Vendor Incentives: Out of the Shadows and into the Sunlight
The CPA Journal, June 2011
9 Pages Posted: 8 Jun 2010 Last revised: 14 Jul 2011
Date Written: June 4, 2010
Each year in the U.S., manufacturers, distributors and retailers pay or receive billions of dollars in vendor incentives. The payments are an integral part of the marketing plans of many sellers and resellers. Yet, they are largely invisible to investors. Because the payments involved often are contingent on future performance, estimates are required and the resulting accruals can be subject to the pressures of earning management. More complete disclosure would benefit investors and financial markets as well as corporate officers and board members. The magnitude of the discounts and the necessity of estimating their final effects warrant a more comprehensive approach to disclosures in financial reports. In early 2001 the SEC proposed new disclosures requiring a four-column activity analysis for vendor incentives similar to that required for bad debts. That proposal failed, but should be revisited. It’s time to bring vendor incentives into the sunlight.
Keywords: Vendor Incentives, Financial Disclosure
JEL Classification: G3, M40, M30
Suggested Citation: Suggested Citation