1. A vendor may offer a customer a rebate of a specified amount of cash or other consideration that is payable only if the customer completes a specified cumulative level of purchases or remains a customer for a specified period of time. When should the rebate be recognized as revenue? At what value should the rebate be recorded as revenue?
2. The SEC investigation found the individuals involved in the fraud “aided and abetted the fraud by signing and sending to the company’s independent auditors confirmation letters that they knew materially overstated the amounts of promotional allowance income paid or owed to U.S. Foodservice.” Is the confirmation procedure enough to validate the vendor’s allowance amount in the financial statements?
3. The SEC investigation also revealed “a significant portion of U.S. Foodservice operating income was based on vendor payments known as promotional allowances.” How might irregularities have been discovered through specific external audit procedures?
4. Royal Ahold made several changes in its corporate governance structure. Discuss how those changes will mitigate the risk of accounting fraud in future years.
Ahold is a global family of local food retail and foodservice operators that operate under their own brand names. Our operations are located primarily in the United States and Europe. Our retail business consists of retail chain sales, sales to franchise stores and sales to associated stores. The store format that we primarily use is the supermarket. Through our foodservice operations we distribute food, and offer services and expertise to restaurants and hotels, health care institutions, government facilities, universities, sports stadiums and caterers.