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The auditor$$s main GAAP concerns surround revenue recognition criteria.

Examples of GAAP issues to consider are:

$$ Timing of revenue recognition insofar as there is uncertainty with respect to when the risks and rewards of ownership have passed $($i$.$e$.$ FOB Shipping Point or FOB Destination$).$

$$ Unearned revenue in the form of deposits$/$advances paid by customers before delivery occurs. Need to ensure that receipts of cash are properly recorded. In other words, need to ensure that revenue is not recorded simply because cash has been received.

$$ Whether there is reasonable assurance regarding the extent to which goods may be returned. The $180-$day return policy is very long and an estimate of the degree of returns may be difficult to obtain, which may preclude revenue recognition at the time of delivery. Thus the company may need to wait until the uncertainty regarding returns is resolved until revenue is recognized. Alternatively, if returns are estimable, then they should be accrued at the time of revenue recognition.

$$ Collectability must be probable before recognizing revenue on a credit sale.

b$)$ GAAP issues matter because an auditor performs an audit of financial statements to determine if the financial statements are, in all material respects, in accordance with GAAP. GAAP is the $$established criteria$$ against which the revenue number will be evaluated against.

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