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Hello, hope u are well.
To encourage online sales, the company has regular special offers, with discounts periodically offered on a selection of product lines, and offers such as ‘Buy One Get One Free’ for a limited time on some products.
HOW IS THIS AN AUDIT RISK.
In short because revenue may not be recognised in accordance with IFRS 15. I can reply in more detail on Tuesday after the easter holiday.
So back to your question – here “BOGOF” is given as just one example of what is effectively a type of discount – i.e. variable consideration (IFRS 15). I don’t know if you’ve ever taken up such offers in a supermarket for example, but when in a UK supermarket the bar code of each product is scanned at a till, the full retail price will show … the discount of the free produce is only deducted at the end of scanning all items, before displaying the payment amount due. It would be very easy, therefore, to account for revenue at a gross amount with the discount accounted for as a cost (e.g. marketing) – but that would be contrary to IFRS 15.
Revenue recognition is ALWAYS presumed to be an audit risk (ISA 240) – except in the simplest of scenarios. Therefore, if any scenario has anything to say about some complication in revenue, there is an audit risk to be recognised (typically overstatement).
There might also be implications for inventory – e.g. “loss leaders” should be written down to NRV.
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