S.P over Sales invoicing – December 2008

There is perhaps no easier way to inflate revenue than raise invoices before the y/e:
Dr Receivables
Cr Revenue

And “reverse” them with credit notes after the y/e:
Dr Revenue
Cr Receivables

Of course if customers are invoiced for goods they didn’t receive or order they would refute them in responding to an external confirmation request.

But it’s not just the possibility of fraudulent financial reporting that is the reason for examining after-date credit notes – credit notes could be raised for perfectly valid reasons – e.g. to correct errors on invoices or where goods have been returned for any reason. For credit notes that relate to goods returned, it will be necessary to confirm an accurate cut-off – if the sale is reversed (i.e. no revenue recognised) – the goods should be included in inventory (at the lower of cost and NRV) even if not physically booked back into inventory until after the y/e.

The reason for credit notes provides evidence of the accuracy or invoicing – the auditor would be quite concerned if for 1 in 100 invoices there was a credit note due to pricing errors (!)