Describe which element of the revenue recognition model is violated by recognizing revenue and why. (One or
Question:
Describe which element of the revenue recognition model is violated by recognizing revenue and why. (One or two sentences will suffice!)
a. Super Micro asked a distributor (customer) to agree to accept approximately $104,000 of goods before the end of FY 2015 in order to recognize revenue during that period. The customer, however, did not need additional product at the time and did not have space for the product. Super Micro ultimately arranged to pay for trailers where the goods would be stored. At least some of the goods remained in the trailers for approximately six months.
b. Super Micro at the end of quarters hipped goods on multiple occasions prior to the delivery dates agreed with, or specified by, its customers in order to record and recognize the revenue prior to quarter-end.
c. Super Micro wanted to ship goods to a customer at the end of the second quarter of FY 2016. However, Super Micro was unable to get all of the units to function properly before quarter end. In order to recognize the revenue in the second quarter of FY 2016, a Super Micro sales employee instructed Super Micro employees to put green stickers on eight mis-assembled units. At the time of shipment, the sales employee knew that Super Micro might have to take back and repair or replace the tagged units.
d. Super Micro offered its customers the ability to purchase extended warranties on its products. At times, these warranties were purchased separately from the cost of Super Micro products and listed separately on invoices. With respect to certain types of products sold by Super Micro, however, customers received an extended warranty covering periods ranging from one to five years beyond the standard warranty, the cost for which was built into the price of the hardware products purchased. These warranties were not explicitly listed in the invoice, purchase order or any other documents provided to accounting.
Auditing a risk based approach to conducting a quality audit
ISBN: 978-1133939153
9th edition
Authors: Karla Johnstone, Audrey Gramling, Larry Rittenberg