Treasury Wine Estates, an Australian-based global wine enterprise, boasts a wide-ranging and

diversified assortment of wine brands and vineyards worldwide. The group's principal source of
revenue originates from the sale of diverse branded wines. Additionally, the group generates
revenue from other revenue streams such as agreement bottling facilities and sub-lease revenue.
During F22, the major clients of Treasury Americas and Treasury Premium Brands, including
Penfolds, augmented the group's overall revenue. Revenue recognition plays a vital role in the
financial reporting of a business, given that any erroneous or distorted information in revenue
recognition could have significant impacts on a company's financial statements. Inherent risk,
control risk, and detection risk, which comprise revenue recognition audit risks, require careful
consideration to alleviate concerns regarding their potential impacts on financial reporting
accuracy.
Key Operations:
Treasury Wine Estates Limited is a wine company based in Australian which operates a global
wine business and is a top contender in the industry. The company has 13,000 hectares of estates
spread across Australia, New Zealand, the United States, Europe, and Asia and also has
impressive portfolio of over 80 wine brands which includes several notable wine varieties like
Penfolds, Beringer, Lindeman's, Wolf Blass, Rosemount, and 19 Crimes. It is registered on the
Australian Securities Exchange (ASX) and has established as a distinct entity in 2011 from
Foster's Group Limited. This company prides itself on producing and marketing a diverse range
of wines which including red, white, sparkling, and fortified wines.
Treasury Wine Estates operates various vineyards and wineries in Australia establishing a strong
presence there. Their flagship winery in the Barossa Valley of South Australia is considered a
testament to their commitment to quality. The company has also expanded their businesses into
the United States and Europe where they operate several wineries in California and France, Italy,
and Spain respectively. The company has implemented a strategic review to focus on
modernization and cost optimization and has particularly emphasized on the Asian market.
Overall, this company is a world-renowned wine business who have an extensive and diversified
portfolio of wine brands and vineyards worldwide. The company has continuously thrived
despite facing various challenges and is now focusing on modernization and growth in key
markets.
Financial reporting issue:
Revenue recognition is an issue in financial reporting as it relates to the manner in which a
company records and communicates its revenue in its financial statements. Any inaccuracies or
distortions in revenue recognition can significantly impact a company's financial statements,
underscoring the importance of revenue recognition as a critical financial reporting concern.
Reason for this topic:
Revenue recognition is a fundamental component of financial reporting, as it is imperative to
present an accurate depiction of a company's financial performance. It pertains to the accounting
process where companies identify, measure, and report their revenue in their financial
statements. It is of great significance to investors and stakeholders as it provides them with a
clear understanding of a company's financial well-being, allowing them to make informed
decisions.
The commencement of the revenue recognition process occurs when a company sells products to
its patrons. The income is recognized when the seller has executed their obligation under the
contract, and payment is due. The quantity of revenue acknowledged is established on the
amount of money that the company assumes to get in exchange for the products provided.
The timing in which revenue is recognized can have a substantial influence on a corporation's
financial statements. Early recognition of revenue in the financial statements may result in an
overstatement of a company's financial performance whereas late recognition can understate it.
Therefore, it is vital for the organization to follow the generally accepted accounting principles
(GAAP) to accurately recognize revenue.
A critical challenge in revenue recognition is to find out when the revenue is considered earned.
For instance, in a long-term construction project revenue is recognized over a span of several
years even if the company receives upfront payment from the customer. For example, in a
software licensing agreement the company selling software recognizes revenue over the course
of the contract's life even if the customer pays upfront.
The auditors and investors regularly scrutinize the policies and practices of revenue recognition
to ensure compliance with accounting standards and a truthful reflection of a company's financial
performance. Any discrepancies or misrepresentations in revenue recognition significantly
impacts company's financial statements and may also result in legal consequences.
In conclusion, revenue recognition is a pivotal aspect of financial reporting that provides vital
information to the investors and stakeholders with an accurate understanding of a company's
financial performance. Thus following GAAP in revenue recognition is essential because any
inaccuracies or distortions in income recognition can have a noteworthy influence on a
corporation's financial statements and reputation.
