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Sales promotion – In response to the actions of a major competitor, the Group introduced several sales promotions during the year. The promotions include heavily discounted product lines and ‘buy one get one free’ offers, mainly applied to the Group’s paint and wallpaper lines.
When attempting for the first time, I related this point to IFRS 15 Revenue, where there can be chances that Price allocation can be omitted or inaccurate so ROMM will be present. Looking at the answer, the point have been related to Inventory, LW OF COST OR NRV, if not reflected, materially misstated.
My question – does my point on revenue is relevant? will it create ROMM actually ? or should I stick to Inventory itself.
Even if price allocation is done wrongly, the revenue wont be over or understated but inventory seems to be better in terms of explanation of ROMM.
Welcome to my forum! That’s a good question you ask – though I think you have answered it yourself. The inventory RoMM seems clear to you so I’ll suggest a couple of reasons why revenue recognition is less likely to be a RoMM, even though there’s “variable consideration”.
You’re looking at stores, ie a retailer, so revenue is recognised at the point of sale. At the POS, there is a double-entry, if overcharged the customer will likely complain to rectify the matter, if undercharged and they walk away, the sale is under-recorded (on both sides) but there will be no misstatement in the financial statements (ie it’s a business risk of being a retailer).
The presumed risk of fraud in revenue recognition (ISA 240) is typically overstatement rather than understatement.
The risk in inventory valuation is much more likely because the write down to NRV is “it’s own double entry” and an accounting estimate.
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