Royal Ahold Case Study
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1. A vendor may offer a customer a rebate of a specified amount of cash or other consideration that is payable only if the customer completes a specified cumulative level of purchases or remains a customer for a specified period of time. When should the rebate be recognized as revenue? At what value should the rebate be recorded as revenue?
2. The SEC investigation found the individuals involved in the fraud "aided and abetted the fraud by signing and sending to the company's independent auditors confirmation letters that they knew materially overstated the amounts of promotional allowance income paid or owed to U.S. Foodservice." Is the confirmation procedure enough to validate the vendor's allowance amount in the financial statements?
3. The SEC investigation also revealed "a significant portion of U.S. Foodservice operating income was based on vendor payments known as promotional allowances." How might irregularities have been discovered through specific external audit procedures?
4. Royal Ahold made several changes in its corporate governance structure. Discuss how those changes will mitigate the risk of accounting fraud in future years
400 words total (not including questions)
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1.
The rebate should be recognized as revenue when the specified cumulative level of purchases are complete. Alternatively, revenue should be recognized when the specified period of time is over. The revenue should be recognized when they are realized or realizable and are earned when goods and services are transferred. Applying this principle only if the specific level of purchase are completed should rebates be recognized and only when a specified period of time is over should rebates be recognized.
2.
Individuals involved in the fraud sent company's independent auditors confirmation letters that they knew of the overstated amounts of promotional allowance. This confirmation procedure is not enough to validate the vendor's allowance amount. The auditors should have checked the conditions on which ...
Education
- BSc , University of Calcutta
- MBA, Eastern Institute for Integrated Learning in Management
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