Revenue recognition; Audit risk; Accounting estimates; Subsequent events; Materiality
Journal of Accounting Education
The CV Technologies/Cold-fX case is based on real events at a Canadian company that attempted to enter the US market with a cold remedy called Cold-fX. CV shipped product to US retailers shortly before its fiscal year end of September 30. The product did not sell well in the US, and the company experienced a larger number of returns from US retailers than the company had historically experienced from their Canadian retailers. Many of these product returns occurred after the fiscal year end, but before the financial statements were issued. The case deals with auditing estimates related to the timing of revenue recognition and the auditor’s responsibilities to consider subsequent events. Another distinctive aspect of the case involves the effects of selling in foreign markets and how entering new markets can affect the appropriate timing of revenue recognition.