A warranty can promise assurance, an additional service or both

The word warranty can cover a promise that a product meets its specifications, maintenance after purchase or a mixture of benefits. Collect the terms given to the customer and describe the tasks the seller must perform. A claims-cost estimate cannot settle whether part of the sale price belongs to a separate service.

IFRS 15 distinguishes warranties that assure compliance with agreed specifications from warranties providing an additional service. A separately purchasable warranty is treated as a distinct service. Where no separate purchase option exists, the nature of the promise still needs assessment before choosing the accounting treatment.

List the defects covered, service visits, replacement rights, exclusions and coverage period. Identify any legal requirement with advice from the appropriate jurisdictional specialist. Ask operations which tasks correct a failure to meet the original specification and which provide something beyond that assurance.

Consider the arrangement as a whole. A longer period can point toward additional service, but length alone is not a complete classification rule. Return shipping necessary to repair a defective product also differs from a routine maintenance visit promised regardless of defects. Preserve those practical distinctions in the review file.

An illustrative equipment sale includes defect repairs and scheduled annual servicing for three years. Identify what each promise requires and how it is priced or sold separately. The commercial description of free support does not establish that no consideration relates to the servicing commitment.

Have the accountant assess whether the assurance and service elements can be accounted for separately. IFRS 15 includes guidance for arrangements where they cannot reasonably be separated. Do not invent a percentage split merely to create two ledger accounts; the split needs a supported accounting basis and usable evidence.

For a service obligation, retain the approved allocation, coverage dates and pattern of service transfer. Reconcile the outstanding service population to actual sales and cancellations. An invoice marked fully paid can still have an unfulfilled warranty service attached to it, so receivables status should not close the revenue schedule.

For assurance coverage accounted for under IAS 37, maintain the claims and cost evidence needed for the provision assessment. Separate claim frequency, repair costs, recoveries and unusual product issues so the reviewer can understand changes in the estimate. A service-revenue balance and an expected repair-cost obligation answer different questions and should remain traceable.

Send new coverage terms, extended service promises and changes in separate pricing to accounting before launch. Preserve the terms applicable to earlier sales rather than updating their records with the latest brochure. At close, trace a sample sale through its original offer, approved classification and remaining obligation, then investigate any gap between customer support records and the financial schedule.