Financial Accounting Standards Board Essay Example for Free

Financial Accounting Standards Board Essay trail Discount (Runway), a privately held online retailer, has implemented a new guest referral selling campaign. The campaign involves incentivizing current guests to refer their friends to Runways website. When a current customer refers someone who makes a purchase on Runways website, the referring customer receives a $25 credit to be applied to a future purchase. Two important provisions should be highlighted regarding this Refer-a-Friend programThe $25 credit is particular upon the existing customers referral actually making a purchase The $25 credit is applied to the referring customers future purchase at the time that the referred customer makes a purchaseThe business purpose of this Refer-a-Friend program is to increase sales and expand Runways customer base by providing incentives for current customers to refer their friends. The first written reporting issue associated with Runway Discounts Refer-a-Friend program is identif ying how the $25 referral credit should be bear witnessed in Runways income statement. Is this consideration an adjustment of the selling prices of the vendors products or services, and therefore characterized as a reduction of revenue, or is it a cost incurred by the vendor for assets and services received from the customer, and therefore characterized as a cost or expense? The next significant accounting issue is regarding when Runway should record the $25 referral credit as a liability (a) at the time an existing customer receives the $25 referral credit, or (b) at the time the existing customer actually uses the $25referral credit to make a purchase?In the following sections, we will discuss the possible accounting treatments under U.S GAAP and IFRS, which cerebrate to these accounting issues facing Runway Discount. Relevant examples will be provided of businesses that offer similar referral incentive programs. We will conclude with our recommendation of how Runway Discount sh ould account for the referral credits it issues relating to its Refer-a-Friend program.Applicable Authoritative LiteratureFASB Accounting Standards Codification (ASC) 605-50, Revenue Recognition IASC International Accounting Standards (IAS) 18, Revenue RecognitionView as multi-pages