Audit risk

Yes thank you!
This is a tricky one – short answer – it depends on the reason for the return of the goods!

If a customer receives goods that they did not order (for any reason – e.g. could be error such as a duplicating an order or ‘fictitious’, to inflate sales), then there is no valid sale. The return then provides evidence that there was no sale transactions during the year and so yes – it will be adjusting.

Where goods are returned for exchange – e.g. a different colour or size – this in not an adjusting event. Where an exchange occurs, revenue remains recognised on the date of the original sale.

Where goods are sold with a right a return (e.g. in the UK there is a legal right to return goods that are faulty, not as described, or unfit for purpose), IFRS 15 applies. However, as this is accounted for as variable consideration which is not examinable in FA, it is not examinable in AA. (But in case you’re wondering, a retailer, for example, would estimate a ‘refund liability’ at the reporting date.)

Check your email – the one you used to register – see if you have a “webcast” notification that it is available. If you can’t find, then go to the same registration page, as before, and reregister for on demand – that will provide you with a link to the recording.

You’re welcome – as always!