Wednesday, June 25, 2014

Accounting for sign-on bonus paid to customers

In service industry, it is common for your audit client to give out sign-on bonus to particular customer to entice the customer to stay with the audit client for a certain period. Sign-on bonus could be upfront payment or payments could be straggerred throught the contractual period.

How should the sign-on bonus be accounted.

We are of the view that the sign-on bonus should be capitalised in full and amortized over the contractual peiod.

For instance, Audit Client A may pay offer customer XY for security guard services a sign-on bonus of US$2million for customer XY to stay with the Audit Client A for a period of 3 years. During this period, customer XY is not allowed to engage other security guad services provider. We are of the opinion that the US$2million should be capitalised and amortized over a period of 3 years.

This is to match the expenses and economic benefit over the contractual period.

Please let me know if you have different views on this :)

Myauditor -

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