Canada Post is a Crown corporation with the dual mandate of providing a public service and maximizing profits. With 50,000 employees, Canada Post delivers over 9 billion letters and parcels annually. Approximately half of the $6 billion in revenues is from mail delivered to Canadian addresses, with this service declining rapidly in favour of digital alternatives. 4 Revenues come from the sale of stamps or postage meters. Stamps are sold individually or in booklets, coils, or sheets of up to 100 stamps. A small portion is purchased for stamp collecting or philatelic purpose. A postage meter is a machine that imprints an amount of postage in ink, which functions as a stamp. In the past, postage meters had to be taken to a post office to refill the postage balance, but now this is done remotely through telephone connections or the Internet.
As the new audit senior for this client, you are preparing this year’s annual audit plan. While their financial statements are prepared in accordance with IFRS, the operations of Canada Post present a few unique challenges. First, Canada Post is required to provide national postal service for one set price, which means incurring losses on mail delivered to small, rural communities across the country. Second, revenue recognition on stamps is complex. Canada Post receives cash upfront when they sell stamps or refill postage meters, but cannot recognize the revenue until recognition criteria are met. Their legal commitment on postal service is fully discharged once  the mail is delivered and the 90-day claim period for damaged items has expired. The stamp income number is significant. Other important items on the financial statements are a rising cost for pension plan obligations and increasingly profitable, courier services provided by the Purolator division. As well, the company has recognized gains on the disposal of property, such as the recent sale of their Vancouver mail processing plant.
As you sift through last year’s files, you recall having read a news article about a class-action lawsuit, which Canada Post seems likely to lose. They are charged with maintaining inappropriate practices with respect to calculating parcel volume, and dealing with weight calculation discrepancies. The first issue is that volume calculations are based on measuring three sides of a parcel, which overstates the cost of mailing irregular shaped items such as triangular boxes. The second issue relates to Canada Post’s rule of correcting under-calculated weights of parcels, but not over-calculated weights.

Required:
a. Discuss the issues surrounding revenue recognition for Canada Post.
b. Consider whether financial statement users are served by IFRS.