Litigation Services Handbook by unknow

Author:unknow
Language: eng
Format: epub
ISBN: 9781119363187
Publisher: John Wiley & Sons, Incorporated
Published: 2017-04-04T15:00:00+00:00

(f) Sales Discounts and Other Deductions

Some agreements allow the grantee to deduct certain sales discounts and other items from net sales subject to contingent compensation. Sometimes the face of the invoice records discounts, such as early cash payment discounts or certain volume-based discounts, and the expert can identify them during the sales invoice testing (discussed in Section 23.7(d)(ii)). Grantees sometimes issue other deductions from sales (e.g., volume-based rebates, bad-debt write-offs, or co-op advertising allowances) through separate credit memos. Some contracts do not provide clear guidance on which sales discounts and other deductions represent appropriate exclusion from sales; in such cases, the expert should consult with the grantor or its counsel to identify the appropriate types of deductions from sales according to the contract.

When testing these deductions, the expert should confirm how the grantee reflects the discounts in net sales reported to the grantor. For instance, the grantee could report net sales that already incorporate discounts shown on the faces of sales invoices. Assuming that the sample population of the sales invoices tested includes sales discounts, the expert should be able to trace the net sales amounts on those invoices to the sales register amounts that tie into the net sales amount reported on the periodic statements.8 If the agreement limits sales discounts, the expert can also confirm that the sales discounts shown on the sampled invoices do not exceed such limits.

Some grantees report volume-based rebates and other sales deductions separately from gross sales. The expert should request a listing of transactions that agree in total to the sales deductions reported by the grantee. From this transaction listing, the expert should test a sample of transactions (1) to ascertain how the deductions related to the sales of licensed products, (2) to review how the grantee calculated the deductions and allocated them to licensed products, and (3) to assess the reasonableness and appropriateness of the allocations.

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