The economic growth in Indonesia is closely linked to changes in technology, social and cultural aspects, and other factors, thereby directly affecting consumer purchasing power. To increase profits, businesses compete to boost sales by offering various sales incentives to attract consumers.
Customer loyalty programs are one method companies use to maintain relationships with consumers, aiming for continuous repeat purchases. Systematic and massive sales incentives are expected to cultivate customer loyalty. Businesses employ customer loyalty programs by providing incentives for customers to purchase their goods or services.
Essentially, sales incentives through loyalty programs are marketing strategies that can enhance relationships with customers and increase the value and performance of a business through revenue recognition from loyalty programs. If a customer purchases goods or services, the company awards points to the customer (often described as “points”). The reward issuance from loyalty programs depends on meeting specific terms and conditions, requiring special consideration in financial reporting regarding revenue recognition from such programs.
Revenue recognition with customer loyalty programs is regulated under PSAK (Financial Accounting Standards Statement) 72 concerning Revenue from Contracts with Customers. Specifically, customer loyalty programs are governed under ISAK (Interpretation of Financial Accounting Standards) No.10. This interpretation applies to customer loyalty award points given by companies to their customers as part of the sale of goods and services, contingent upon fulfilling certain conditions or terms. These accounting standards impact the audit process conducted by auditors when examining the fairness of balances in financial statements, especially revenue accounts.
If a contract with a customer grants the option to obtain additional goods or services for free or at a discount, these options appear in various forms, including sales incentives, customer credit awards (or points), contract renewal options, or other future goods or services discounts. If an option provides the customer with a material right, they will not receive if the contract were not agreed upon, the customer is essentially prepaying the company for future goods or services, and revenue is recognized when those future goods or services are transferred or the option expires.
In auditing, the focus of customer loyalty program audits is determining the transaction price allocation to performance obligations. The transaction price allocation for each performance obligation must reflect the amount that the entity expects to be entitled to in exchange for transferring the promised goods or services to the customer. To achieve this allocation goal, companies must allocate the transaction price to each identified performance obligation in the contract based on standalone selling prices. Standalone selling prices are the prices at which the promised goods or services are sold separately by the company to customers.
If standalone selling prices or customer options for additional goods or services cannot be directly observed, companies may estimate them. These estimates become a primary focus of the audit process because estimation accounts carry a high risk of material misstatement. According to PSAK 72, estimates reflect the discount the customer would receive when exercising the option, adjusted for discounts the customer could receive without performing the option and the likelihood of the option being exercised.
Revenue accounts are inherently high-risk audit areas, necessitating precise audit planning to test whether revenue balances are fairly presented. This risk arises due to their direct association with potential management fraud or susceptibility to manipulation. With customer loyalty programs, revenue recognition also carries a risk of material misstatement due to its estimation element. Therefore, auditors must ensure the fairness of revenue classification obtained from loyalty programs and consider the accounting for costs (such as commissions, agency fees, etc.) payable to third parties when recording revenue recognition from loyalty programs. Additionally, auditors should consider the company’s regulations regarding awards (such as expiration periods, sales/revenue cycles) as these will affect the accounting methods and revenue recognition for each company.
