods beginning after December 15, 2017, and private entities will adopt for annual periods after December 15, 2018, and interim periods after December 15, 2019.

Revenue recognition is not the only liability associated with customer loyalty programs. For more information about other risks, read the full article here.

If you have any accounting advisory needs, please contact Brad at bhale@cbiz.com or 727.572.1400.

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