Solving ASPE Loyalty Program AOs in CPA Canada PEP and CFE Cases

One of the key skills to assessing a financial reporting AO within a CPA Canada exam is understanding the differences between financial frameworks. We dove into depth of applying IFRS 15 to Loyalty Programs in a recent post. Where IFRS 15 provides specific guidance in the application of the standard, ASPE 3400 is judgement-based for recognizing and measuring revenue. It’s important to recognize how to assess revenue in accordance with ASPE without detailed guidance relating to options and programs surrounding additional goods / services.

Example of ASPE 3400 Loyalty Program AO

Using the same example, consider the loyalty program of Entity A that sells shoes. For every $1 worth of shoe purchases, a customer receives 1 loyalty point. These points can be spent on purchases from Entity A and each point equals $0.10 worth of purchases. Based on historical trends, Entity A expects 5% of points to expire being unredeemed. That’s to say, it’s expected that 95% of loyalty points will be redeemed. So far, Entity A has sold $1,000 of shoes during the period. Assume no liability has been recorded in Entity A’s financial statements.


The amount of revenue to be recorded should still be assessed for Entity A. Under ASPE guidance, this is based on a risks and rewards model, as opposed to IFRS 15 where control is the primary indicator over goods and services. In this case, Entity A has an obligation to provide rewards to the customers that have earned them and collected loyalty points. This will trigger a need to assess whether a liability exists and should in fact be recorded.

To assess a liability under ASPE, the following factors should each be discussed using case facts:

  • Obligations arising from past transactions or events
  • Settlement may result in transfer or use of assets
  • Provision of services or other yielding of future economic benefits


Since the customers earn 1 loyalty point for each dollar spent, you must estimate the amount of points that are outstanding at the end of the period. Given that $1,000 sales have occurred, approximately 1,000 points are outstanding. To determine the amount of liability that should be accrued, the points need to be valued. Since 1 loyalty point is redeemable for $0.10 worth of purchases, it could be estimated that $0.10 x 1,000 points = $100 as the cost to Entity A (or $0.10 value per point). Factoring in the likelihood of points to be redeemed, a more accurate estimate would be $100 x 95% = $95 for the liability.

Therefore, Entity A will need to accrue $95 liability at the end of the period. Entity A may be able to accrue a lesser amount if the percentage of points outstanding that will likely never be redeemed changes.


As the points are redeemed, the liability will be reduced and revenue is generated. The liability will also be reduced when the option for these points expire.

For some additional guidance of ASPE liabilities and revenue, check out ASPE Sections 1000, 3290 and 3400.

Get effective CPA exam coaching

If you need helping passing your exams, check out CPA PEP and CPA CFE Review course for a comprehensive prep package and coaching.