Blog G

Year end revenue recognition — rebate accruals

Posted by Andrew Butt on June 9, 2016 18:10:20

How was your last year end?

I’m not referring to the actual outcome, but the PROCESS of getting to your year end figures together.

If you’re in the fortunate position of being able to match each supplier invoice to an order at the right price, then perhaps your year-end is simply a question of dealing with a volume of transactions?  But for those in the Building Supplies sector, those working in buying groups, and many wholesale distribution companies, revenue recognition is hampered by rebates, retrospective discounts and other promotions.

In fact, in industries where pricing strategies that include rebates are part of normal trading, the rebate accountant can make the different between profit and loss.

And of course, there are very serious consequences if rebates are mishandled, and profits are over or under-stated: 

Several companies have hit the headlines because they’ve improperly accounted for rebates and, as a result, overstated profits. Tesco is probably the most famous in the UK, where profits were overstated by over £250m and the Serious Fraud Office was brought in to investigate.  Monsanto, the suppliers of the popular weedkiller, Roundup, were given an $80m penalty after it allegedly misstated its earnings owing to problems with rebate accounting in France, Germany and Canada. It is reported that payments made to distributors were recorded as selling, general and administrative expenses, rather than rebates which increased gross profits from Roundup in those countries.

So, here are a few questions to ask yourself:

  • Did you have clarity on how to show the value of rebates in your accounts? 
  • Was it clear what you should accrue for at the end of the year?
  • How easy was it to find out which procurement deals had yielded what rebates and are you sure you claimed for everything that you are owed?
  • And how might you improve on that in the future?

Clearly, with IFRS 15 on the horizon, the spotlight is going to be on those who have to account for rebates, discounts and incentives. 

That ability to record all aspects of a rebate agreement from the details of a deal to the claims processing and financial reporting is going to be under scrutiny, and more companies will start to look at specialist software to help ensure both financial compliance and support improved margins. (We will be talking more about IFRS 15 preparation and financial compliance in the coming months — sign up to our blog  to be sure of getting the latest information to your inbox).

In the meantime,  listen to the recording of our webinar to hear from experts on the subject of Rebate Accounting. 

Find out how Richard Piekar, global procurement professional in the Building Supplies industry manages financial reporting of rebates and accruals and learn how DealTrack software helps to revolutionise processes to drive both financial compliance and financial improvements to the bottom line.

Click the link below to access the webinar recording.

Vendor Rebates: how to manage complex deals

Topics: Rebate Management, Rebate Accounting