Home > Legal and Reg Issues > FASB 02-16

FASB Ruling 02-16
"Anything Goes" is Going for Retailers

By Bob Houk

Reprinted with permission from Outlook Magazine. Bob Houk is with CoAMS, Inc., a Chicago-based firm specializing in trade promotion management, consulting, services, and software.

Late in 2002, with its usual lack of fanfare, the Financial Accounting Standards Board released EITF 02-16 (Accounting for Consideration Received from a Vendor by a Customer), which extended the basic rules of 01-9, aimed at manufacturers, to retailers.

The Dow Jones Business Wire reported that, "The EITF determined that cash consideration received from a vendor should be presumed to be a reduction of the prices of vendors' products and should therefore be shown as a reduction in the cost of goods sold when recognized in the reseller's income statement."

DJ had it slightly wrong, since the new EITF ruling is a mirror of 01-9, in that payments for documented promotional activity should be booked as reductions in promotional expense, but that other payments are reductions in cost of goods.

Several retailers have already begun restating earnings as a result of 02-16.

What it all means

Co-op, MDF, and other trade promotion programs have, in recent years, adopted something of an "Anything Goes" mentality.

It was inevitable that the regulators would step back, and probably we will see more of it. Hopefully, they will not regulate all the creativity (and productivity) out of the business, but perhaps they will regulate some sanity and order back into it.

The message that all of us should be taking to heart from the recent scandals is that we need to stop using trade promotion allowances as a way to buy business and to cook the books, and return to using them to promote products and build demand.

And that "Anything Goes" might have been a great song, but it s not a good way to run our businesses.

Back to FASB Menu

Updated as of 09/01/2006