The paper discusses the consequences of an aggressive interpretation of vendor promotions accounting rules (EITF 01-9), on the market value of the firm. The issue drew media attention by an unexpected disclosure on February 24, 2003 by Dutch grocer and distributor Royal Ahold NV. The firm reported that its U.S. Foodservice subsidiary overstated earnings by at least $500 million in the past two years. The shares of Ahold trade on the New York Stock Exchange (NYSE) as an American Depository Receipt (ADR) under the ticker symbol AHO. The market value of the ADR fell by over 60% at the announcement of vendor rebate accounting errors by the firm. This paper analyses several other instances of vendor rebate accounting problems. This paper is pedagogical in nature and can be used to teach students the issues relating to retail accounting for vendor rebates and promotional allowances and the impact of this accounting issue on firm value.
展开▼