Extract of Financial report and explanation:
The group's primary revenue stream stems from the sale of various branded wines that
encompass luxury, premium, and commercial wine brands. Their portfolio of wines includes
well-known names such as Penfolds, Beringer and Stags' Leap. The company supplies wine all
over the globe, tailoring their courses to marketplace dependent on the country. Wine is
wholesaled to various customers, including suppliers, traders, retail chains, autonomous retailers,
and outlets on the premise depending on geography. In addition to wine sales, the group also
generates revenue from other sources. These include agreement bottling facilities to third
persons, sub-lease revenue, and grape and wholesale wine deals. The wildfires in the Americas
led to the group earning $15.4 million in insurance income related to damage caused.
One main purchaser in Treasury Americas, whose incomes denoted 11.4% of stated net trade
revenue, was the group's primary customer in F22. Another main buyer in Treasury Premium
Products and Penfolds accounted for 7.6% of stated net sales income.
The company has no agreements where product transportation time of the assured product or
service to the client and imbursement by the client surpasses one year. Due to this the company
does not consider the time value of money in every business bills. Revenue for the group is
calculated using the value provided in an agreement with the client and eliminates amounts
received in respect of other persons. Agreements with clients of the group typically involves one
performance responsibility. Income from the sale of products is documented when rights of
possession of goods is shifted to the client, which is usually upon delivery. Income is
documented after deducting concessions and refunds, liabilities, and taxes from sales.
Reimbursement situations may differ according to client.
Recognition norms for revenue varies based on the product or service. Revenue recognition
criteria for wine is based on the depiction of transmission of possession of products to clients at
the sum the corporate supposed to get in exchange of products. But the deals to domestic retail
chains are typically recognized as the products are sent. Sales to global clients are recognized on
the universal commercial standings the products are sent under, but normally when products are
dispatched. The group also provides bottling facilities, and income is recognized when the
related facility has been accomplished.
Business concessions and bulk refunds are accounted for, as goods are usually wholesaled with
bulk concessions and other refunds. Sales are noted on the amount quantified in the sales
agreements, net of the projected concessions or rebate at the sale point. These concessions are
identifies as adjustable amount and are noted for in finding out the contract price. The group uses
the most likely amount as the method to estimate discounts and rebates, relying on accumulated
experience to evaluate and deliver the concessions and rebates based on projected acquisitions
and exhaustions.
All in all, the company's income is mainly derived from the trade of branded wines,
supplemented by contract bottling facilities, sub-lease revenue, and grape and volume wine sales.
Income recognition criteria vary based on the product or service, and trade discounts and volume
rebates are accounted for. In F22, Treasury Americas and Treasury Premium Brands and
Penfolds were the group's major customers, with revenues accounting for 11.4% and 7.6% of
reported net sales revenue, respectively.
Audit Risk and Revenue Recognition:
Revenue recognition audit risks pose a significant concern to any business. As it directly
influences financial statements and greatly impacts stakeholders, revenue recognition
encompasses a complex accounting process that relies on the type of business. In this discourse,
we shall explore revenue recognition audit risks through the risk model approach, encompassing
inherent risk, control risk, and detection risk.
Inherent risk alludes to danger existing in financial statements due to the company's nature or
industry. Regarding revenue recognition, inherent risk can arise from transaction complexity, the
industry type, and the applied accounting standards. For example, a company recognizing
revenue from extended contracts may face higher inherent risk due to contract intricacies and the
possibility of estimating costs and revenues inaccurately. Similarly, a company operating in a
heavily regulated industry such as healthcare or banking may experience increased inherent risk
due to the intricacy of regulations and potential non-compliance.
Control risk refers to the risk caused by internal control flaws within the company. In revenue
recognition context, control risk may arise from ineffective controls over the revenue recognition
process. For instance, a company with deficient billing control may face higher control risk as it
increases the probability of billing errors or fraud. Likewise, a company with poor controls over
the cost and revenue estimating process may experience increased control risk as it increases the
likelihood of errors or fraud in these estimates.
Detection risk, on the other hand, refers to the risk that the auditor will not identify substantial
financial statement misstatements. In the context of revenue recognition, detection risk can arise
due to the nature of the audit processes and the level of evidence acquired. For example, if the
examiner solely relies on management's representations and fails to conduct sufficient testing of
the revenue recognition process, there is a higher detection risk that the examiner don’t identify
substantial misstatements in the financial statements.
