Valuation assertion

See here: https://opentuition.com/topic/credit-notes-issued-post-yr-end

A receivable is overstated/not accurate if it is debited with an incorrect invoice (for whatever reason – not necessarily fictitious and deliberate – could be a duplicate invoice raised in error).

In short – I guess you can think of them in that way – to the extent that post y/e credit notes represents that y/e receivable are not going to be recovered, receivables will be overstated,

However, the reasons for raising credit notes will be important as well as whether the amounts involved are material. For example:

1. If invoices are fictitious/raised in error so de facto there was no valid sale/receivable at the reporting date, the credit note is evidence of fraud/error (IAS 10) and the auditor would most likely to see this corrected, even if not material to revenue or profit, unless the amounts involved are trivial: Dr Revenue/Cr Receivables. This scenario also has implications for communicating significant deficiencies.

2. If at the reporting date there is a sale, and customers have a right to return goods within 30 days (e.g. if they are faulty – or even if the customer has simply changed their mind), then as well as the Dr Revenue/Cr Receivables adjustment, the return of goods more also be adjusted in inventory Dr Inventory (SoFP)/Cr Inventory (SoPL). This is an IFRS 15 requirement.

You should appreciate that the effect of 1 is the same on profit as it is on revenue – whereas the effect of 2 is less – only the profit margin.

You’re very welcome!