In my previous articles, we talked about the challenges being faced by loyalty finance professionals as well as the biggest struggles for loyalty marketers. Moving forward, you should know that accountants are another key stakeholder that faces obstacles.
In this article, we’ll examine the progress that accountants strive for when accounting for loyalty program liability. In addition, we’ll also look at the struggles they often encounter along the way.
The Progress Accountants Desire
The quarter end can often be a stressful and hectic time for accountants, as they race to close the books under tight deadlines. That is why it shouldn’t come as a surprise that accountants are always striving for a smooth and efficient closing process.
They don’t want surprises along the way. Also, they want to spend more time analyzing rather than reporting.
The Struggle to Achieve Progress
Accountants are responsible for booking an accurate liability estimate on the balance sheet. They ensure that the organization is following the latest accounting standards and that auditors can sign off. To accomplish this, they often run into a few challenges:
- Tough questions from auditors and senior leaders
- Managing unexpected changes in the loyalty program liability
If you’d like a deeper dive into loyalty program liabilities, check out “What is a loyalty program liability?” and “The 1st Question to Answer if You Manage Loyalty Program Finances.”
Tough Questions from Auditors and Senior Leaders
The size of the liability is an important consideration for accountants. It’s common for the program liability to be one of the largest on the balance sheet. Consequently, the said liability can draw scrutiny from auditors and senior leaders. Often, it leads to tough questions that many accountants struggle to answer.
These questions are complicated because the loyalty program liability is an uncertain estimate; unlike most other liabilities that are more tangible (e.g. accounts payable). Answering questions about liability require the ability to predict redemption behavior over a long duration, and convincing stakeholders that your predictions are reasonable.
Managing Unexpected Changed in the Loyalty Program Liability
Unfortunately, these questions can get even tougher when there are unexpected changes to the liability. Loyalty program liabilities are commonly in the hundreds of millions to several billion dollars. At this scale, even a small change in liability will end up having significant impacts on financial results.
Seeing a quarter’s profits wiped out because of an unexpected increase in the said liability is not something anyone would want to deal with and thus, naturally would spur a lot of questions.
The challenge for accounting is having an accurate and reliable liability estimate. The estimate should be on par with the expectation, without any surprises. It should come complete with all the backup support and data necessary to satisfy auditors and any other stakeholders with questions. It should come quickly after the quarter end to help make more time for analysis.
Imagine Making Progress
Everything that an accountant booking a loyalty program liability needs hinges on one core capability – the ability to predict redemption behavior over a long horizon, and convincing stakeholders that the presented model is reasonable. Predicting the future is never easy, but imagine if you could.
Imagine having sophisticated analytics to accurately predict redemption behavior. Imagine being able to point to actuarial back up that tracks assumptions behind the liability estimate to prove that data is emerging as expected.
You could give your leaders and auditors the confidence that your liability estimate is reasonable and answer all their tough questions. Imagine having a model that predicts not only the liability for today, but also where the said liability is going in the future, so you can have the right expectations for what you’ll see at the quarter’s close.
Imagine having a refreshed liability estimate within days of the end of the month, giving you plenty of time to run it through the books and analyze impacts. Suddenly, the quarter close becomes a little less stressful for everyone involved.
Do you share these struggles for progress related to Loyalty Program Liability? If so, schedule a call now to learn how SnapshotML can help.