Overall, revenue recognition audit risks can be substantial and require careful consideration by
auditors. To mitigate these risks, auditors must understand the business's nature, the complexity
of the revenue recognition process, and the relevant accounting standards and regulations.
Auditors must also evaluate the efficiency of in house controls for the income recognition
process and conduct adequate testing to reduce detection risk.
In summary, inherent risk, control risk, and detection risk associated with revenue recognition
can be substantial and require careful consideration by auditors. Inherent risk arises from the
company's nature or industry, control risk arises from internal control flaws, and detection risk
arises from the audit procedures' nature and level of evidence obtained. By understanding these
risks and implementing appropriate audit procedures, auditors can provide stakeholders with
assurance that the financial statements accurately reflect the business's revenue.
Response to above Audit Risks:
As an individual responsible for verifying the accuracy of financial records, it is of utmost
importance to address any potential audit risks regarding the recognition of revenue. This
necessitates the development of a comprehensive audit strategy that balances reliance on controls
with the predominant substantive approach. Given below are potential responses to each of the
three risks identified in the previous discourse regarding the recognition of revenue.

Inherent Risk:
An auditor must evaluate the intricacies and complexities involved in revenue recognition to
mitigate the risks involved. This requires a thorough analysis of the industry type, pertinent
accounting standards, and the revenue recognition process itself. From there, the auditor can
devise an audit plan that is based on risk, focusing on the areas with the highest risks involved.
For instance, in cases where a company recognizes revenue from extended contracts, the auditor
must assess the precision and comprehensiveness of the contract details, including the pricing,
billing terms, and performance obligations. This can be accomplished by examining and
scrutinizing the contract documents, contrasting the contract terms with the corporation's income
recognition procedures, and evaluating the dependability of the cost and revenue approximations.
When it comes to control reliance, I would evaluate the efficacy of the internal controls put in
place by the company to oversee the revenue recognition process. If I found out that the
company has a well-functioning control system then I can depend on these controls to minimize
the inherent risk and plan the audit accordingly. For example, the company having the robust
controls in place for contract management and billing makes it easy for the auditor to rely on
these controls to decrease the inherent risks and then proceed with planning the audit.

Control Risk:
I would evaluate the corporation's in-house controls for the income identification procedure and
address the risk associated with controlling revenue recognition. This procedure involves
analyzing controls over contract management and estimating costs and revenue. The auditor
should gain an understanding of the controls which involves examining the controls' design and
implementation and also evaluating their effectiveness. The auditor can accomplish this by
obtaining and scrutinizing control documentation, conducting walkthroughs, and assessing the
operating effectiveness of the controls.
In the situation that the auditor finds that the corporation's controls are deficient, the auditor
should adjust the audit plan accordingly by intensifying substantive processes to get adequate
audit evidence. For instance, the auditor might choose to amplify sample size for testing revenue
transactions or perform additional substantive procedures to verify the accuracy of cost and
revenue estimates.
In terms of control reliance, the auditor can depend on effective controls to lessen control risk
and tailor the audit plan accordingly. If the company boasts robust controls over contract
management and billing, for example, the auditor can rely on those controls to diminish control
risk and design the audit plan accordingly.
Detection Risk:
To effectively mitigate detection risk associated with revenue recognition, an auditor must
formulate an audit plan that encompasses both substantive procedures and control testing. It is
essential that the auditor acquires adequate audit evidence to minimize the threat of any
substantial misstatements within the financial reports. Achieving this objective necessitates the
selection of appropriate audit procedures based on the identified risk of substantial misstatement,
also the acquisition of corroborative audit evidence.
As regards control reliance, the auditor may rely on effective controls to decrease detection risk
and devise the audit plan accordingly. For example, if a company has robust controls for contract
management and billing then the auditor may depend on these controls to reduce detection risk
and design the audit plan accordingly. Nevertheless, I would still conduct substantive procedures
to acquire additional audit evidence and ensure that the financial statements are not significantly
incorrect.
In conclusion, auditors must create a risk-based audit plan that strikes a balance between control
reliance and the predominant substantive approach to effectively respond to audit risks related to
revenue recognition. This involves assessing the complexity and nature of the revenue
recognition process in the company, appraising the efficiency of in-house controls by the
management, selecting suitable audit procedures and obtaining adequate audit evidence. Auditors
can provide assurance to the stakeholders by implementing these strategies that the financial
statements accurately represent the business's revenue.