Jennens Plc heads a diversified group of companies that provide a range of goods and services to more than fifty countries. The year and audit has been completed, and a clean audit report issued, but the auditors have submitted a long management letter highlighting some series concern about the recognition of revenues. There is a clear suggestion in the letter that as the group continues to grow the issues raised could ultimately prove sufficient to lead to a qualified opinion in future years unless resolved.

An extract from the letter is shown below:

1. When new industrial gas cookers are delivered to customers from your French manufacturing plant the scale is recognized upon delivery at the clients premises.
2. To improve group cash flows you have wisely convinced two of your largest customers in the USA to make a 30% advance payment when they place orders irrespective of whether or not the inventory is currently held in the warehouse. This cash is recognized within your balance sheet and revenues on the payment date.
3. As part of contract to deliver and install new textiles processing equipment in Malaysia you undertake a six month training programming for the employee of your customers in the use of the equipment. This involves a trainer visiting the client’s premises for one day a month over the training period. You currently recognize the full value of the sale on the date the plant is brought into operation.

Required:-

Comment on the appropriateness of revenue recognition procedures adopted by Jennens plc in each of the case raised by the auditor’s management letter. 

Answer rating: 100% (QA)

Solution Appropriateness of revenue recognition procedures i In this case revenue recognition proced... View the full answer